Cracking the Marketing Code

Report
Marketing 101
Cracking the Marketing Code
Training Session
Columbia Business School
October 29, 2010
Objectives
• Look smart and knowledgeable in CPG
interviews
• Actually learn something
– Basic marketing concepts
– Some clever tools to crack the code
• Have a global view
Basic marketing concepts
3C´s
• Corporation
• Customer
• Competitors
STP
• Segmentation
• Targeting
• Positioning
4P´s
• Product
• Price
• Place
• Promotion
How they relate
Corporation
Marketing Mix
4P´s by segment
Competition
Customer
Customer
Target
Segments
Segments
Customer
Segments
A simple example…us
1st. yr.
Columbia
MBA´s
AM Inc.
Marketing Mix
Product – CPG marketing tutorial
Place – here
Promotion – email invites
Price ???
Value proposition – 25% increased chances of getting CPG summer offer
 How much would you pay?
 How much should I charge?
Add a competitor
1st. yr.
Columbia
MBA´s
AM Inc.
RK Inc.
What do I do?
Offers same product at 20%
discount across the hall
Lower my price ?
Differentiate product and promote it?
Segment and target?
A segmented strategy
1st yr. Columbia MBA´s
35%
65%
Analitics
Leave to RK
AM target
More likely to succeed
Better fit with my capabilities
Tailored marketing mix
Product CPG analytical marketing
Pricing premium
Promotion to analytical “elite”
Place here plus “web tutorial”
Basic marketing concepts
3C´s
• Corporation
• Customer
• Competitors
STP
• Segmentation
• Targeting
• Positioning
4P´s
• Product
• Price
• Place
• Promotion
Customer segmentation
What is Segmentation?
Why is Segmentation Useful?
 “The science of finding, within a
heterogeneous customer
universe, homogeneous
groupings of customers which
meet segmentation criteria
defined by us”
 Allows us to assign people and limited
resources more efficiently and effectively
 “Segment quality improves
dramatically to the extent that we
utilize both subjective and
objective criteria to define the
segments”
 Helps orient the design of products and
services for specific sub-groupings of
customers, shoppers, and consumers
 Facilitates the uncovering of needs and
opportunities not exploited by our current
approach
 Results in significant improvement in the impact
of marketing initiatives (programs and
promotions) and in-store execution
 Usually results in better balance between
benefits and the costs required to generate
them
Segmented value propositions
Intensive use of market
research tools – e.g.,
Choice analysis, Conjoint
analysis, cluster analysis,
etc.
Cost to Serve
 Direct cost to serve – sales,
transportation, warehousing,
etc.
 Commercial terms – channel
margins, credit terms
 CTS optimization opportunities
must be considered
Customer
Requirements and
Satisfaction






