Marketing FundamentalsMarket

Consumer Marketing Mix

Sustainable Competitive Advantage Core Competency

Experience Curve Effects Marketing Myopia

Business Model Value

Market Share Economies of Scope

End User

MarketA market is a mechanism which allows

people to trade, normally governed by the theory of supply and demand. Both general and specialised markets, where only one commodity is traded, exist. Markets work by placing many interested sellers in one place, thus making them easier to find for prospective buyers.

MarketAn economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast to a command economy.

MarketThe traditional market is a city square

where traders set up stalls and buyers browse the merchandise. This kind of market is very old, and countless such markets are still in operation around the whole world.

MarketIn the USA such markets fell out of favor, but renewed interest in local food has cause the reinvention of this type of market, called farmers' markets, in many towns and cities.

An example of a large market is Chatuchak weekend market in Bangkok. The Roman term for market, still in use in a related sense, is forum.

MarketIn modern times, mainly after the invention

of the electronic computer, markets are not always located in a physical space.

Such virtual markets consist of communication paths where information exchange is easy and deals may be struck. A notable example of this is the international currency market.

Consumer In economics, consumers are

individuals or households that "consume" goods and services generated within the economy. Since this includes just about everyone, the term is a political term as much as an economic term when it is used in everyday speech.

Consumer

Typically when businesspeople and economists talk of "consumers" they are talking about person-as-consumer, an aggregated commodity item with little individuality other than that expressed in the buy/not buy decision. However there is a trend in marketing to individualize the concept.

Consumer

Instead of generating broad demographic and psychographic profiles of market segments, marketers are engaging in personalized marketing, permission marketing, and mass customization.

Consumer

In standard microeconomic theory, a consumer is assumed to have a budget which can be spent on a range of goods and services available on the market. Under the assumption of rationality, the budget allocation is chosen according to the preference of the consumer, i.e. to maximize his or her utility function.

ConsumerIn time-series models of consumer

behaviour, the consumer may also invest a proportion of their budget in order to gain a greater budget in future periods. This investment choice may include either fixed rate interest or risk-bearing securities.

ConsumerConcern over the best interests of

consumers has spawned much activism, as well as incorporation of consumer education into the school curriculum. One non-profit publication active in consumer education is Consumer Reports.

CustomerIn Computing, a client is a system

that accesses a (remote) service on another computer by some kind of network. The term originated from devices that were not capable of running their own stand-alone programs, but could interact with remote computers via some network.

CustomerThese dumb terminals were clients of

the time-sharing mainframe computer. The client-server is still used today on the Internet, where a user may connect to a service operating on a remote system.

Marketing mix

Marketers have essentially four variables to use when crafting a marketing strategy and writing a marketing plan. They are price, promotion, product and distribution (also called placement). They are sometimes referred to as the four p's.

Marketing mix

A marketing mix is a combining of these four variables in a way that will meet or exceed organizational objectives. A separate marketing mix is usually crafted for each product offering. When constructing the mix, marketers must always be thinking of who their target market are.

Marketing mix

Mix coherency refers to how well the components of the mix blend together. A strategy of selling expensive luxury products in discount stores has poor coherency between distribution and product offering.

Marketing mix

In the long term, all four of the mix variables can be changed, but in the short term it is difficult to modify the product or the distribution channel. Therefore in the short term, marketers are limited to working with only half their tool kit.

Marketing mix

This limitation underscores the importance of long term strategic planning.

Some commentators have increased the number of p's in the mix to 5, 6 or even 8.

Marketing mix

"People" is sometimes added, recognizing the importance of the human element in all aspects of marketing. Others include "Partners" as a mix variable because of the growing importance of collaborative channel relationships.

Sustainable competitive advantage

In marketing, sustainable competitive advantage is an advantage that one firm has relative to competing firms. It usually originates in a core competency.

Sustainable competitive advantage

difficult to mimic unique sustainable superior to the competition applicable to multiple situations

To be really effective, the advantage must be:

Sustainable competitive advantage

superior product quality extensive distribution contracts accumulated brand equity and positive company

reputation low cost production techniques patents and copyrights government protected monopoly superior employees and management team

Examples of company characteristics that could constitute a sustainable competitive advantage include:

Sustainable competitive advantage

The list of potential sustainable competitive advantage characteristics is very long. However there are some commentators that claim that in a fast changing competitive world, none of these advantages can be sustained in the long run.

