From Wikipedia, the free encyclopedia
Market share, in strategic management and marketing, is the percentage or proportion of the total available market or market segment that is being serviced by a company.
It can be expressed as a company's sales revenue (from that market) divided by the total sales revenue available in that market. It can also be expressed as a company's unit sales volume (in a market) divided by the total volume of units sold in that market.
It is generally necessary to commission market research (generally desk/secondary research, although sometimes primary research) to estimate the total market size and a company's market share
Increasing market share is one of the most important objectives used in business. The main advantage of using market share is that it abstracts from industry-wide macroenvironmental variables such as the state of the economy, or changes in tax policy. According to the national environment, the respective share of different companies changes and hence this causes change in the share market values; the reason can be political ups and downs, any disaster, any happening or mis-happening.
Other objectives include return on investment (ROI), return on assets (ROA), and target rate of profit. Market share has the potential to increase profits as profit leads to more customers with a higher demand for a particular product.
Saturday, February 9, 2008
Concentration ratio
In Economics, the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage, of the four largest firms in the industry. In general, the N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry.
The concentration ratio has a fair amount of correlation to the Herfindahl index, another indicator of firm size.
Some examples of the four-firm concentration ratio include:[citation needed]
Traditional agriculture: Less than 5%
Sheet metal: 9%
Asphalt paving: 15%
Typesetting: 16%
Publishing: 23%
Soap and detergents: 63%
Men's slacks: 75%
Aircraft: 79%
Greeting cards: 84%
Cigarettes: 99%
Market forms can often be classified by their concentration ratio. Listed, in ascending firm size, they are:
Perfect competition, with a very low concentration ratio,
Monopolistic competition, below 40% for the four-firm measurement,
Oligopoly, above 40% for the four-firm measurement, (Example automobile manufacturers)
Monopoly, with a near-100% four-firm measurement.
The concentration ratio has a fair amount of correlation to the Herfindahl index, another indicator of firm size.
Some examples of the four-firm concentration ratio include:[citation needed]
Traditional agriculture: Less than 5%
Sheet metal: 9%
Asphalt paving: 15%
Typesetting: 16%
Publishing: 23%
Soap and detergents: 63%
Men's slacks: 75%
Aircraft: 79%
Greeting cards: 84%
Cigarettes: 99%
Market forms can often be classified by their concentration ratio. Listed, in ascending firm size, they are:
Perfect competition, with a very low concentration ratio,
Monopolistic competition, below 40% for the four-firm measurement,
Oligopoly, above 40% for the four-firm measurement, (Example automobile manufacturers)
Monopoly, with a near-100% four-firm measurement.
Marketing management
Marketing management is a business discipline focused on the practical application of marketing techniques and the management of a firm's marketing resources and activities. Marketing managers are often responsible for influencing the level, timing, and composition of customer demand in a manner that will achieve the company's objectives.
Definition and scope
There is no universally accepted definition of the term. In part, this is due to the fact that the role of a marketing manager can vary significantly based on a business' size, corporate culture, and industry context. For example, in a large consumer products company, the marketing manager may act as the overall general manager of his or her assigned product category or brand with full profit & loss responsibility. In contrast, a small law firm may have no marketing personnel at all, requiring the firm's partners to make marketing management decisions on a largely ad-hoc basis.
In the widely used text Marketing Management (2006), Philip Kotler and Kevin Lane Keller define marketing management as "the art and science of choosing target markets and getting, keeping and growing customers through creating, delivering, and communicating superior customer value." [1]
From this perspective, the scope of marketing management is quite broad. The implication of such a definition is that any activity or resource the firm uses to acquire customers and manage the company's relationships with them is within the purview of marketing management. Additionally, the Kotler and Keller definition encompasses both the development of new products and services and their delivery to customers.
Noted marketing expert Regis McKenna expressed a similar viewpoint in his influential 1991 Harvard Business Review article "Marketing is Everything." McKenna argued that because marketing management encompasses all factors that influence a company's ability to deliver value to customers, it must be "all-pervasive, part of everyone's job description, from the receptionists to the Board of Directors." [2]
This view is also consistent with the perspective of management guru Peter Drucker, who wrote: "Because the purpose of business is to create a customer, the business enterprise has two--and only these two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business."[3]
But because many businesses operate with a much more limited definition of marketing, such statements can appear controversial, or even ludicrous to some business executives. This is especially true in those companies where the marketing department is responsible for little more than developing sales brochures and executing advertising campaigns.
The broader, more sophisticated definitions of marketing management from Drucker, Kotler and other scholars are therefore juxtaposed against the narrower operating reality of many businesses. The source of confusion here is often that inside any given firm, the term marketing management may be interpreted to mean whatever the marketing department happens to do, rather than a term that encompasses all marketing activities -- even those marketing activities that are actually performed by other departments, such as the sales, finance, or operations departments.[4] If, for example, the finance department of a given company makes pricing decisions (for deals, proposals, contracts, etc.), that finance department has responsibility for an important component of marketing management -- pricing.
Activities and functions
Marketing management therefore encompasses a wide variety of functions and activities, although the marketing department itself may be responsible for only a subset of these. Regardless of the organizational unit of the firm responsible for managing them, marketing management functions and activities include the following:
Marketing research and analysis
In order to make fact-based decisions regarding marketing strategy and design effective, cost-efficient implementation programs, firms must possess a detailed, objective understanding of their own business and the market in which they operate.[5] In analyzing these issues, the discipline of marketing management often overlaps with the related discipline of strategic planning.
Traditionally, marketing analysis was structured into three areas: Customer analysis, Company analysis, and Competitor analysis (so-called "3Cs" analysis). More recently, it has become fashionable in some marketing circles to divide these further into certain five "Cs": Customer analysis, Company analysis, Collaborator analysis, Competitor analysis, and analysis of the industry Context.
The focus of customer analysis is to develop a scheme for market segmentation, breaking down the market into various constituent groups of customers, which are called customer segments or market segments. Marketing managers work to develop detailed profiles of each segment, focusing on any number of variables that may differ among the segments: demographic, psychographic, geographic, behavioral, needs-benefit, and other factors may all be examined. Marketers also attempt to track these segments' perceptions of the various products in the market using tools such as perceptual mapping.
In company analysis, marketers focus on understanding the company's cost structure and cost position relative to competitors, as well as working to identify a firm's core competencies and other competitively distinct company resources. Marketing managers may also work with the accounting department to analyze the profits the firm is generating from various product lines and customer accounts. The company may also conduct periodic brand audits to assess the strength of its brands and sources of brand equity.
The firm's collaborators may also be profiled, which may include various suppliers, distributors and other channel partners, joint venture partners, and others. An analysis of complementary products may also be performed if such products exist.
Marketing management employs various tools from economics and competitive strategy to analyze the industry context in which the firm operates. These include Porter's five forces, analysis of strategic groups of competitors, value chain analysis and others. Depending on the industry, the regulatory context may also be important to examine in detail.
In Competitor analysis, marketers build detailed profiles of each competitor in the market, focusing especially on their relative competitive strengths and weaknesses using SWOT analysis. Marketing managers will examine each competitor's cost structure, sources of profits, resources and competencies, competitive positioning and product differentiation, degree of vertical integration, historical responses to industry developments, and other factors.
Marketing management often finds it necessary to invest in research to collect the data required to perform accurate marketing analysis. As such, they often conduct market research (alternately marketing research) to obtain this information. Marketers employ a variety of techniques to conduct market research, but some of the more common include:
Qualitative marketing research, such as focus groups
Quantitative marketing research, such as statistical surveys
Experimental techniques such as test markets
Observational techniques such as ethnographic (on-site) observation
Marketing managers may also design and oversee various environmental scanning and competitive intelligence processes to help identify trends and inform the company's marketing analysis.
Marketing strategy
Main article: Marketing strategy
Once the company has obtained an adequate understanding of the customer base and its own competitive position in the industry, marketing managers are able to make key strategic decisions and develop a marketing strategy designed to maximize the revenues and profits of the firm. The selected strategy may aim for any of a variety of specific objectives, including optimizing short-term unit margins, revenue growth, market share, long-term profitability, or other goals.
To achieve the desired objectives, marketers typically identify one or more target customer segments which they intend to pursue. Customer segments are often selected as targets because they score highly on two dimensions: 1) The segment is attractive to serve because it is large, growing, makes frequent purchases, is not price sensitive (i.e. is willing to pay high prices), or other factors; and 2) The company has the resources and capabilities to compete for the segment's business, can meet their needs better than the competition, and can do so profitably.[5] In fact, a commonly cited definition of marketing is simply "meeting needs profitably."
The implication of selecting target segments is that the business will subsequently allocate more resources to acquire and retain customers in the target segment(s) than it will for other, non-targeted customers. In some cases, the firm may go so far as to turn away customers that are not in its target segment. The doorman at a swanky nightclub, for example, may deny entry to unfashionably dressed individuals because the business has made a strategic decision to target the "high fashion" segment of nightclub patrons.
In conjunction with targeting decisions, marketing managers will identify the desired positioning they want the company, product, or brand to occupy in the target customer's mind. This positioning is often an encapsulation of a key benefit the company's product or service offers that is differentiated and superior to the benefits offered by competitive products.[8] For example, Volvo has traditionally positioned its products in the automobile market in North America in order to be perceived as the leader in "safety", whereas BMW has traditionally positioned its brand to be perceived as the leader in "performance."