Value
Proposition
Economic Benefit to
Customers
 Impact on ROI vs. competition
and other product categories
 Include a holistic assessment
including all elements of the
value equation
Service levels
Product portfolio
Service offering
Commercial offering
Channels
Sales and distribution model
Competing Value
Propositions
 Brand and product portfolio
strength
 Value proposition
 Client satisfaction with competing
value propositions
Segmentation and targeting process
B
Assess
Market
Structure & C
Trends
Define Market
A
Overall
Overall
Market
Market
Set
Define
Strategic
Market
Objectives
F
Overall
Market
Select Target
Market
Segments
Identify
Attractive
Right
Market
Segments
Analyze
Perform
Right-toCompetitor
win
Analysis
E
D
Target
Segments
Define market
B
Market Definition: Aquafina Bottled Water
 What does PepsiCo aspire to be in long-term?
 How can the aspiration be translated into a competitive goal for Aquafina?
 What else can the company potentially sell with its current capabilities?
Options
1 Share of Water
2 Share of Beverage
3 Share of Stomach
 Substitute products
– Other brands of bottled
water
– Tap water
– Filtered water
 Substitute products
– Carbonated drinks
– New age drinks
– Nectar
– Coffee and tea
 Substitute products
– Non-alcoholic beverages
– Salty snacks
– Sweet snacks
– Fruits and vegetables
Market of drinking water
Market of non-alcoholic
beverages
Market of snack food and
beverage
C
Asses market structure and trends
Non-alcoholic beverages value added path
CSD
B
Brands
CSD
A Brands
Rural Brazil
Rural China
Fruit
Nectars/Drin
ks
B brands
Rural Brazil
Juice
B Brands
Fruit
Nectars/Drin
ks
A brands
Rural Russia
Rural Russia
Juice
A Brands
Urban China
D
Identify attractive market segments
Sugar confectionery consumer need diagram
Expressive
ENJOYMENT
Pleasure
Kick
Candy
Sharing
Individual
Social
Conscious
Pastilles
Stimulus
Relaxation
Chewing
Functional
Refreshment
gum
REFRESHMENT
Controlling
E
Analyze “Right to win”
Examples of capabilities led extension into adjacencies
Level of Confidence Regarding Benefits
Example
Description
Advantaged
Distribution
System
 Built a cost advantaged DSD delivery capability that was initially leveraged with existing
products to out-execute competition
 Further leveraged scale with innovative new products and finally geographic expansion
Advantaged
Innovation
 Leveraged R&D technology and consumer insights to introduce “Crest Whitestrips” and
now own 70% of that category
 Leveraged “Crest Whitestrips” technology to create a Joint Venture with Clorox to launch
new Glad products
Advantaged Ethnic
Marketing
Advantaged
Customer
Capabilities
 Leveraged strong consumer insights capability and position in Latin America to create an
ethnic marketing capability in the US
– First used this capability to attract new consumers in key markets (e.g. Miami, Los
Angeles)
– Later adapted the value proposition for these consumers with new products and
marketing approaches
 Traditionally had the one of the strongest “in-house” sales organizations
 Built a comprehensive “retail execution” capability with its sales organization – improving
revenue execution through merchandising effectiveness and greatly reducing retail out-ofstocks
F
Identify attractive market segments
 "Sportler" Emotional
 "Techniker"
 "Yuppies"
 "Sparer"
Price
Top Image
 "Statusbewußte"
 "Rationalisten"
Rational
Position with different look and feel
Sextuplets
Piech´s common components strategy:
a few token gimmicks and the same products
Basic marketing concepts
3C´s
• Corporation
• Customer
• Competitors
STP
• Segmentation
• Targeting
• Positioning
4P´s
• Product
• Price
• Place
• Promotion
Price and product attributes
Vegetable oil in China
COST
~50 RMB / 5 L
~10 RMB / L
20% premium
QUALITY
CONVENIENCE
60 RMB / 5 L
12 RMB / L
24 RMB / 1.8 L
13.33 RMB / L
11% premium
Snacks value added path
Extruded B
Rural Brazil
Extruded A
Urban China
Chips B
Chips A
Rural Brazil
Urban Russia
Price points and premiums
Extruded B
Large Size, Small Size
Chips A
Large Size Small Size
Rural
Urban
Extruded B, Large
Extruded B, Small Chips A, Large
Chips A, Small
21
Price points…”affordability”
Place…retail channels evolve
Retail channels evolution
100 %
Growing convenience stores &
Discounters for
Low Income Consumers
Traditional Trade
Small Format Modern Trade
Large Formats stalled
Low penetration among
Low Income Consumers
50 %
Large Format Modern Trade
0%
India
China
Brazil & Mexico
US & Europe
From traditional to modern trade
Traditional trade in Anhui
Hypermarket in Shanghai
”Go to Market” model
Guidelines for a Successful Go to Market Model
Upgrade Go-to-Market
and Organizational
Capabilities
 Redefine sales force activities
and call standards
 Improve effectiveness of key
processes
– Market execution/OTC
– Account planning
– Business review and control
 Define optimal sizing, routing,
profiles and skills
 Improve tools
 Align measurement and rewards
Understand Business
and Customer
Requirements
 Understand product dynamics and requirements
 Understand customer requirements/satisfaction
 Understand competitors offering
 Segment customers based on needs
Successful
Go-to-Market
Model
Crack the Economics
to Serve Each Channel
Craft an Optimal Value
Proposition for Each
Channel
 Define optimal channel mix and
number of WH’s/Distributors
 Define WH/Distributors roles
 Balance service levels – call content,
call frequency, fill rates, leadtimes –
vs. cost-to-serve
 Reengineer commercial terms and
service policies
 Understand cost-to-serve and
profitability drivers
 Understand true cost of indirect
channels vs. direct service
 Balance and control commercial
terms and discounts vs. direct
service needs
 Reengineer go-to-market and
supporting organization
