Study guide: Marketing Strategy Formation Framework

📋 Course Outline

1. Customer-Centered Marketing Process
2. Marketing Strategy Formation Framework
3. Five Cs Strategic Analysis
4. Segmentation Targeting Positioning
5. Marketing Mix Decision
6. Marketing Mix Framework
7. Product Policy Decisions
8. Promotion and Communications
9. Distribution Channel Choices
10. Pricing and Perceived Value
11. Price Customization Methods
12. Customized Pricing Economics
13. Drivers of Price Sensitivity
14. Marketing Relationships and Key Terms

📖 1. Customer-Centered Marketing Process

🔑 Key Concepts & Definitions

• Marketing strategy formation: sets the overall long-term goals and basic approach to the marketplace, including the customer groups to serve, customer wants to address, and best way to create customer value

★ Must-know

• Peter Drucker stated in the early 1970s that the purpose of business is to create a customer, while Theodore Levitt added that a business must create and keep a customer.

• Theodore Levitt argued in The Marketing Imagination that achieving customer and financial goals requires differentiating what a firm does and how it operates.

• Shapiro’s customer-centered marketing process comprises (Benson P. Shapiro):
  • marketing strategy formation
  • marketing planning
  • programming and budgeting
  • implementation
  • monitoring and auditing
  • analysis and research

Further detail

📌 Analysis and research gathers data from inside and outside the company before each of the first four action steps and continues throughout the process.

💡 Memory Hook

Strategy → planning → programming → implementation → monitoring, supported by analysis

📖 2. Marketing Strategy Formation Framework

🔑 Key Concepts & Definitions

• Aspiration decision: specifies what the firm hopes to achieve in the market by segmenting the market, targeting customer groups, and positioning the offering in their minds
• Action plan decision: translates the aspiration into the four Ps of product, promotion, place, and price, which must work together as a cohesive marketing mix

★ Must-know

📌 Product, promotion, and place create value for customers, while price primarily captures part of that value as revenue to fund operations and provide profit.

📌 The value created through product, promotion, and place is the upper bound on the price a company can charge while still attracting a customer, and this bound should exceed unit cost.

Further detail

• Marketing strategy formation links analysis, decisions, and outcomes through an interactive rather than linear process.

💡 Memory Hook

Aspiration defines who and what value; action defines how to deliver and capture it

📖 3. Five Cs Strategic Analysis

🔑 Key Concepts & Definitions

• Decision-making unit: the individual or group involved in some or all aspects of a purchase decision, from information gathering to purchase and product use
• Core competency: Prahalad and Hamel - a company capability that makes a significant contribution to perceived customer value and is difficult for competitors to imitate

★ Must-know

• Context analysis monitors:

  • cultural factors
  • technological factors
  • political factors
  • regulatory factors
  • legal factors
  • social norms

• Bonoma identified six buying roles (Thomas Bonoma):

  • initiators
  • gatekeepers
  • deciders
  • influencers
  • purchasers
  • users

• The five Cs analysis examines:

  • customer behavior
  • company capabilities
  • collaborators
  • competition
  • context

Further detail

📌 Competitive analysis must define competition broadly by identifying current and future alternatives that seek to create and keep the same customers.

💡 Memory Hook

5 Cs: Customer, Company, Collaborators, Competition, Context

📖 4. Segmentation Targeting Positioning

🔑 Key Concepts & Definitions

• Market segmentation: divides customers into groups using variables such as demographic, geographic, psychographic or lifestyle, benefit-sought, and usage-related characteristics
• Target market: the customer group or groups selected for service after considering corporate goals, segment fit, and the firm’s comparative strengths and weaknesses
• Positioning statement: specifies the target customer, that customer’s wants, the product type and category as perceived by the customer, and the key benefit provided

★ Must-know

📌 A meaningful target market deliberately excludes some customers so the firm can focus on customers whose wants fit its comparative advantage.

Further detail

📌 An effective positioning statement has a resonating focus on the one or two points of difference that deliver the greatest value to target customers. - Anderson, Narus, and van Rossum

💡 Memory Hook

STP: Segment → Target → Position

📖 5. Marketing Mix Decision

🔑 Key Concepts & Definitions

• Marketing mix: Neil Borden - the set of activities composing a firm’s marketing program, blended so that competing elements work together coherently

★ Must-know

• The four Ps are:
  • product
  • price
  • promotion
  • place

Further detail

• Borden originally specified 12 distinct marketing-mix elements, ranging from product planning to display, before the four-P aggregation became popular. - Neil Borden

💡 Memory Hook

4 Ps: Product, Promotion, Place, Price

📖 6. Marketing Mix Framework

🔑 Key Concepts & Definitions

• Marketing mix: Neil Borden - the set of activities composing a firm’s marketing program, commonly organized around product, price, promotion, and place

★ Must-know

• The four Ps are:
  • product
  • price
  • promotion
  • place

Further detail

📌 Benson Shapiro distinguishes consistency of mix elements, integration through positive harmonious interaction, and leverage through using each element to its best advantage in supporting value creation or capture.

💡 Memory Hook

The four Ps: product, price, promotion, and place.

📖 7. Product Policy Decisions

🔑 Key Concepts & Definitions

• Total product: Theodore Levitt - the complete set of ways an offering solves a customer’s problem and creates value, including core functionality, brand, reputation, ease of use, assistance, and warranty

★ Must-know

📌 Product line breadth refers to the variety and number of product lines offered, whereas product line depth refers to the number and relationship of offerings within a given line.