Ideally, a firm's positioning can be maintained over a long period of time because the company possesses, or can develop, some form of sustainable competitive advantage. The positioning should also be sufficiently relevant to the target segment such that it will drive the purchasing behavior of target customers.
Implementation planning
Main article: Marketing plan
After the firm's strategic objectives have been identified, the target market selected, and the desired positioning for the company, product or brand has been determined, marketing managers focus on how to best implement the chosen strategy. Traditionally, this has involved implementation planning across the "4Ps" of marketing: Product management, Pricing, Place (i.e. sales and distribution channels), and Promotion.
Taken together, the company's implementation choices across the 4Ps are often described as the marketing mix, meaning the mix of elements the business will employ to "go to market" and execute the marketing strategy. The overall goal for the marketing mix is to consistently deliver a compelling value proposition that reinforces the firm's chosen positioning, builds customer loyalty and brand equity among target customers, and achieves the firm's marketing and financial objectives.
In many cases, marketing management will develop a marketing plan to specify how the company will execute the chosen strategy and achieve the business' objectives. The content of marketing plans varies from firm to firm, but commonly includes:
1)An executive summary
2)Situation analysis to summarize facts and insights gained from market research and marketing analysis
3)The company's mission statement or long-term strategic vision
4)A statement of the company's key objectives, often subdivided into marketing objectives and financial objectives
5)The marketing strategy the business has chosen, specifying the target segments to be pursued and the competitive positioning to be achieved
6)Implementation choices for each element of the marketing mix (the 4Ps)
7)A summary of required investments (in people, programs, IT systems, etc.)
8)Financial analysis, projections and forecasted results
9)A timeline or high-level project plan
10)Metrics, measurements and control processes
11)A list of key risks and strategies for managing these risks
Project, process, and vendor management
Once the key implementation initiatives have been identified, marketing managers work to oversee the execution of the marketing plan. Marketing executives may therefore manage any number of specific projects, such as sales force management initiatives, product development efforts, channel marketing programs and the execution of public relations and advertising campaigns. Marketers use a variety of project management techniques to ensure projects achieve their objectives while keeping to established schedules and budgets.
More broadly, marketing managers work to design and improve the effectiveness of core marketing processes, such as new product development, brand management, marketing communications, and pricing. Marketers may employ the tools of business process reengineering to ensure these processes are properly designed, and use a variety of process management techniques to keep them operating smoothly.
Effective execution may require management of both internal resources and a variety of external vendors and service providers, such as the firm's advertising agency. Marketers may therefore coordinate with the company's Purchasing department on the procurement of these services.
Organizational management and leadership
Marketing management usually requires leadership of a department or group of professionals engaged in marketing activities. Often, this oversight will extend beyond the company's marketing department itself, requiring the marketing manager to provide cross-functional leadership for various marketing activities. This may require extensive interaction with the human resources department on issues such as recruiting, training, leadership development, performance appraisals, compensation, and other topics.
Marketing management may spend a fair amount of time building or maintaining a marketing orientation for the business. Achieving a market orientation, also known as "customer focus" or the "marketing concept", requires building consensus at the senior management level and then driving customer focus down into the organization. Cultural barriers may exist in a given business unit or functional area that the marketing manager must address in order to achieve this goal. Additionally, marketing executives often act as a "brand champion" and work to enforce corporate identity standards across the enterprise.
In larger organizations, especially those with multiple business units, top marketing managers may need to coordinate across several marketing departments and also resources from finance, R&D, engineering, operations, manufacturing, or other functional areas to implement the marketing plan. In order to effectively manage these resources, marketing executives may need to spend much of their time focused on political issues and inte-departmental negotiations.
The effectiveness of a marketing manager may therefore depend on his or her ability to make the internal "sale" of various marketing programs equally as much as the external customer's reaction to such programs.
Reporting, measurement, feedback and control systems
Marketing management employs a variety of metrics to measure progress against objectives. It is the responsibility of marketing managers -- in the marketing department or elsewhere -- to ensure that the execution of marketing programs achieves the desired objectives and does so in a cost-efficient manner.
Marketing management therefore often makes use of various organizational control systems, such as sales forecasts, sales force and reseller incentive programs, sales force management systems, and customer relationship management tools (CRM). Recently, some software vendors have begun using the term "marketing operations management" or "marketing resource management" to describe systems that facilitate an integrated approach for controlling marketing resources. In some cases, these efforts may be linked to various supply chain management systems, such as enterprise resource planning (ERP), material requirements planning (MRP), efficient consumer response (ECR), and inventory management systems.
Measuring the return on investment (ROI) of and marketing effectiveness various marketing initiatives is a significant problem for marketing management. Various market research, accounting and financial tools are used to help estimate the ROI of marketing investments. Brand valuation, for example, attempts to identify the percentage of a company's market value that is generated by the company's brands, and thereby estimate the financial value of specific investments in brand equity. Another technique, integrated marketing communications (IMC), is a CRM database-driven approach that attempts to estimate the value of marketing mix executions based on the changes in customer behavior these executions generate
Definition and scope
There is no universally accepted definition of the term. In part, this is due to the fact that the role of a marketing manager can vary significantly based on a business' size, corporate culture, and industry context. For example, in a large consumer products company, the marketing manager may act as the overall general manager of his or her assigned product category or brand with full profit & loss responsibility. In contrast, a small law firm may have no marketing personnel at all, requiring the firm's partners to make marketing management decisions on a largely ad-hoc basis.
In the widely used text Marketing Management (2006), Philip Kotler and Kevin Lane Keller define marketing management as "the art and science of choosing target markets and getting, keeping and growing customers through creating, delivering, and communicating superior customer value." [1]
From this perspective, the scope of marketing management is quite broad. The implication of such a definition is that any activity or resource the firm uses to acquire customers and manage the company's relationships with them is within the purview of marketing management. Additionally, the Kotler and Keller definition encompasses both the development of new products and services and their delivery to customers.
Noted marketing expert Regis McKenna expressed a similar viewpoint in his influential 1991 Harvard Business Review article "Marketing is Everything." McKenna argued that because marketing management encompasses all factors that influence a company's ability to deliver value to customers, it must be "all-pervasive, part of everyone's job description, from the receptionists to the Board of Directors." [2]
This view is also consistent with the perspective of management guru Peter Drucker, who wrote: "Because the purpose of business is to create a customer, the business enterprise has two--and only these two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business."[3]
But because many businesses operate with a much more limited definition of marketing, such statements can appear controversial, or even ludicrous to some business executives. This is especially true in those companies where the marketing department is responsible for little more than developing sales brochures and executing advertising campaigns.
The broader, more sophisticated definitions of marketing management from Drucker, Kotler and other scholars are therefore juxtaposed against the narrower operating reality of many businesses. The source of confusion here is often that inside any given firm, the term marketing management may be interpreted to mean whatever the marketing department happens to do, rather than a term that encompasses all marketing activities -- even those marketing activities that are actually performed by other departments, such as the sales, finance, or operations departments.[4] If, for example, the finance department of a given company makes pricing decisions (for deals, proposals, contracts, etc.), that finance department has responsibility for an important component of marketing management -- pricing.
Activities and functions
Marketing management therefore encompasses a wide variety of functions and activities, although the marketing department itself may be responsible for only a subset of these. Regardless of the organizational unit of the firm responsible for managing them, marketing management functions and activities include the following:
Marketing research and analysis
In order to make fact-based decisions regarding marketing strategy and design effective, cost-efficient implementation programs, firms must possess a detailed, objective understanding of their own business and the market in which they operate.[5] In analyzing these issues, the discipline of marketing management often overlaps with the related discipline of strategic planning.
Traditionally, marketing analysis was structured into three areas: Customer analysis, Company analysis, and Competitor analysis (so-called "3Cs" analysis). More recently, it has become fashionable in some marketing circles to divide these further into certain five "Cs": Customer analysis, Company analysis, Collaborator analysis, Competitor analysis, and analysis of the industry Context.
The focus of customer analysis is to develop a scheme for market segmentation, breaking down the market into various constituent groups of customers, which are called customer segments or market segments. Marketing managers work to develop detailed profiles of each segment, focusing on any number of variables that may differ among the segments: demographic, psychographic, geographic, behavioral, needs-benefit, and other factors may all be examined. Marketers also attempt to track these segments' perceptions of the various products in the market using tools such as perceptual mapping.
In company analysis, marketers focus on understanding the company's cost structure and cost position relative to competitors, as well as working to identify a firm's core competencies and other competitively distinct company resources. Marketing managers may also work with the accounting department to analyze the profits the firm is generating from various product lines and customer accounts. The company may also conduct periodic brand audits to assess the strength of its brands and sources of brand equity.
The firm's collaborators may also be profiled, which may include various suppliers, distributors and other channel partners, joint venture partners, and others. An analysis of complementary products may also be performed if such products exist.
Marketing management employs various tools from economics and competitive strategy to analyze the industry context in which the firm operates. These include Porter's five forces, analysis of strategic groups of competitors, value chain analysis and others. Depending on the industry, the regulatory context may also be important to examine in detail.