infrastructure to improve cost-toserve
Crack the economics to serve
“Profit-to-Serve” Equation
Volume (reach and lift)
Revenues
Profit to Serve
less
Costs
26
Net Price Realization
– Number of accounts reached
– Consumer price
– Shelf and cold space
– Trade margins
– Categories and # of SKUs carried
– Trading terms
– Out of Stocks and Service Levels
Direct GTM and Sales
Costs
– Sales force
– Merchandising
– Sales supervision
– Delivery/secondary transportation
– Custom products and packaging
– Supply chain and DC requirements
Shopper and Customer
Marketing
– In-store advertising
– Shopper marketing
– Customer activation
Trade Promotion
Asset Amortization
Working Capital
“Modern Trade” economics
$ Per Stat Case
Route-To-Market – Variability Among Retailers in Cost to Serve
Customer Costs as a
36% 37% 29%
Percent of Sales
Dollars
27
Source: BAH Analyses
25% 24% 26% 22% 22% 21% 22% 18% 15%
19% 17%
15%
“Traditional trade” economics
Varied Customer Contribution
40%
% Customer Profitability
20%
Mean Customer
Profitability
0
(-20%)
(40%)
(60%)
(80%)
100
1,000
10,000
Client Size
100,000
1,000,000
(kg)
Channel Categories
Customer 1
Customer 5
28
Customer 2
Customer 6
Customer 3
Customer 4
Customer 7
Customer 8
Channel definition
Break-Even Point of Direct
Service
Additional Go-to-Market Benefits
Due to Additional Wholesalers
Leading
Products
8
Complementary
Products
$120
7
5
Go-to-Market ($MM)
If a customer buys
less than 4 - 5 units, it
cost less to use
distributors
6
US$ Volume
New
Products
4
3
$100
Benefits of direct service
$80
Better coverage of total
portfolio
Better service levels
$60
$40
Distributors and WH´s margin
2
$20
1
Direct Service Cost
$0
0
0
1
2
3
4
5
6
7
8
1
2
3
4
Order Size (Units)
Source: BA&H Analysis
RPMX-JGB-Feb23-06
5
6
7
SKUs
Go-to-Market using
Current WH´s
Incremental revenues due
To additional customer base
8
Value offering by channel
Survey / Conjoint Analysis
Segments
Value Offering
Bonificaciones
0.6
Product
Offering
Bonificaciones
0.8
0.4
Promociones /
Activaciones
0.6
Promociones /
Activaciones
0.4
Licencia
0.2
Licencia
0.2
0
0
Imagen
Imagen
Crédito
Maximize value/
Minimize Cost
Crédito
Refrigeración
Refrigeración
Bonificaciones
0.6
0.4
Promociones /
Activaciones
Licencia
0.2
12.0
0
Imagen
Crédito
10.0
Refrigeración
8.0
6.0
Optimized Cost to Serve
4.0
2.0
% CTS / Revenue
0.0
4.6
1.1
1.2
1.7
C
1.3
1.4
5.3
1.4
6.0
0.5
1.6
0.4
0.5
2.2
2.9
3.3
3.9
1.9
M
G
C
M
G
Negotiation
Oriented
Service
Levels
Delivery
Model
Finance
Oriented
Segments
Trade Terms/
Support
volume
Promotions…”ROI Marketing”
Marketing Investments
Purchase Behavior
Market Results
Television
Brand and Product
Awareness
Billboards
(OOH)
Print
Consideration
affects …
SOM
$ Spend
… which in turn
affects …
Intent
Promotions
Market share
Consumer
Events
Purchase
Unit sales
Price premium
Relationship
Marketing
Sponsorships
Loyal-ty
Penetration of key
segments
Etc.
Allocation of funds across
marketing levers
Optimization of spending within
each lever
Allocation across levers
Effectiveness: Awareness / GRP
– Relative to TV(1)
1428%
1028%
Media Effectiveness x Efficiency
(Relative to TV – 100%)
12.9x
3569%
10.7x
19%
34%
1%
3%
12.9x
100%
25.0x
2.5x
Efficiency: Cost per GRP’s (US$)
69,204
41,522
4.4x
173,010
179
0
319
40
10
0
4.0x
1.0x
682
(1) Relative effectiveness to TV = (Media awareness /Media GRPs) / (TV awareness / TV GRPs)
Source: Economic Model; Booz Allen analysis
Optimization within levers
ROI Over All Events and Products
(Four Account Sample)
Sample Trade Promotion
Event ROI
-63%
median
event ROI.
-48%
average ROI
Event ROI
91% of
events yield
a negative
ROI
Event ROI
Kmart
Events
Event ROI
Product 1
Events
Notes:
(1) Assumptions made on list price, feature cost, and that retailers retain their base margin
(2) ROI=(Revenue-Cost)/Cost
Source: IRI Scanner Data; Manufacturer Cost Data; Booz Allen analysis
-43%
median
event
Events
ROI
-63%
median
event
ROI
Competitive impact
Share of Spend vs. Market Share
(2004 to 2006)
2004 to 2006 Change in Spend vs.
Change in Market Share
LG
Kenmore
Whirlpool
GE
LG
Whirlpool
2004 to 2006 Point Increase in
Share of Media Spend
Share of Media Spend
Kenmore
GE
KitchenAid
Kitchen
Aid
Maytag
Share of Market – Value
All Appliances
Source: TNS Data, AHAM, Traqline, Booz Allen Analysis
Maytag
2004 to 2006 Point Increase in
Share of Market
Scale impact
Beer Brands
Marketing investment by hectoliter
25
Amstel Light
USD/HL
20
Coors
15
Michelob Light
Heineken
10
Miller Genuine
Draft
Corona Extra
5
2
R = 89%
Miller Lite
Co
Coors
ors Light
Budweiser
Bud Light
0
5
10
15
Fuente: Morgan Stanley Quarterly Report. Beverages US. Análisis BAH
20
25
30
Millions of HL/year
35
40
45
Consumer purchase funnel
Brand A
Brand B
99%
Awareness
-73%
27%
Preference
Potential Problem
99%
-44%
 Positioning not unique, meaningful?
 Product, service offering does not deliver
positioning?
55%
0%
27%
Intent
-16%
Identified
Issue:
19%
Product positioning is not truly
differentiated or compelling
Source: Client Data; Booz Allen analysis
 Perceived pricing overrides benefit of
positioning?
 Perceived availability (channels) doesn’t
support positioning?
46%
-30%
Purchase
 Inadequate advertising/PR support?
 Positioning not unique, meaningful?
-65%
16%
Retail outlets steer customers to
competitive products on which
the outlet earns superior
returns
 Actual price/value is different from
perceived price/value?
 Actual availability (channels) does not
support positioning?
 Not easy to find in channels?
 Other benefits, products are advertised
in channel?
Marketing vehicles mix and purpose
Consumer Purchase Funnel
Marketing Vehicles
Conventional
Awareness
Consideration
Trial
Occasional
Buyer
Regular
Buyer
Retention
Pene
-tration
Alternative
 Mass Media
 Outdoor advertising




