Marketing strategy
Inhoudsopgave
1 Definition/overview .............................................................................................................. 3
2 First principles of marketing strategy..................................................................................... 4
2.1 MP1: all customers di4er à managing customer heterogeneity ............................................. 4
2.2 MP2: all customers change à managing customer dynamics ............................................... 4
2.3 MP3: all competitors react à managing sustainable competitive advantage .......................... 5
2.4 MP4: all resources are limited à managing resource trade-o4s ............................................. 5
3 Case AND1 ........................................................................................................................... 6
4 Approaches for managing customer heterogeneity ................................................................ 8
4.1 Evolution of approaches for managing customer heterogeneity ............................................. 8
4.2 Segmenting, targeting and positioning (STP) approach .......................................................... 9
4.3 Framework for managing customer heterogeneity............................................................... 11
4.3.1 Inputs to managing customer heterogeneity framework................................................... 11
4.3.2 Process for managing customer heterogeneity ................................................................ 12
4.3.3 Outputs to managing customer heterogeneity framework ................................................ 15
5 Approaches for managing customer dynamics......................................................................15
5.1 Evolution of approaches for managing customer dynamics ................................................. 16
5.1.1 Lifecycle approach ........................................................................................................ 16
5.1.2 Customer dynamic segmentation approach ................................................................... 17
5.1.3 Customer lifetime value approach ................................................................................. 17
5.1.4 Choice models .............................................................................................................. 18
5.1.5 Hidden Markov model analysis ....................................................................................... 20
5.2 Framework for managing customer dynamics .................................................................... 21
5.2.1 Inputs to managing customer dynamics framework ........................................................ 21
5.2.2 Process of managing customer dynamics framework ...................................................... 21
5.2.3 Output for managing customer dynamics ....................................................................... 22
6 Approaches for managing sustainable competitive advantage...............................................22
6.1 O4ering-based SCA .......................................................................................................... 23
6.1.1 OHering and innovation strategies .................................................................................. 24
6.1.2 Launching and diHusing innovation strategies ................................................................. 32
6.2 Managing o4ering-based sustainable competitive advantages ............................................ 34
6.2.1 Steps to building oHering equity ..................................................................................... 34
6.2.2 Research approaches to designing and launching new oHerings ...................................... 34
6.3 Evolution of sustainable competitive advantage in marketing .............................................. 34
6.4 Customer equity perspective ............................................................................................. 35
6.5 Customer experiments ...................................................................................................... 36
1
, 6.6 Framework for managing competitive advantage ................................................................ 37
6.7 Brand-based SCA ............................................................................................................. 38
6.7.1 Brand basics ................................................................................................................. 38
6.7.2 Brand architecture ......................................................................................................... 40
6.7.3 Brand extensions (oHering equity) .................................................................................. 41
6.8 Three steps to building brand equity ................................................................................... 42
6.9 Research approaches to understanding and measuring brand equity ................................... 42
6.10 Relationship-based sustainable competitive advantage ...................................................... 43
6.10.1 Relationship marketing strategy ................................................................................. 44
6.10.2 Managing relationship-based sustainable competitive advantage ............................... 46
7 Approaches for managing resource trade-oIs ......................................................................47
7.1 Resource trade-o4 for all first marketing principles ............................................................. 48
7.2 Evolution of approaches for managing resource trade-o4s .................................................. 49
7.2.1 Anchoring-adjusting heuristics approach........................................................................ 50
7.2.2 Attribution approach ..................................................................................................... 50
7.3 Framework for managing resource trade-o4s...................................................................... 53
7.4 Experiments for marketing ................................................................................................. 53
7.5 Causality vs correlation ..................................................................................................... 54
7.5.1 Randomized field experiments ....................................................................................... 54
7.5.2 Quasi-experiments ........................................................................................................ 55
8 Marketing principles and data analytics ...............................................................................56
8.1 Methodological capabilities ............................................................................................... 57
9 Case study 1: managing customer heterogeneity in the smartwatch market ...........................58
10 Case study 2: predicting customer churn at Logi.Tude ...........................................................60
11 Case 3: promoting better eggs and fighting chick culling .......................................................64
12 Causality: the diIerence-in-diIerences approach ................................................................67
2
,1 Definition/overview
Marketing is the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging o:erings that have value for customers, clients, partners, and
society at large.
Strategy is a plan of action designed to achieve a long-term or overall aim.
Marketing strategy is based on the first principles and data analytics. The first principles
are:
- All customers di:er
- All customers change (you’re not sure that a product that works now, wil work in
the future)
- All competitors react (Nash equilibrium, prisoner’s dilemma…)
- All resources are limited
There are 5 key elements that are critical to marketing strategy:
- Leads to a di:erential advantage over competitors
- Sustainability
- Links to firm performance
- Customer perspective (customer-centricity!)