In Competitor analysis, marketers build detailed profiles of each competitor in the market, focusing especially on their relative competitive strengths and weaknesses using SWOT analysis. Marketing managers will examine each competitor's cost structure, sources of profits, resources and competencies, competitive positioning and product differentiation, degree of vertical integration, historical responses to industry developments, and other factors.
Marketing management often finds it necessary to invest in research to collect the data required to perform accurate marketing analysis. As such, they often conduct market research (alternately marketing research) to obtain this information. Marketers employ a variety of techniques to conduct market research, but some of the more common include:
Qualitative marketing research, such as focus groups
Quantitative marketing research, such as statistical surveys
Experimental techniques such as test markets
Observational techniques such as ethnographic (on-site) observation
Marketing managers may also design and oversee various environmental scanning and competitive intelligence processes to help identify trends and inform the company's marketing analysis.
Marketing strategy
Main article: Marketing strategy
Once the company has obtained an adequate understanding of the customer base and its own competitive position in the industry, marketing managers are able to make key strategic decisions and develop a marketing strategy designed to maximize the revenues and profits of the firm. The selected strategy may aim for any of a variety of specific objectives, including optimizing short-term unit margins, revenue growth, market share, long-term profitability, or other goals.
To achieve the desired objectives, marketers typically identify one or more target customer segments which they intend to pursue. Customer segments are often selected as targets because they score highly on two dimensions: 1) The segment is attractive to serve because it is large, growing, makes frequent purchases, is not price sensitive (i.e. is willing to pay high prices), or other factors; and 2) The company has the resources and capabilities to compete for the segment's business, can meet their needs better than the competition, and can do so profitably.[5] In fact, a commonly cited definition of marketing is simply "meeting needs profitably."
The implication of selecting target segments is that the business will subsequently allocate more resources to acquire and retain customers in the target segment(s) than it will for other, non-targeted customers. In some cases, the firm may go so far as to turn away customers that are not in its target segment. The doorman at a swanky nightclub, for example, may deny entry to unfashionably dressed individuals because the business has made a strategic decision to target the "high fashion" segment of nightclub patrons.
In conjunction with targeting decisions, marketing managers will identify the desired positioning they want the company, product, or brand to occupy in the target customer's mind. This positioning is often an encapsulation of a key benefit the company's product or service offers that is differentiated and superior to the benefits offered by competitive products.[8] For example, Volvo has traditionally positioned its products in the automobile market in North America in order to be perceived as the leader in "safety", whereas BMW has traditionally positioned its brand to be perceived as the leader in "performance."
Ideally, a firm's positioning can be maintained over a long period of time because the company possesses, or can develop, some form of sustainable competitive advantage. The positioning should also be sufficiently relevant to the target segment such that it will drive the purchasing behavior of target customers.
Implementation planning
Main article: Marketing plan
After the firm's strategic objectives have been identified, the target market selected, and the desired positioning for the company, product or brand has been determined, marketing managers focus on how to best implement the chosen strategy. Traditionally, this has involved implementation planning across the "4Ps" of marketing: Product management, Pricing, Place (i.e. sales and distribution channels), and Promotion.
Taken together, the company's implementation choices across the 4Ps are often described as the marketing mix, meaning the mix of elements the business will employ to "go to market" and execute the marketing strategy. The overall goal for the marketing mix is to consistently deliver a compelling value proposition that reinforces the firm's chosen positioning, builds customer loyalty and brand equity among target customers, and achieves the firm's marketing and financial objectives.
In many cases, marketing management will develop a marketing plan to specify how the company will execute the chosen strategy and achieve the business' objectives. The content of marketing plans varies from firm to firm, but commonly includes:
1)An executive summary
2)Situation analysis to summarize facts and insights gained from market research and marketing analysis
3)The company's mission statement or long-term strategic vision
4)A statement of the company's key objectives, often subdivided into marketing objectives and financial objectives
5)The marketing strategy the business has chosen, specifying the target segments to be pursued and the competitive positioning to be achieved
6)Implementation choices for each element of the marketing mix (the 4Ps)
7)A summary of required investments (in people, programs, IT systems, etc.)
8)Financial analysis, projections and forecasted results
9)A timeline or high-level project plan
10)Metrics, measurements and control processes
11)A list of key risks and strategies for managing these risks
Project, process, and vendor management
Once the key implementation initiatives have been identified, marketing managers work to oversee the execution of the marketing plan. Marketing executives may therefore manage any number of specific projects, such as sales force management initiatives, product development efforts, channel marketing programs and the execution of public relations and advertising campaigns. Marketers use a variety of project management techniques to ensure projects achieve their objectives while keeping to established schedules and budgets.
More broadly, marketing managers work to design and improve the effectiveness of core marketing processes, such as new product development, brand management, marketing communications, and pricing. Marketers may employ the tools of business process reengineering to ensure these processes are properly designed, and use a variety of process management techniques to keep them operating smoothly.
Effective execution may require management of both internal resources and a variety of external vendors and service providers, such as the firm's advertising agency. Marketers may therefore coordinate with the company's Purchasing department on the procurement of these services.
Organizational management and leadership
Marketing management usually requires leadership of a department or group of professionals engaged in marketing activities. Often, this oversight will extend beyond the company's marketing department itself, requiring the marketing manager to provide cross-functional leadership for various marketing activities. This may require extensive interaction with the human resources department on issues such as recruiting, training, leadership development, performance appraisals, compensation, and other topics.
Marketing management may spend a fair amount of time building or maintaining a marketing orientation for the business. Achieving a market orientation, also known as "customer focus" or the "marketing concept", requires building consensus at the senior management level and then driving customer focus down into the organization. Cultural barriers may exist in a given business unit or functional area that the marketing manager must address in order to achieve this goal. Additionally, marketing executives often act as a "brand champion" and work to enforce corporate identity standards across the enterprise.
In larger organizations, especially those with multiple business units, top marketing managers may need to coordinate across several marketing departments and also resources from finance, R&D, engineering, operations, manufacturing, or other functional areas to implement the marketing plan. In order to effectively manage these resources, marketing executives may need to spend much of their time focused on political issues and inte-departmental negotiations.
The effectiveness of a marketing manager may therefore depend on his or her ability to make the internal "sale" of various marketing programs equally as much as the external customer's reaction to such programs.
Reporting, measurement, feedback and control systems
Marketing management employs a variety of metrics to measure progress against objectives. It is the responsibility of marketing managers -- in the marketing department or elsewhere -- to ensure that the execution of marketing programs achieves the desired objectives and does so in a cost-efficient manner.
Marketing management therefore often makes use of various organizational control systems, such as sales forecasts, sales force and reseller incentive programs, sales force management systems, and customer relationship management tools (CRM). Recently, some software vendors have begun using the term "marketing operations management" or "marketing resource management" to describe systems that facilitate an integrated approach for controlling marketing resources. In some cases, these efforts may be linked to various supply chain management systems, such as enterprise resource planning (ERP), material requirements planning (MRP), efficient consumer response (ECR), and inventory management systems.
Measuring the return on investment (ROI) of and marketing effectiveness various marketing initiatives is a significant problem for marketing management. Various market research, accounting and financial tools are used to help estimate the ROI of marketing investments. Brand valuation, for example, attempts to identify the percentage of a company's market value that is generated by the company's brands, and thereby estimate the financial value of specific investments in brand equity. Another technique, integrated marketing communications (IMC), is a CRM database-driven approach that attempts to estimate the value of marketing mix executions based on the changes in customer behavior these executions generate
Personalized marketing
Personalized marketing (also called personalization, and sometimes called one-to-one marketing) is an extreme form of product differentiation. Whereas product differentiation tries to differentiate a product from competing ones, personalization tries to make a unique product offering for each customer.
Personalized marketing had been most practical in interactive media such as the internet. A web site can track a customer's interests and make suggestions for the future. Many sites help customers make choices by organizing information and prioritizing it based on the individual's liking. In some cases, the product itself can be customized using a configuration system.
More recently, personalized marketing has become practical with bricks and mortar retailers. The market size, an order of magnitude greater than that of the Internet, demanded a different technological approach now available and in use. Many retailers attract customers to the physical store by offering discounted items which are automatically selected to appeal to the individual recipient. The interactivity occurs through the offer redemptions recorded by the point of sale systems, which can then update each model of the individual shopper. Personalization can be more accurate when based solely upon individual purchasing records because of the simplified and repetitive nature of some bricks and mortar retail purchasing, for example grocery superstores.
Don Peppers and Martha Rogers, in their ground breaking book on the subject (Peppers, D. and Rogers, M. 1993) speak of managing customers rather than products, differentiating customers not just products, measuring share of customer not share of market, and developing economies of scope rather than economies of scale. They also describe personalized marketing as a four phase process: identifying potential customers; determining their needs and their lifetime value to the company; interact with customers so as to learn about them; and customize products, services, and communications to individual customers.
Some commentators (including Peppers and Rogers) use the term "one-to-one marketing" which has been misunderstood by some. Seldom is there just one individual on either side of the transaction. Buyer decision processes often involve several people, as do the marketer's efforts. However, the excellent metaphor refers to the objective of a single message source (store) "to" the single recipient (household), a technological analogy to a "mom and pop" store on a first name basis with 10 million customers.