Core competency

A company's core competency is the one thing that it can do better than its competitors. A core competency can be anything from product development to employee dedication. If a core competency yields a long term advantage to the company, it is said to be a sustainable competitive advantage.

Core competency

For example, Black and Decker's core technological competency is in one-quarter to three-quarter horsepower electric motors. All of their products are modifications of this basic technology (with the exception of their work benches, flash lights, battery charging systems, toaster ovens, and coffee percolators).

Core competency

the home workshop market - In the home workshop market, small electric motors are used to produce drills, circular saws, sanders, routers, rotary tools, polishers, and drivers.

the home cleaning and maintenance market - In the home cleaning and maintenance market, small electric motors are used to produce dust busters, vacuum cleaners, hedge trimmers, edge trimmers, lawn mowers, leaf blowers, and pressure sprayers.

They produce products for three markets;

Core competency

kitchen appliance market. In the kitchen appliance market, small electric motors are used to produce can openers, food processors, blenders, bread makers, and fans.

Core competency

They claim that the only truly sustainable competitive advantage is to build an organization that is so alert and so agile that it will always be able to find an advantage, no matter what changes occur.

Experience curve effects

Experience curve effects

The learning curve effect and the closely related experience curve effect express the relationship between experience and efficiency.

As an individual or organization gets more experience at a task, he/she/it will usually become more efficient. Both concepts are a modern formulation of the old adage, “Practice makes perfect”.

The Learning Curve Effect

The Learning Curve Effect

The learning curve effect states that the more often a task is performed, the less time will be required on each iteration. This relationship was first quantified in 1925 at Wright-Patterson Air Force Base in America, where it was determined that every time aircraft production doubled, the required labour time decreased by 10 to 15 percent.

The Learning Curve Effect

Subsequent empirical studies from other industries have obtained different values ranging from only a couple of percent up to 30 percent, but in most cases it is a constant percentage: It did not vary at different scales of operation.

The Experience Curve Effect

The experience curve effect is broader in scope than the learning curve effect encompassing far more than just labour time. It states that the more often a task is performed, the lower will be the cost of doing it.

The Experience Curve Effect

Each time cumulative volume doubles, value added costs (including administration, marketing, distribution, and manufacturing) fall by a constant and predictable percentage.

The Experience Curve Effect

This broader effect was first noticed in the late 1960's by Bruce Henderson at the Boston Consulting Group (BCG). Research by BCG in the 1970's observed experience curve effects for various industries that ranged from 10 to 25 percent.

The Experience Curve Effect

These effects are often expressed graphically. The curve is plotted with cumulative units produced on the horizontal axis and unit cost on the vertical axis. A curve that depicts a 15% cost reduction for every doubling of output is called an “85% experience curve”, indicating that unit costs drop to 85% of their original level.

Examples

Aerospace 85% Shipbuilding 80-85% Complex machine tools for new models 75-85% Repetitive electronics manufacturing 90-95% Repetitive machining or punch-press operations

90-95% Repetitive electrical operations 75-85% Repetitive welding operations 90% Raw materials 93-96% Purchased Parts 85-88%

NASA has calculated the following experience curves:

Reasons for the Effect

Labour Efficiency - Workers become physically more dexterous. They become mentally more confident and spend less time hesitating, learning, experimenting, or making mistakes. Over time we learn short-cuts and improvements. This applies to all employees and managers, not just those directly involved in production.

There are a number of reasons why the experience curve and learning curve apply in most situations. They include:

Reasons for the Effect Standardization, Specialization, and Methods

Improvements - As processes, parts, and products become more standardized, efficiency tends to increase. When employees specialize in a limited set of tasks, they gain more experience with these tasks and at a faster rate.

Technology Driven Learning - Automated production technology and information technology can introduce efficiencies as they are implemented and people learn how to use them efficiently and effectively.

Reasons for the Effect Changes in the Resource Mix - As a company

acquires experience, they can alter their mix of inputs and thereby become more efficient.

Product Redesign - As consumers have more experience with the product, they can suggest improvements. As one produces more products, you learn how best to configure process engineering procedures.

Reasons for the Effect

Value Chain Effects - Experience curve effects are not limited to your company. Suppliers and distributors will also ride down the learning curve, making the whole value chain more efficient.

Reasons for the Effect

Also see Value

Reasons for the Effect

Shared Experience Effects - Experience curve effects are reinforced when two or more products share a common activity or resource. Any efficiencies learned from one product can be applied to the other products.