- Guide decisions and actions
Large amount of research documents its impact on financial performance, but many
people don’t realize the scope of influences on sales and profits:
- Grow market size (new products and services, lower prices)
- Grow share (better products and services than competition, higher loyalty to
retain, and/or steal customers with acquisition strategies)
- Better prices and margins (improve loyalty, brand image, relationships, products,
targeting of high margin customers)
- Reduce costs (WOM, brand, relationships, retain with loyalty)
Eg. when Apple launched a new iPhone they grew the market, increased their share (took
from competitors). If you make better products, you’re allowed to ask better prices and
margins. That price impacted the firm’s selling price and the firm’s gross margin. Lastly it
can also reduce costs and marketing expenses (eg. by WOM). So we see it’s di:icult to
isolate one action to know how it impacts the firm.
3
, 2 First principles of marketing strategy
We don’t use case examples because it’s hard to find a case example for every marketing
problem and what works for ‘case firm’ will not work for you firm because:
- Di:erent customers
- Di:erent stage of product or industry lifecycle
- Di:erent competitive situation
- Di:erent resources
For each marketing principle we have a key marketing decision.
2.1 MP1: all customers di4er à managing customer heterogeneity
For most products and services customers vary widely on desires/needs. For example,
in the financial sector there are over 9000 mutual fund options and in grocery stores they
carry 60,000+ shop keeper units. The desires/needs even di:er for commodities (eg.
Water).
Thus, firms are targeting smaller & smaller segments, because if you take bigger
groups, your product doesn’t fit all your customers, and you don’t sell. Firms change from
mass marketing to niche marketing to 1-to-1 marketing. There is more competition
because firms target smaller segments.
There are di:erent reasons why firms are targeting smaller segments:
- The desires of customers are real or perceived
- Faster response to customer trends and changes
- Technology enabled (more economical to target/customize)
- Only limited by trade-o: in e:iciency (cost) versus benefit of better match to need
(solution) (eg. Customized Nike shoes)
MP1 segments the whole market.
2.2 MP2: all customers change à managing customer dynamics
Customer’s desires/needs for most products and services change overtime or due to
specific events. We can say that customers need change (eg. food, clothes, financial
services…) but there are also trigger events (eg. marriage, kids…). Also
industries/markets change (eg. experience curve, di:usion, competitive responses,
overproduction).
4
Inhoudsopgave
1 Definition/overview .............................................................................................................. 3
2 First principles of marketing strategy..................................................................................... 4
2.1 MP1: all customers di4er à managing customer heterogeneity ............................................. 4
2.2 MP2: all customers change à managing customer dynamics ............................................... 4
2.3 MP3: all competitors react à managing sustainable competitive advantage .......................... 5
2.4 MP4: all resources are limited à managing resource trade-o4s ............................................. 5
3 Case AND1 ........................................................................................................................... 6
4 Approaches for managing customer heterogeneity ................................................................ 8
4.1 Evolution of approaches for managing customer heterogeneity ............................................. 8
4.2 Segmenting, targeting and positioning (STP) approach .......................................................... 9
4.3 Framework for managing customer heterogeneity............................................................... 11
4.3.1 Inputs to managing customer heterogeneity framework................................................... 11
4.3.2 Process for managing customer heterogeneity ................................................................ 12
4.3.3 Outputs to managing customer heterogeneity framework ................................................ 15
5 Approaches for managing customer dynamics......................................................................15
5.1 Evolution of approaches for managing customer dynamics ................................................. 16
5.1.1 Lifecycle approach ........................................................................................................ 16
5.1.2 Customer dynamic segmentation approach ................................................................... 17
5.1.3 Customer lifetime value approach ................................................................................. 17
5.1.4 Choice models .............................................................................................................. 18
5.1.5 Hidden Markov model analysis ....................................................................................... 20
5.2 Framework for managing customer dynamics .................................................................... 21
5.2.1 Inputs to managing customer dynamics framework ........................................................ 21
5.2.2 Process of managing customer dynamics framework ...................................................... 21
5.2.3 Output for managing customer dynamics ....................................................................... 22
6 Approaches for managing sustainable competitive advantage...............................................22
6.1 O4ering-based SCA .......................................................................................................... 23
6.1.1 OHering and innovation strategies .................................................................................. 24
6.1.2 Launching and diHusing innovation strategies ................................................................. 32
6.2 Managing o4ering-based sustainable competitive advantages ............................................ 34
6.2.1 Steps to building oHering equity ..................................................................................... 34
6.2.2 Research approaches to designing and launching new oHerings ...................................... 34
6.3 Evolution of sustainable competitive advantage in marketing .............................................. 34
6.4 Customer equity perspective ............................................................................................. 35