Personalized marketing had been most practical in interactive media such as the internet. A web site can track a customer's interests and make suggestions for the future. Many sites help customers make choices by organizing information and prioritizing it based on the individual's liking. In some cases, the product itself can be customized using a configuration system.
More recently, personalized marketing has become practical with bricks and mortar retailers. The market size, an order of magnitude greater than that of the Internet, demanded a different technological approach now available and in use. Many retailers attract customers to the physical store by offering discounted items which are automatically selected to appeal to the individual recipient. The interactivity occurs through the offer redemptions recorded by the point of sale systems, which can then update each model of the individual shopper. Personalization can be more accurate when based solely upon individual purchasing records because of the simplified and repetitive nature of some bricks and mortar retail purchasing, for example grocery superstores.
Don Peppers and Martha Rogers, in their ground breaking book on the subject (Peppers, D. and Rogers, M. 1993) speak of managing customers rather than products, differentiating customers not just products, measuring share of customer not share of market, and developing economies of scope rather than economies of scale. They also describe personalized marketing as a four phase process: identifying potential customers; determining their needs and their lifetime value to the company; interact with customers so as to learn about them; and customize products, services, and communications to individual customers.
Some commentators (including Peppers and Rogers) use the term "one-to-one marketing" which has been misunderstood by some. Seldom is there just one individual on either side of the transaction. Buyer decision processes often involve several people, as do the marketer's efforts. However, the excellent metaphor refers to the objective of a single message source (store) "to" the single recipient (household), a technological analogy to a "mom and pop" store on a first name basis with 10 million customers.
Relationship marketing
Relationship marketing is a form of marketing developed from direct response marketing campaigns conducted in the 1960's and 1980's which emphasizes customer retention and continual satisfaction rather than individual transactions and per-case customer resolution.
Relationship marketing differs from other forms of marketing in that it targets an audience with more directly suited information on products or services which suit retained customer's interests, as opposed to direct or "Intrusion" marketing, which focuses upon acquisition of new clients by targeting majority demographics based upon prospective client lists.
Development
The origins of relationship marketing observes: "What is surprising is that researchers and businessmen have concentrated far more on how to attract customers to products and services than on how to retain customers". The initial research was done by Leonard Berry at Texas A&M (Berry, L. 1982) and Jag Sheth at Emory, both of whom were early users of the term "Relationship Marketing", and by marketing theorist Theodore Levitt at Harvard (Levitt, T. 1983) who broadened the scope of marketing beyond individual transactions.
In practice, relationship marketing originated in industrial and B2B markets where long-term contracts have been quite common for many years. Academics like Barbara Bund Jackson at Harvard re-examined these industrial marketing practices and applied them to marketing proper .
According to Leonard Berry [2], relationship marketing can be applied: when there are alternatives to choose from; when the customer makes the selection decision; and when there is an ongoing and periodic desire for the product or service.
Fornell and Wernerfet[3] used the term "defensive marketing" to describe attempts to reduce customer turnover and increase customer loyalty. This customer-retention approach was contrasted with "offensive marketing" which involved obtaining new customers and increasing customers' purchase frequency. Defensive marketing focused on reducing or managing the dissatisfaction of your customers, while offensive marketing focused on "liberating" dissatisfied customers from your competition and generating new customers. There are two components to defensive marketing: increasing customer satisfaction and increasing switching barriers.
Traditional marketing originated in the 1960s and 1970s as companies found it more difficult to sell consumer products. Its consumer market origins molded traditional marketing into a system suitable for selling relatively low-value products to masses of customers. Over the decades, attempts have been made to broaden the scope of marketing, relationship marketing being one of these attempts. Marketing has been greatly enriched by these contributions.
The practice of relationship marketing has been greatly facilitated by several generations of customer relationship management software that allow tracking and analysing of each customer's preferences, activities, tastes, likes, dislikes, and complaints. This is a powerful tool in any company's marketing strategy. For example, an automobile manufacturer maintaining a database of when and how repeat customers buy their products, the options they choose, the way they finance the purchase etc., is in a powerful position to custom target sales material. In return, the customer benefits from the company tracking service schedules and communicating directly on issues like product recalls.
The latest trends in relationship marketing is personalized marketing. In personalized marketing, the main preference is given to consumer. The consumer shopping profile is built as the person shops on the website. This information is then used to compute what can be his likely preferences in other categories. This items are than shown to the customer through web cross-sell, email recommendation and other channels.
Personalized marketing has also migrating into direct mail, allowing marketers to take advantage of the technological capabilities of digital, toner-based printing presses to produce unique, personalized pieces for each recipient. Marketers can personalize documents by any information contained in their databases, including name, address, demographics, purchase history, and dozens (or even hundreds) of other variables. The result is a printed piece that (ideally) reflects the individual needs and preferences of each recipient, increasing the relevance of the piece and increasing the response rate.
Scope
Relationship marketing has been strongly influenced by reengineering. According to reengineering theory, organizations should be structured according to complete tasks and processes rather than functions. That is, cross-functional teams should be responsible for a whole process, from beginning to end, rather than having the work go from one functional department to another. Traditional marketing is said to use the functional department approach. This can be seen in the traditional four P's of the marketing mix. Pricing, product management, promotion, and placement are claimed to be functional silos that must be accessed by the marketer if she is going to perform her task. According to Gordon (1999), the marketing mix approach is too limited to provide a usable framework for assessing and developing customer relationships in many industries and should be replaced by an alternative model where the focus is on customers and relationships rather than markets and products.
In contrast, relationship marketing is cross-functional marketing. It is organized around processes that involve all aspects of the organization. In fact, some commentators prefer to call relationship marketing "relationship management" in recognition of the fact that it involves much more than that which is normally included in marketing.
Martin Christopher, Adrian Payne, and David Ballantyne [4]at the Cranfield Graduate school of Management claim that relationship marketing has the potential to forge a new synthesis between quality management, customer service management, and marketing. They see marketing and customer service as inseparable.
In spite of this broad scope, relationship marketing has not lost its core marketing orientation though. It involves the application of the marketing philosophy to all parts of the organization. Every employee is said to be a "part-time marketer". The way Regis McKenna (1991) puts it:
"Marketing is not a function, it is a way of doing business . . . marketing has to be all pervasive, part of everyone's job description, from the receptionist to the board of directors."
Because of this, it is claimed that relationship marketing is a more pure form of marketing than traditional marketing.
Approaches
Satisfaction
Relationship marketing relies upon the communication and acquisition of consumer requirements solely from existing customers in a mutually beneficial exchange usually involving permission for contact by the customer through an "opt-in" system.[5] With particular relevance to customer satisfaction the relative price and quality of goods and services produced or sold through a company alongside customer service generally determine the amount of sales relative to that of competing companies. Although groups targeted through relationship marketing may be large, accuracy of communication and overall relevancy to the customer remains higher than that of direct marketing, but has less potential for generating new leads than direct marketing and is limited to Viral marketing for the acquisition of further customers.
Retention
A key principle of relationship market is the retention of customers through varying means and practices to ensure repeated trade from preexisting customers by satisfying requirements above those of competing companies through a mutually beneficial relationship[6][5] This technique is now used as a means of counterbalancing new customers and opportunities with current and existing customers as a means of maximizing profit and counteracting the "leaky bucket theory of business" in which new customers gained in older direct marketing oriented businesses were at the expense of or coincided with the loss of older customers.[7][8] This process of "churning" is less economically viable than retaining all or the majority of customers using both direct and relationship management as lead generation via new customers requires more investment. [9]
Many companies in competing markets will redirect or allocate large amounts of resources or attention towards customer retention as in markets with increasing competition it may cost 5 times more to attract new customers than it would to retain current customers, as direct or "offensive" marketing requires much more extensive resources to cause defection from competitors.[9] However, it is suggested that because of the extensive classic marketing theories center on means of attracting customers and creating transactions rather than maintaining them, the majority usage of direct marketing used in the past is now gradually being used more alongside relationship marketing as it's importance becomes more recognizable. [9].
It is claimed by Reichheld and Sasser [10] that a 5% improvement in customer retention can cause an increase in profitability of between 25 and 85 percent (in terms of net present value) depending on the industry. However Carrol, P. and Reichheld, F. [11] dispute these calculations, claiming they result from faulty cross-sectional analysis.
According to Buchanan and Gilles [12], the increased profitability associated with customer retention efforts occurs because of several factors that occur once a relationship has been established with a customer.
The cost of acquisition occur only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost.
Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue).
Long-term customers tend to be less inclined to switch, and also tend to be less price sensitive. This can result in stable unit sales volume and increases in dollar-sales volume.
Long-term customers may initiate free word of mouth promotions and referrals.
Long-term customers are more likely to purchase ancillary products and high margin supplemental products.
Customers that stay with you tend to be satisfied with the relationship and are less likely to switch to competitors, making it difficult for competitors to enter the market or gain market share.
Regular customers tend to be less expensive to service because they are familiar with the process, require less "education", and are consistent in their order placement.
Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into better customer satisfaction in a virtuous circle.