Marketing myopia

Marketing myopia is a disease rampant among business people. It is the inability to see 'down the road'. Many business people make their decisions based on current circumstances. They do not think about what will likely occur in their industry in the future. The reason that short sightedness is so common is that people feel that they can not accurately predict the future.

Marketing myopia

They are right, of course. But just because we cannot accurately predict the future, that is no reason why we should not use the whole range of business prediction techniques available to us to estimate future circumstances as best we can.

The term was coined by Theodore Levitt in the 1960s.

Business model

A business model (also called a business design) is the mechanism by which a business intends to generate revenue and profits. It is a summary of how a company plans to serve its customers. It involves both strategy and implementation.

Business model

How it will select its customers How it defines and differentiates its product offerings How it creates utility for its customers How it acquires and keeps customers How it goes to the market (promotion strategy and

distribution strategy) How it defines the tasks to be performed How it configures its resources How it captures profit

It is the totality of:

Value In economics, the value of an object or service is the price it would bring in a fair, open market; the item's "buying power".

In marketing, the value of a product is the consumer's expectations of product quality in relation to the actual amount paid for it. It is often expressed as the equation:

Value = Quality received / Price or alternatively:

Value = Quality received / Expectations

Value

Intrinsic value is value which is inherent in an object: A one-ounce gold coin has intrinsic value because of the gold it contains. Even if its issuing authority (such as a government) were to fail to honor the coin's value, it would retain its intrinsic value.

Value

Extrinsic value is value which arises because of an agreement: Although the intrinsic value of a €100 note is not much more than the value of any similar piece of paper with a pretty picture on it, it has a practical value (an extrinsic value) of €100. If its issuing authority were to fail to honor the note's value, it would soon become nearly worthless. This happened recently with the Argentinian peso.

Value

However the lack of support from an issuing authority does not guarantee the collapse in value of such paper currency. A recent example from Iraq illustrates the point.

Following the American invasion of 2003 the government of Saddam Hussain was deposed.

ValueThe Iraqi Dinar was without the support of an issuing authority and the Americans specifically and publically stated that they would not guarantee the value of the Iraqi Dinar.

However despite this fact the Iraqi Dinar rapidly appreciated in international markets and nearly double in value in less than a week, despite being an historically soft currency. Scarcity is frequently a sufficient quality to ensure continued market or even improved market value.

Market share

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.

Market share Market share is one of the most common

objectives used in business. (Other objectives include return on investment (ROI), return on assets (ROA), and target rate of profit). 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.

Also see Concentration Ratio

Economies of scope

Economies of scope are conceptually similar to Economies of scale. Whereas economies of scale apply to efficiencies associated with increasing or decreasing the scale of production, economies of scope refer to efficiencies associated with increasing or deceasing the scope of marketing and distribution.

Economies of scopeWhereas economies of scale refer to changes in the output of a single product type, economies of scope refer to changes in the number of different types of products.

Whereas economies of scale refer primarily to supply-side changes (such as level of production), economies of scope refer to demand-side changes (such as marketing and distribution).

Economies of scope

Economies of scope are one of the main reasons for such marketing strategies as product bundling, product lining, and family branding.

Often, as the number of products promoted is increased and broader media used, more people can be reached with each dollar spent.

Economies of scope

This is one example of economies of scope. These efficiencies do not last however : at some point additional expenditure on new products will start to be less effective (an example of diseconomies of scope).

If a sales force is selling several products they can often do so more efficiently than if they are selling only one product.

Economies of scope

The cost of their travel time is distributed over a greater revenue base, so cost efficiency improves.

There can also be synergies between products such that offering a complete range of products gives the consumer a more desirable product offering than a single product would.

Economies of scopeEconomies of scope can also operate through distribution efficiencies. It can be more efficient to ship a range of products to any given location than to ship a single type of product to that location.

Not all economists agree on the importance of economies of scope. Some argue that it only applies to certain industries, and then only rarely.

End-user

Economics and commerce define an end-user as the person who uses a product.

The end-user may differ from the customer, who might buy the product, but doesn't necessarily use it; for example, with baby clothes, a parent might purchase garments as a customer for an end-user - the baby.

End-user

In contracts, the term 'end-user' becomes a legal construct referring to a non-reseller.

This definition characterises the store the parent bought the baby clothes from as a non-end-user, but the parent as an end-user.

End-user

This legal construct most often appears in End User License Agreements, also known as EULAs. Discussion of end-users commonly occurs in the context of computer applications.

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.

Concentration Ratio

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.

References

This Presentation is based on

Fact Index

Adaptation by

Finntrack