Product placement
Unconventional print
Internet marketing
Graffiti advertising
 Mass Media
 Outdoor advertising




Event marketing
Buzz marketing
Guerrilla marketing
Viral marketing





Event marketing
One-to-one sampling
Direct marketing
Lifestyle shop placement
Switch Selling
 Broad market sampling




Mass Media
Outdoor advertising
Promotions
Pricing
 Direct marketing
 Event marketing
 Lifestyle shop placement
Search for long term value value
Incremental Spending on Marketing Levers and
Impact on EBITDA, SOM and Enterprise Value
Managing Trade-off’s
380
4.5
Enterprise Value
375
4.0
370
3.5
365
3.0
360
2.5
355
2.0
350
1.5
345
1
0
$10M
$20M
$30M
$45M
0
$65M
Incre. Share
0
2%
4%
6%
8%
10%
Base Vol Trend
0
(2%)
(1%)
0%
1%
2%
Source: Client Data; Booz Allen analysis
Enterprise Value ($B)
EBITDA (US$ MM)
EBITDA (Annual)
340
Incre. Spending
 Marketing investments drive share
growth, but profitability tends to
decline as incremental share
becomes more expensive
 In the short-term, the right decision
is to maximize profits which requires
incremental investments until they
begin producing negative returns
 However, in the long-term, the more
profitable decision may be to grow
share, even at a loss, if this enables
superior market power / sustainable
competitive advantage
 However, getting this right is an
iterative process and the trade-offs
need to be clearly understood and
carefully managed
 This process provides significant
insights into the dynamic impact of
marketing investments on share and
earnings
In summary
3C´s
• Corporation
• Customer
• Competitors
Grab the big picture
STP
• Segmentation
• Targeting
• Positioning
Pick your fights
4P´s
• Product
• Price
• Place
• Promotion
Strive for top value

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