Relationship marketers speak of the "relationship ladder of customer loyalty". It groups types of customers according to their level of loyalty. The ladder's first rung consists of "prospects", that is, people that have not purchased yet but are likely to in the future. This is followed by the successive rungs of "customer", "client", "supporter", "advocate", and "partner". The relationship marketer's objective is to "help" customers get as high up the ladder as possible. This usually involves providing more personalized service and providing service quality that exceeds expectations at each step.
Customer retention efforts involve considerations such as the following:
Customer valuation - Gordon (1999) describes how to value customers and categorize them according to their financial and strategic value so that companies can decide where to invest for deeper relationships and which relationships need to be served differently or even terminated.
Customer retention measurement - Dawkins and Reichheld (1990) calculated a company's "customer retention rate". This is simply the percentage of customers at the beginning of the year that are still customers by the end of the year. In accordance with this statistic, an increase in retention rate from 80% to 90% is associated with a doubling of the average life of a customer relationship from 5 to 10 years. This ratio can be used to make comparisons between products, between market segments, and over time.
Determine reasons for defection - Look for the root causes, not mere symptoms. This involves probing for details when talking to former customers. Other techniques include the analysis of customers' complaints and competitive benchmarking (see competitor analysis).
Develop and implement a corrective plan - This could involve actions to improve employee practices, using benchmarking to determine best corrective practices, visible endorsement of top management, adjustments to the company's reward and recognition systems, and the use of "recovery teams" to eliminate the causes of defections.
A technique to calculate the value to a firm of a sustained customer relationship has been developed. This calculation is typically called customer lifetime value.
Retention strategies also build barriers to customer switching. This can be done by product bundling (combining several products or services into one "package" and offering them at a single price), cross selling (selling related products to current customers), cross promotions (giving discounts or other promotional incentives to purchasers of related products), loyalty programs (giving incentives for frequent purchases), increasing switching costs (adding termination costs, such as mortgage termination fees), and integrating computer systems of multiple organizations (primarily in industrial marketing).
Many relationship marketers use a team-based approach. The rationale is that the more points of contact between the organization and customer, the stronger will be the bond, and the more secure the relationship.
Application
Relationship marketing and transactional marketing are not mutually exclusive and there is no need for a conflict between them. However, one approach may be more suitable in some situations than in others. Transactional marketing is most appropriate when marketing relatively low value consumer products, when the product is a commodity, when switching costs are low, when customers prefer single transactions to relationships, and when customer involvement in production is low. When the reverse of all the above is true, as in typical industrial and service markets, then relationship marketing can be more appropriate. Most firms should be blending the two approaches to match their portfolio of products and services. Virtually all products have a service component to them and this service component has been getting larger in recent decades. (See service economy and experience economy.)
Internal marketing
Relationship marketing stresses on what it calls internal marketing. This refers to using marketing techniques within the organization itself. It is claimed that many of the traditional marketing concepts can be used to determine what the needs of "internal customers" are. According to this theory, every employee, team, or department in the company is simultaneously a supplier and a customer of services and products. An employee obtains a service at a point in the value chain and then provides a service to another employee further along the value chain. If internal marketing is effective, every employee will both provide and receive exceptional service from and to other employees. It also helps employees understand the significance of their roles and how their roles relate to others'. If implemented well, it can also encourage every employee to see the process in terms of the customer's perception of value added, and the organization's strategic mission. Further it is claimed that an effective internal marketing program is a prerequisite for effective external marketing efforts. (George, W. 1990)
The six markets model
Adrian Payne (1991) from Cranfield University goes further. He identifies six markets which he claims are central to relationship marketing. They are: internal markets, supplier markets, recruitment markets, referral markets, influence markets, and customer markets.
Referral marketing is developing and implementing a marketing plan to stimulate referrals. Although it may take months before you see the effect of referral marketing, this is often the most effective part of an overall marketing plan and the best use of resources.
Marketing to suppliers is aimed at ensuring a long-term conflict-free relationship in which all parties understand each other's needs and exceed each other's expectations. Such a strategy can reduce costs and improve quality.
Influence markets involve a wide range of sub-markets including: government regulators, standards bodies, lobbyists, stockholders, bankers, venture capitalists, financial analysts, stockbrokers, consumer associations, environmental associations, and labour associations. These activities are typically carried out by the public relations department, but relationship marketers feel that marketing to all six markets is the responsibility of everyone in the organization.
At times Payne sub-divides customer markets into existing customers and potential customer, yielding seven rather than six markets. He claims that each market will require its own strategies and recommends separate marketing mixes for each of the seven.
Relationship marketing differs from other forms of marketing in that it targets an audience with more directly suited information on products or services which suit retained customer's interests, as opposed to direct or "Intrusion" marketing, which focuses upon acquisition of new clients by targeting majority demographics based upon prospective client lists.
Development
The origins of relationship marketing observes: "What is surprising is that researchers and businessmen have concentrated far more on how to attract customers to products and services than on how to retain customers". The initial research was done by Leonard Berry at Texas A&M (Berry, L. 1982) and Jag Sheth at Emory, both of whom were early users of the term "Relationship Marketing", and by marketing theorist Theodore Levitt at Harvard (Levitt, T. 1983) who broadened the scope of marketing beyond individual transactions.
In practice, relationship marketing originated in industrial and B2B markets where long-term contracts have been quite common for many years. Academics like Barbara Bund Jackson at Harvard re-examined these industrial marketing practices and applied them to marketing proper .
According to Leonard Berry [2], relationship marketing can be applied: when there are alternatives to choose from; when the customer makes the selection decision; and when there is an ongoing and periodic desire for the product or service.
Fornell and Wernerfet[3] used the term "defensive marketing" to describe attempts to reduce customer turnover and increase customer loyalty. This customer-retention approach was contrasted with "offensive marketing" which involved obtaining new customers and increasing customers' purchase frequency. Defensive marketing focused on reducing or managing the dissatisfaction of your customers, while offensive marketing focused on "liberating" dissatisfied customers from your competition and generating new customers. There are two components to defensive marketing: increasing customer satisfaction and increasing switching barriers.
Traditional marketing originated in the 1960s and 1970s as companies found it more difficult to sell consumer products. Its consumer market origins molded traditional marketing into a system suitable for selling relatively low-value products to masses of customers. Over the decades, attempts have been made to broaden the scope of marketing, relationship marketing being one of these attempts. Marketing has been greatly enriched by these contributions.
The practice of relationship marketing has been greatly facilitated by several generations of customer relationship management software that allow tracking and analysing of each customer's preferences, activities, tastes, likes, dislikes, and complaints. This is a powerful tool in any company's marketing strategy. For example, an automobile manufacturer maintaining a database of when and how repeat customers buy their products, the options they choose, the way they finance the purchase etc., is in a powerful position to custom target sales material. In return, the customer benefits from the company tracking service schedules and communicating directly on issues like product recalls.
The latest trends in relationship marketing is personalized marketing. In personalized marketing, the main preference is given to consumer. The consumer shopping profile is built as the person shops on the website. This information is then used to compute what can be his likely preferences in other categories. This items are than shown to the customer through web cross-sell, email recommendation and other channels.
Personalized marketing has also migrating into direct mail, allowing marketers to take advantage of the technological capabilities of digital, toner-based printing presses to produce unique, personalized pieces for each recipient. Marketers can personalize documents by any information contained in their databases, including name, address, demographics, purchase history, and dozens (or even hundreds) of other variables. The result is a printed piece that (ideally) reflects the individual needs and preferences of each recipient, increasing the relevance of the piece and increasing the response rate.
Scope
Relationship marketing has been strongly influenced by reengineering. According to reengineering theory, organizations should be structured according to complete tasks and processes rather than functions. That is, cross-functional teams should be responsible for a whole process, from beginning to end, rather than having the work go from one functional department to another. Traditional marketing is said to use the functional department approach. This can be seen in the traditional four P's of the marketing mix. Pricing, product management, promotion, and placement are claimed to be functional silos that must be accessed by the marketer if she is going to perform her task. According to Gordon (1999), the marketing mix approach is too limited to provide a usable framework for assessing and developing customer relationships in many industries and should be replaced by an alternative model where the focus is on customers and relationships rather than markets and products.
In contrast, relationship marketing is cross-functional marketing. It is organized around processes that involve all aspects of the organization. In fact, some commentators prefer to call relationship marketing "relationship management" in recognition of the fact that it involves much more than that which is normally included in marketing.
Martin Christopher, Adrian Payne, and David Ballantyne [4]at the Cranfield Graduate school of Management claim that relationship marketing has the potential to forge a new synthesis between quality management, customer service management, and marketing. They see marketing and customer service as inseparable.
In spite of this broad scope, relationship marketing has not lost its core marketing orientation though. It involves the application of the marketing philosophy to all parts of the organization. Every employee is said to be a "part-time marketer". The way Regis McKenna (1991) puts it:
"Marketing is not a function, it is a way of doing business . . . marketing has to be all pervasive, part of everyone's job description, from the receptionist to the board of directors."
Because of this, it is claimed that relationship marketing is a more pure form of marketing than traditional marketing.
Approaches
Satisfaction
Relationship marketing relies upon the communication and acquisition of consumer requirements solely from existing customers in a mutually beneficial exchange usually involving permission for contact by the customer through an "opt-in" system.[5] With particular relevance to customer satisfaction the relative price and quality of goods and services produced or sold through a company alongside customer service generally determine the amount of sales relative to that of competing companies. Although groups targeted through relationship marketing may be large, accuracy of communication and overall relevancy to the customer remains higher than that of direct marketing, but has less potential for generating new leads than direct marketing and is limited to Viral marketing for the acquisition of further customers.