6.5 Customer experiments ...................................................................................................... 36
1
, 6.6 Framework for managing competitive advantage ................................................................ 37
6.7 Brand-based SCA ............................................................................................................. 38
6.7.1 Brand basics ................................................................................................................. 38
6.7.2 Brand architecture ......................................................................................................... 40
6.7.3 Brand extensions (oHering equity) .................................................................................. 41
6.8 Three steps to building brand equity ................................................................................... 42
6.9 Research approaches to understanding and measuring brand equity ................................... 42
6.10 Relationship-based sustainable competitive advantage ...................................................... 43
6.10.1 Relationship marketing strategy ................................................................................. 44
6.10.2 Managing relationship-based sustainable competitive advantage ............................... 46
7 Approaches for managing resource trade-oIs ......................................................................47
7.1 Resource trade-o4 for all first marketing principles ............................................................. 48
7.2 Evolution of approaches for managing resource trade-o4s .................................................. 49
7.2.1 Anchoring-adjusting heuristics approach........................................................................ 50
7.2.2 Attribution approach ..................................................................................................... 50
7.3 Framework for managing resource trade-o4s...................................................................... 53
7.4 Experiments for marketing ................................................................................................. 53
7.5 Causality vs correlation ..................................................................................................... 54
7.5.1 Randomized field experiments ....................................................................................... 54
7.5.2 Quasi-experiments ........................................................................................................ 55
8 Marketing principles and data analytics ...............................................................................56
8.1 Methodological capabilities ............................................................................................... 57
9 Case study 1: managing customer heterogeneity in the smartwatch market ...........................58
10 Case study 2: predicting customer churn at Logi.Tude ...........................................................60
11 Case 3: promoting better eggs and fighting chick culling .......................................................64
12 Causality: the diIerence-in-diIerences approach ................................................................67
2
,1 Definition/overview
Marketing is the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging o:erings that have value for customers, clients, partners, and
society at large.
Strategy is a plan of action designed to achieve a long-term or overall aim.
Marketing strategy is based on the first principles and data analytics. The first principles
are:
- All customers di:er
- All customers change (you’re not sure that a product that works now, wil work in
the future)
- All competitors react (Nash equilibrium, prisoner’s dilemma…)
- All resources are limited
There are 5 key elements that are critical to marketing strategy:
- Leads to a di:erential advantage over competitors
- Sustainability
- Links to firm performance
- Customer perspective (customer-centricity!)
- Guide decisions and actions
Large amount of research documents its impact on financial performance, but many
people don’t realize the scope of influences on sales and profits:
- Grow market size (new products and services, lower prices)
- Grow share (better products and services than competition, higher loyalty to
retain, and/or steal customers with acquisition strategies)
- Better prices and margins (improve loyalty, brand image, relationships, products,
targeting of high margin customers)
- Reduce costs (WOM, brand, relationships, retain with loyalty)
Eg. when Apple launched a new iPhone they grew the market, increased their share (took
from competitors). If you make better products, you’re allowed to ask better prices and
margins. That price impacted the firm’s selling price and the firm’s gross margin. Lastly it
can also reduce costs and marketing expenses (eg. by WOM). So we see it’s di:icult to
isolate one action to know how it impacts the firm.
3
, 2 First principles of marketing strategy
We don’t use case examples because it’s hard to find a case example for every marketing
problem and what works for ‘case firm’ will not work for you firm because:
- Di:erent customers
- Di:erent stage of product or industry lifecycle
- Di:erent competitive situation
- Di:erent resources
For each marketing principle we have a key marketing decision.
2.1 MP1: all customers di4er à managing customer heterogeneity
For most products and services customers vary widely on desires/needs. For example,
in the financial sector there are over 9000 mutual fund options and in grocery stores they
carry 60,000+ shop keeper units. The desires/needs even di:er for commodities (eg.
Water).
Thus, firms are targeting smaller & smaller segments, because if you take bigger
groups, your product doesn’t fit all your customers, and you don’t sell. Firms change from
mass marketing to niche marketing to 1-to-1 marketing. There is more competition
because firms target smaller segments.
There are di:erent reasons why firms are targeting smaller segments:
- The desires of customers are real or perceived
- Faster response to customer trends and changes
- Technology enabled (more economical to target/customize)
- Only limited by trade-o: in e:iciency (cost) versus benefit of better match to need
(solution) (eg. Customized Nike shoes)
MP1 segments the whole market.
2.2 MP2: all customers change à managing customer dynamics
Customer’s desires/needs for most products and services change overtime or due to
specific events. We can say that customers need change (eg. food, clothes, financial
services…) but there are also trigger events (eg. marriage, kids…). Also
industries/markets change (eg. experience curve, di:usion, competitive responses,
overproduction).
4