Retention
A key principle of relationship market is the retention of customers through varying means and practices to ensure repeated trade from preexisting customers by satisfying requirements above those of competing companies through a mutually beneficial relationship[6][5] This technique is now used as a means of counterbalancing new customers and opportunities with current and existing customers as a means of maximizing profit and counteracting the "leaky bucket theory of business" in which new customers gained in older direct marketing oriented businesses were at the expense of or coincided with the loss of older customers.[7][8] This process of "churning" is less economically viable than retaining all or the majority of customers using both direct and relationship management as lead generation via new customers requires more investment. [9]
Many companies in competing markets will redirect or allocate large amounts of resources or attention towards customer retention as in markets with increasing competition it may cost 5 times more to attract new customers than it would to retain current customers, as direct or "offensive" marketing requires much more extensive resources to cause defection from competitors.[9] However, it is suggested that because of the extensive classic marketing theories center on means of attracting customers and creating transactions rather than maintaining them, the majority usage of direct marketing used in the past is now gradually being used more alongside relationship marketing as it's importance becomes more recognizable. [9].
It is claimed by Reichheld and Sasser [10] that a 5% improvement in customer retention can cause an increase in profitability of between 25 and 85 percent (in terms of net present value) depending on the industry. However Carrol, P. and Reichheld, F. [11] dispute these calculations, claiming they result from faulty cross-sectional analysis.
According to Buchanan and Gilles [12], the increased profitability associated with customer retention efforts occurs because of several factors that occur once a relationship has been established with a customer.
The cost of acquisition occur only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost.
Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue).
Long-term customers tend to be less inclined to switch, and also tend to be less price sensitive. This can result in stable unit sales volume and increases in dollar-sales volume.
Long-term customers may initiate free word of mouth promotions and referrals.
Long-term customers are more likely to purchase ancillary products and high margin supplemental products.
Customers that stay with you tend to be satisfied with the relationship and are less likely to switch to competitors, making it difficult for competitors to enter the market or gain market share.
Regular customers tend to be less expensive to service because they are familiar with the process, require less "education", and are consistent in their order placement.
Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into better customer satisfaction in a virtuous circle.
Relationship marketers speak of the "relationship ladder of customer loyalty". It groups types of customers according to their level of loyalty. The ladder's first rung consists of "prospects", that is, people that have not purchased yet but are likely to in the future. This is followed by the successive rungs of "customer", "client", "supporter", "advocate", and "partner". The relationship marketer's objective is to "help" customers get as high up the ladder as possible. This usually involves providing more personalized service and providing service quality that exceeds expectations at each step.
Customer retention efforts involve considerations such as the following:
Customer valuation - Gordon (1999) describes how to value customers and categorize them according to their financial and strategic value so that companies can decide where to invest for deeper relationships and which relationships need to be served differently or even terminated.
Customer retention measurement - Dawkins and Reichheld (1990) calculated a company's "customer retention rate". This is simply the percentage of customers at the beginning of the year that are still customers by the end of the year. In accordance with this statistic, an increase in retention rate from 80% to 90% is associated with a doubling of the average life of a customer relationship from 5 to 10 years. This ratio can be used to make comparisons between products, between market segments, and over time.
Determine reasons for defection - Look for the root causes, not mere symptoms. This involves probing for details when talking to former customers. Other techniques include the analysis of customers' complaints and competitive benchmarking (see competitor analysis).
Develop and implement a corrective plan - This could involve actions to improve employee practices, using benchmarking to determine best corrective practices, visible endorsement of top management, adjustments to the company's reward and recognition systems, and the use of "recovery teams" to eliminate the causes of defections.
A technique to calculate the value to a firm of a sustained customer relationship has been developed. This calculation is typically called customer lifetime value.
Retention strategies also build barriers to customer switching. This can be done by product bundling (combining several products or services into one "package" and offering them at a single price), cross selling (selling related products to current customers), cross promotions (giving discounts or other promotional incentives to purchasers of related products), loyalty programs (giving incentives for frequent purchases), increasing switching costs (adding termination costs, such as mortgage termination fees), and integrating computer systems of multiple organizations (primarily in industrial marketing).
Many relationship marketers use a team-based approach. The rationale is that the more points of contact between the organization and customer, the stronger will be the bond, and the more secure the relationship.
Application
Relationship marketing and transactional marketing are not mutually exclusive and there is no need for a conflict between them. However, one approach may be more suitable in some situations than in others. Transactional marketing is most appropriate when marketing relatively low value consumer products, when the product is a commodity, when switching costs are low, when customers prefer single transactions to relationships, and when customer involvement in production is low. When the reverse of all the above is true, as in typical industrial and service markets, then relationship marketing can be more appropriate. Most firms should be blending the two approaches to match their portfolio of products and services. Virtually all products have a service component to them and this service component has been getting larger in recent decades. (See service economy and experience economy.)
Internal marketing
Relationship marketing stresses on what it calls internal marketing. This refers to using marketing techniques within the organization itself. It is claimed that many of the traditional marketing concepts can be used to determine what the needs of "internal customers" are. According to this theory, every employee, team, or department in the company is simultaneously a supplier and a customer of services and products. An employee obtains a service at a point in the value chain and then provides a service to another employee further along the value chain. If internal marketing is effective, every employee will both provide and receive exceptional service from and to other employees. It also helps employees understand the significance of their roles and how their roles relate to others'. If implemented well, it can also encourage every employee to see the process in terms of the customer's perception of value added, and the organization's strategic mission. Further it is claimed that an effective internal marketing program is a prerequisite for effective external marketing efforts. (George, W. 1990)
The six markets model
Adrian Payne (1991) from Cranfield University goes further. He identifies six markets which he claims are central to relationship marketing. They are: internal markets, supplier markets, recruitment markets, referral markets, influence markets, and customer markets.
Referral marketing is developing and implementing a marketing plan to stimulate referrals. Although it may take months before you see the effect of referral marketing, this is often the most effective part of an overall marketing plan and the best use of resources.
Marketing to suppliers is aimed at ensuring a long-term conflict-free relationship in which all parties understand each other's needs and exceed each other's expectations. Such a strategy can reduce costs and improve quality.
Influence markets involve a wide range of sub-markets including: government regulators, standards bodies, lobbyists, stockholders, bankers, venture capitalists, financial analysts, stockbrokers, consumer associations, environmental associations, and labour associations. These activities are typically carried out by the public relations department, but relationship marketers feel that marketing to all six markets is the responsibility of everyone in the organization.
At times Payne sub-divides customer markets into existing customers and potential customer, yielding seven rather than six markets. He claims that each market will require its own strategies and recommends separate marketing mixes for each of the seven.
Patronage concentration
Patronage concentration is a term used in marketing. It is the share of an individual consumer's expenditures in an industry that is spent at one company. It is the amount that a person spends at one company divided by the amount that person spends at all companies in the industry.
amount spent at one company
___________________________________
amount spent at all companies in the industry
The amount a person spends at one company is sometimes called the "relationship revenue".
For example, I may spend $1000 per year at fast food restaurants. If I spend $100 at Wendy's Restaurants, then Wendy's has (100/1000=10%) ten percent of my patronage. As long as the amount spent at one firm is less than the total amount spent at all firms in the industry, the customer will be patronizing more than one firm, and patronage concentration will be less than 100%.
The goal of many firms is to increase the patronage concentration ratio of its customers to 100% (that is make it an exclusive relationship). Some firms set different patronage concentration targets for various classes of customers. This reflects the fact that some types of customers are more profitable than others.
This is very similar to market share. Whereas market share describes the percentage of all customers that patronize a company relative to the industry total, the patronage concentration ratio describes the percentage of one customer's patronage going to a company, relative to that persons spend in the industry. That is, market share is the aggregate or macro version of the patronage concentration ratio. Or alternatively, patronage concentration is the micro equivalent of market share.
amount spent at one company
___________________________________
amount spent at all companies in the industry
The amount a person spends at one company is sometimes called the "relationship revenue".
For example, I may spend $1000 per year at fast food restaurants. If I spend $100 at Wendy's Restaurants, then Wendy's has (100/1000=10%) ten percent of my patronage. As long as the amount spent at one firm is less than the total amount spent at all firms in the industry, the customer will be patronizing more than one firm, and patronage concentration will be less than 100%.
The goal of many firms is to increase the patronage concentration ratio of its customers to 100% (that is make it an exclusive relationship). Some firms set different patronage concentration targets for various classes of customers. This reflects the fact that some types of customers are more profitable than others.
This is very similar to market share. Whereas market share describes the percentage of all customers that patronize a company relative to the industry total, the patronage concentration ratio describes the percentage of one customer's patronage going to a company, relative to that persons spend in the industry. That is, market share is the aggregate or macro version of the patronage concentration ratio. Or alternatively, patronage concentration is the micro equivalent of market share.
Friday, February 8, 2008
Pricing objectives
Pricing objectives or goals give direction to the whole pricing process. Determining what your objectives are is the first step in pricing. When deciding on pricing objectives you must consider: 1) the overall financial, marketing, and strategic objectives of the company; 2) the objectives of your product or brand; 3) consumer price elasticity and price points; and 4) the resources you have available.
Some of the more common pricing objectives are:
1)maximize long-run profit
2)maximize short-run profit
3)increase sales volume (quantity)
4)increase dollar sales
5)increase market share
6)obtain a target rate of return on investment (ROI)
7)obtain a target rate of return on sales
8)stabilize market or stabilize market price: an objective to stabilize price means that the marketing manager attempts to keep prices stable in the marketplace and to compete on non-price considerations. Stabilization of margin is basically a cost-plus approach in which the manager attempts to maintain the same margin regardless of changes in cost.
9)company growth
10)maintain price leadership
11)desensitize customers to price
12)discourage new entrants into the industry
13)match competitors prices
14)encourage the exit of marginal firms from the industry
15)survival
16)avoid government investigation or intervention
17)obtain or maintain the loyalty and enthusiasm of distributors and other sales personnel
18)enhance the image of the firm, brand, or product
19)be perceived as “fair” by customers and potential customers
20)create interest and excitement about a product
21)discourage competitors from cutting prices
22)use price to make the product “visible"
23)build store traffic
24)help prepare for the sale of the business (harvesting)
25)social, ethical, or ideological objectives
26)get competitive advantage
Some of the more common pricing objectives are:
1)maximize long-run profit
2)maximize short-run profit
3)increase sales volume (quantity)
4)increase dollar sales
5)increase market share
6)obtain a target rate of return on investment (ROI)
7)obtain a target rate of return on sales
8)stabilize market or stabilize market price: an objective to stabilize price means that the marketing manager attempts to keep prices stable in the marketplace and to compete on non-price considerations. Stabilization of margin is basically a cost-plus approach in which the manager attempts to maintain the same margin regardless of changes in cost.
9)company growth
10)maintain price leadership
11)desensitize customers to price
12)discourage new entrants into the industry
13)match competitors prices
14)encourage the exit of marginal firms from the industry
15)survival
16)avoid government investigation or intervention
17)obtain or maintain the loyalty and enthusiasm of distributors and other sales personnel
18)enhance the image of the firm, brand, or product
19)be perceived as “fair” by customers and potential customers
20)create interest and excitement about a product
21)discourage competitors from cutting prices
22)use price to make the product “visible"
23)build store traffic
24)help prepare for the sale of the business (harvesting)
25)social, ethical, or ideological objectives
26)get competitive advantage
Strategic planning
Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis(Strengths, Weaknesses, Opportunities, and Threats ) and PEST analysis (Political, Economic, Social, and Technological analysis).
Strategies are different from tactics in that:
1. They are proactive and not re-active as tactics are.
2. They are internal in source and the business venture has absolute control over its application.
3. Strategy can only be applied once, after that it is process of application with no unique element remaining.
4. The outcome is normally a strategic plan which is used as guidance to define functional and divisional plans, including Technology, Marketing, etc.
Strategic Planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions:
"What do we do?"
"For whom do we do it?"
"How do we excel?"
In business strategic planning, the third question is better phrased "How can we beat or avoid competition?". (Bradford and Duncan, page 1).
In many organizations, this is viewed as a process for determining where an organization is going over the next year or more -typically 3 to 5 years, although some extend their vision to 20 years.
In order to determine where it is going, the organization needs to know exactly where it stands, then determines where it wants to go and how it will get there. The resulting document is called the "strategic plan".
It is also true that strategic planning may be a tool for effectively plotting the direction of a company; however, strategic planning itself cannot foretell exactly how the market will evolve and what issues will surface in the coming days in order to plan your organizational strategy. Therefore, strategic innovation and tinkering with the 'strategic plan' have to be a cornerstone strategy for an organization to survive the turbulent business climate.
Vision, mission and values
1)Vision: Defines where the organization wants to be in the future. It reflects the optimistic view of the organization's future.
2)Mission: Defines where the organization is going now, basically describing the purpose, why this organization exists.
3)Values: Main values protected by the organization during the progression, reflecting the organization's culture and priorities.
Strategic planning saves wasted time, every minute spent in planning saves ten minutes in execution.
The purpose of individual strategic planning is for you to increase your return on energy, the return on the mental, emotional, physical and spiritual capital you have invested in your life and career.
Every minute an individual spends planning their goals, activities and time in advance saves ten minutes of work in the execution of those plans -- or so claim several experts.. Careful advance planning gives you a return of ten times, or 1,000% , on your investment of mental, emotional and physical energy. (The 100 Absolutely Unbreakable Laws of Business Success.) In any case, it is generally agreed that spending a meaningful period of time reflecting on strategy and goals before taking action is almost always a wise course of action for any individual or institution.
Methodologies
There are many approaches to strategic planning but typically a three-step process may be used:
1)Situation - evaluate the current situation and how it came about.
2)Target - define goals and/or objectives (sometimes called ideal state)
3)Path - map a possible route to the goals/objectives
One alternative approach is called Draw-See-Think
4)Draw - what is the ideal image or the desired end state?
5)See - what is today's situation? What is the gap from ideal and why?
6)Think - what specific actions must be taken to close the gap between today's situation and the ideal state?
7)Plan - what resources are required to execute the activities?
An alternative to the Draw-See-Think approach is called See-Think-Draw
1)See - what is today's situation?
2)Think - define goals/objectives
3)Draw - map a route to achieving the goals/objectives
In other terms strategic planning can be as follows:
1)Vision - Define the vision and set a mission statement with hierarchy of goals
2)SWOT - Analysis conducted according to the desired goals
3)Formulate - Formulate actions and processes to be taken to attain these goals
4)Implement - Implementation of the agreed upon processes
5)Control - Monitor and get feedback from implemented processes to fully control the operation
Situational analysis
When developing strategies, analysis of the organization and its environment as it is at the moment and how it may develop in the future, is important. The analysis has to be executed at an internal level as well as an external level to identify all opportunities and threats of the new strategy.
There are several factors to assess in the external situation analysis:
1)Markets (customers)
2)Competition
3)Technology
4)Supplier markets
5)Labor markets
6)The economy
7)The regulatory environment
It is rare to find all seven of these factors having critical importance. It is also uncommon to find that the first two - markets and competition - are not of critical importance. (Bradford "External Situation - What to Consider")
Analysis of the external environment normally focuses on the customer. Management should be visionary in formulating customer strategy, and should do so by thinking about market environment shifts, how these could impact customer sets, and whether those customer sets are the ones the company wishes to serve.
Analysis of the competitive environment is also performed, many times based on the framework suggested by Michael Porter.
Goals, objectives and targets
Strategic planning is a very important business activity. It is also important in the public sector areas such as education. It is practiced widely informally and formally. Strategic planning and decision processes should end with objectives and a roadmap of ways to achieve those objectives.
The following terms have been used in Strategic Planning: desired end states, plans, policies, goals, objectives, strategies, tactics and actions. Definitions vary, overlap and fail to achieve clarity. The most common of these concepts are specific, time bound statements of intended future results and general and continuing statements of intended future results, which most models refer to as either goals or objectives (sometimes interchangeably).
One model of organizing objectives uses hierarchies. The items listed above may be organized in a hierarchy of means and ends and numbered as follows: Top Rank Objective (TRO), Second Rank Objective, Third Rank Objective, etc. From any rank, the objective in a lower rank answers to the question "How?" and the objective in a higher rank answers to the question "Why?" The exception is the Top Rank Objective (TRO): there is no answer to the "Why?" question. That is how the TRO is defined.
People typically have several goals at the same time. "Goal congruency" refers to how well the goals combine with each other. Does goal A appear compatible with goal B? Do they fit together to form a unified strategy? "Goal hierarchy" consists of the nesting of one or more goals within other goal(s).
One approach recommends having short-term goals, medium-term goals, and long-term goals. In this model, one can expect to attain short-term goals fairly easily: they stand just slightly above one's reach. At the other extreme, long-term goals appear very difficult, almost impossible to attain. Strategic management jargon sometimes refers to "Big Hairy Audacious Goals" (BHAGs) in this context.) Using one goal as a stepping-stone to the next involves goal sequencing. A person or group starts by attaining the easy short-term goals, then steps up to the medium-term, then to the long-term goals. Goal sequencing can create a "goal stairway". In an organizational setting, the organization may co-ordinate goals so that they do not conflict with each other. The goals of one part of the organization should mesh compatibly with those of other parts of the organization.
Mission statements and vision statements
Organizations sometimes summarize goals and objectives into a mission statement and/or a vision statement:
While the existence of a shared mission is extremely useful, many strategy specialists question the requirement for a written mission statement. However, there are many models of strategic planning that start with mission statements, so it is useful to examine them here.
A Mission statement: tells you what the company is now. It concentrates on present; it defines the customer(s), critical processes and it informs you about the desired level of performance.
A Vision statement: outlines what a company wants to be. It concentrates on future; it is a source of inspiration; it provides clear decision-making criteria.
Many people mistake vision statement for mission statement. The Vision describes a future identity and the Mission describes why it will be achieved. A Mission statement defines the purpose or broader goal for being in existence or in the business. It serves as an ongoing guide without time frame. The mission can remain the same for decades if crafted well. Vision is more specific in terms of objective and future state. Vision is related to some form of achievement if successful.
A mission statement can resemble a vision statement in a few companies, but that can be a grave mistake. It can confuse people. The vision statement can galvanize the people to achieve defined objectives, even if they are stretch objectives, provided the vision is SMART (Specific, Measurable, Achievable, Relevant and Timebound). A mission statement provides a path to realize the vision in line with its values. These statements have a direct bearing on the bottomline and success of the organization.
Which comes first? The mission statement or the vision statement? That depends. If you have a new start up business, new program or plan to re engineer your current services, then the vision will guide the mission statement and the rest of the strategic plan. If you have an established business where the mission is established, then many times, the mission guides the vision statement and the rest of the strategic plan. Either way, you need to know where you are, your current resources, your current obstacles, and where you want to go - the vision for the future.[citation needed]
Features of an effective vision statement may include:
Clarity and lack of ambiguity
Paint a vivid and clear picture, not ambiguous
Describing a bright future (hope)
Memorable and engaging expression
Realistic aspirations, achievable
Alignment with organizational values and culture, Rational
Time bound if it talks of achieving any goal or objective
To become really effective, an organizational vision statement must (the theory states) become assimilated into the organization's culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, acting as role-models by embodying the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organization's overall vision
Strategies are different from tactics in that:
1. They are proactive and not re-active as tactics are.
2. They are internal in source and the business venture has absolute control over its application.
3. Strategy can only be applied once, after that it is process of application with no unique element remaining.
4. The outcome is normally a strategic plan which is used as guidance to define functional and divisional plans, including Technology, Marketing, etc.
Strategic Planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions:
"What do we do?"
"For whom do we do it?"
"How do we excel?"
In business strategic planning, the third question is better phrased "How can we beat or avoid competition?". (Bradford and Duncan, page 1).
In many organizations, this is viewed as a process for determining where an organization is going over the next year or more -typically 3 to 5 years, although some extend their vision to 20 years.
In order to determine where it is going, the organization needs to know exactly where it stands, then determines where it wants to go and how it will get there. The resulting document is called the "strategic plan".
It is also true that strategic planning may be a tool for effectively plotting the direction of a company; however, strategic planning itself cannot foretell exactly how the market will evolve and what issues will surface in the coming days in order to plan your organizational strategy. Therefore, strategic innovation and tinkering with the 'strategic plan' have to be a cornerstone strategy for an organization to survive the turbulent business climate.
Vision, mission and values
1)Vision: Defines where the organization wants to be in the future. It reflects the optimistic view of the organization's future.
2)Mission: Defines where the organization is going now, basically describing the purpose, why this organization exists.
3)Values: Main values protected by the organization during the progression, reflecting the organization's culture and priorities.
Strategic planning saves wasted time, every minute spent in planning saves ten minutes in execution.
The purpose of individual strategic planning is for you to increase your return on energy, the return on the mental, emotional, physical and spiritual capital you have invested in your life and career.
Every minute an individual spends planning their goals, activities and time in advance saves ten minutes of work in the execution of those plans -- or so claim several experts.. Careful advance planning gives you a return of ten times, or 1,000% , on your investment of mental, emotional and physical energy. (The 100 Absolutely Unbreakable Laws of Business Success.) In any case, it is generally agreed that spending a meaningful period of time reflecting on strategy and goals before taking action is almost always a wise course of action for any individual or institution.
Methodologies
There are many approaches to strategic planning but typically a three-step process may be used:
1)Situation - evaluate the current situation and how it came about.
2)Target - define goals and/or objectives (sometimes called ideal state)
3)Path - map a possible route to the goals/objectives
One alternative approach is called Draw-See-Think
4)Draw - what is the ideal image or the desired end state?
5)See - what is today's situation? What is the gap from ideal and why?
6)Think - what specific actions must be taken to close the gap between today's situation and the ideal state?
7)Plan - what resources are required to execute the activities?
An alternative to the Draw-See-Think approach is called See-Think-Draw
1)See - what is today's situation?
2)Think - define goals/objectives
3)Draw - map a route to achieving the goals/objectives
In other terms strategic planning can be as follows:
1)Vision - Define the vision and set a mission statement with hierarchy of goals
2)SWOT - Analysis conducted according to the desired goals
3)Formulate - Formulate actions and processes to be taken to attain these goals
4)Implement - Implementation of the agreed upon processes
5)Control - Monitor and get feedback from implemented processes to fully control the operation
Situational analysis
When developing strategies, analysis of the organization and its environment as it is at the moment and how it may develop in the future, is important. The analysis has to be executed at an internal level as well as an external level to identify all opportunities and threats of the new strategy.
There are several factors to assess in the external situation analysis:
1)Markets (customers)
2)Competition
3)Technology
4)Supplier markets
5)Labor markets
6)The economy
7)The regulatory environment
It is rare to find all seven of these factors having critical importance. It is also uncommon to find that the first two - markets and competition - are not of critical importance. (Bradford "External Situation - What to Consider")
Analysis of the external environment normally focuses on the customer. Management should be visionary in formulating customer strategy, and should do so by thinking about market environment shifts, how these could impact customer sets, and whether those customer sets are the ones the company wishes to serve.
Analysis of the competitive environment is also performed, many times based on the framework suggested by Michael Porter.
Goals, objectives and targets
Strategic planning is a very important business activity. It is also important in the public sector areas such as education. It is practiced widely informally and formally. Strategic planning and decision processes should end with objectives and a roadmap of ways to achieve those objectives.
The following terms have been used in Strategic Planning: desired end states, plans, policies, goals, objectives, strategies, tactics and actions. Definitions vary, overlap and fail to achieve clarity. The most common of these concepts are specific, time bound statements of intended future results and general and continuing statements of intended future results, which most models refer to as either goals or objectives (sometimes interchangeably).
One model of organizing objectives uses hierarchies. The items listed above may be organized in a hierarchy of means and ends and numbered as follows: Top Rank Objective (TRO), Second Rank Objective, Third Rank Objective, etc. From any rank, the objective in a lower rank answers to the question "How?" and the objective in a higher rank answers to the question "Why?" The exception is the Top Rank Objective (TRO): there is no answer to the "Why?" question. That is how the TRO is defined.
People typically have several goals at the same time. "Goal congruency" refers to how well the goals combine with each other. Does goal A appear compatible with goal B? Do they fit together to form a unified strategy? "Goal hierarchy" consists of the nesting of one or more goals within other goal(s).
One approach recommends having short-term goals, medium-term goals, and long-term goals. In this model, one can expect to attain short-term goals fairly easily: they stand just slightly above one's reach. At the other extreme, long-term goals appear very difficult, almost impossible to attain. Strategic management jargon sometimes refers to "Big Hairy Audacious Goals" (BHAGs) in this context.) Using one goal as a stepping-stone to the next involves goal sequencing. A person or group starts by attaining the easy short-term goals, then steps up to the medium-term, then to the long-term goals. Goal sequencing can create a "goal stairway". In an organizational setting, the organization may co-ordinate goals so that they do not conflict with each other. The goals of one part of the organization should mesh compatibly with those of other parts of the organization.
Mission statements and vision statements
Organizations sometimes summarize goals and objectives into a mission statement and/or a vision statement:
While the existence of a shared mission is extremely useful, many strategy specialists question the requirement for a written mission statement. However, there are many models of strategic planning that start with mission statements, so it is useful to examine them here.
A Mission statement: tells you what the company is now. It concentrates on present; it defines the customer(s), critical processes and it informs you about the desired level of performance.
A Vision statement: outlines what a company wants to be. It concentrates on future; it is a source of inspiration; it provides clear decision-making criteria.
Many people mistake vision statement for mission statement. The Vision describes a future identity and the Mission describes why it will be achieved. A Mission statement defines the purpose or broader goal for being in existence or in the business. It serves as an ongoing guide without time frame. The mission can remain the same for decades if crafted well. Vision is more specific in terms of objective and future state. Vision is related to some form of achievement if successful.
A mission statement can resemble a vision statement in a few companies, but that can be a grave mistake. It can confuse people. The vision statement can galvanize the people to achieve defined objectives, even if they are stretch objectives, provided the vision is SMART (Specific, Measurable, Achievable, Relevant and Timebound). A mission statement provides a path to realize the vision in line with its values. These statements have a direct bearing on the bottomline and success of the organization.
Which comes first? The mission statement or the vision statement? That depends. If you have a new start up business, new program or plan to re engineer your current services, then the vision will guide the mission statement and the rest of the strategic plan. If you have an established business where the mission is established, then many times, the mission guides the vision statement and the rest of the strategic plan. Either way, you need to know where you are, your current resources, your current obstacles, and where you want to go - the vision for the future.[citation needed]
Features of an effective vision statement may include:
Clarity and lack of ambiguity
Paint a vivid and clear picture, not ambiguous
Describing a bright future (hope)
Memorable and engaging expression
Realistic aspirations, achievable
Alignment with organizational values and culture, Rational
Time bound if it talks of achieving any goal or objective
To become really effective, an organizational vision statement must (the theory states) become assimilated into the organization's culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, acting as role-models by embodying the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organization's overall vision
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