• Product testing can use (Robert G. Cooper):
  • surveys
  • taste tests
  • simulated test markets
  • actual test markets
  • beta tests

Further detail

• A common product-line architecture is a good, better, best structure in which higher-priced items are generally perceived as higher quality.

💡 Memory Hook

Breadth asks how many lines; depth asks how many offerings within one line.

📖 8. Promotion and Communications

📝 Essential Points

📌 One-way communication sends an outbound message without interaction, whereas two-way communication involves an exchange in which the receiver can respond and the sender can adapt the message.

📌 A push strategy induces intermediaries to create demand for a product, whereas a pull strategy creates strong customer preference so intermediaries mainly make the product available.

• The 6 Ms are:

  • Market
  • Mission
  • Message
  • Media
  • Money
  • Measurement

• Promotion moves customers from product awareness to knowledge, interest, trial purchase, and retention while also encouraging satisfied customers to become brand ambassadors.

💡 Memory Hook

6 Ms: Market, Mission, Message, Media, Money, Measurement.

📖 9. Distribution Channel Choices

★ Must-know

📌 A direct or do-it-yourself channel has the manufacturer perform the necessary go-to-market functions, whereas an indirect channel assigns some functions to partners.

• A market channel typically generates demand, fulfills demand by getting the product to the customer, provides after-sales service, and gathers and transmits customer feedback to the manufacturer.

Further detail

📌 Channel design should minimize conflicts because partners may share the goal of enlarging total profit while competing for a larger share of that profit.

• In 2018, Gap Inc. operated 3,194 company-operated stores and 472 franchised stores while outsourcing manufacturing to 700 suppliers.

💡 Memory Hook

Generate demand → fulfill demand → serve customers → collect feedback.

📖 10. Pricing and Perceived Value

🔑 Key Concepts & Definitions

• Price realization: the revenue obtained from selling a given bundle of goods, and improving it can have a strongly leveraged effect on net income

• True economic value: calculated relative to the customer’s next-best alternative by comparing the offering’s value with the competing product or service

★ Must-know

📌 A posted price is a supplier-stated price, whereas an auction determines price through potential buyers’ expressions of willingness to pay.

• Effective pricing considers:

  • the value of the product to the customer
  • opportunities to vary price across customers
  • customers’ price sensitivity

• For Siemens, a 1% improvement in price realization would produce €0.83 billion in additional income and improve net income by 14%.

Further detail

• Disney illustrates price customization by offering Florida residents a three-day pass at a 30% discount from the regular price and charging an additional $60 for the Park Hopper Option.

💡 Memory Hook

Higher perceived value → greater willingness to pay → stronger revenue potential.

📖 11. Price Customization Methods

★ Must-know

📌 Price customization adapts prices to differences in customers’ willingness to pay, whereas a uniform pricing policy charges the same price to all customers at all times.

• The three general forms are:
  • pricing based on buyer characteristics
  • pricing based on transaction characteristics
  • pricing based on product line variations

Further detail

• Walt Disney World offers Florida residents a three-day pass at a 30% discount from the regular price when they document Florida residency.

• Product line variation lets price-sensitive customers choose a base model while customers with higher willingness to pay choose an upgraded model, as illustrated by Audi’s A3 and S3 sedans.

💡 Memory Hook

BTP: Buyer, Transaction, Product line

📖 12. Customized Pricing Economics

★ Must-know

• With zero marginal cost, the video game’s optimal uniform price is $70, selling to 5 customers for a total contribution of $350.

• Separating video game customers into new buyers and upgraders produces optimal prices of $95 for new buyers and $40 for upgraders, yielding a total contribution of $405, which is a 15% improvement over the best uniform price.

Further detail

• In Disney World’s example, a one-day ticket for July 25, 2019 cost $109, a four-day ticket cost $424.40, and a six-day pass cost $444.45.

• Disney’s Park Hopper Option costs an additional $60 and grants admission to multiple parks on a given day instead of restricting the ticket holder to one park per day.

💡 Memory Hook

Uniform pricing treats all buyers alike, whereas customized pricing separates buyers by willingness to pay.

📖 13. Drivers of Price Sensitivity

★ Must-know

📌 A company’s pricing latitude decreases when its product performs little differently from competing products and when long-term relationships and reputation are unimportant to the customer.

• Price sensitivity increases when: the end user bears the cost, the item represents a substantial percentage of total expenditure, the buyer sells the end product in a competitive market

• Price sensitivity increases when buyers can judge quality without using price as an indicator, can easily compare alternatives, have no urgency, or can switch suppliers without additional costs.

Further detail

📌 Pricing actions must consider competitors’ potential reactions because the economic value customers assign to an offering depends on the competitor’s price.

• In January 2014, T Mobile offered to pay up to $350 per line in termination fees for customers switching from other cell phone providers.

💡 Memory Hook

Cost bearer → expenditure share → channel pressure → quality information → alternatives → urgency → switching costs

📖 14. Marketing Relationships and Key Terms

🔑 Key Concepts & Definitions

• Churn: a measure of customer attrition, and the churn rate is 100% minus the customer retention percentage rate for customers who discontinue a service or subscription within a specified period
• Buyer stickiness: customers’ resistance to switching easily from one supplier of a good or service to another
• Pull strategy: motivates customers to seek out a brand actively through tactics such as advertising, customer relationship management, and sales promotions
• Push strategy: ensures that customers are aware of a brand at the point of purchase through tactics such as direct selling, packaging designs, or point-of-sale displays

📝 Essential Points

📌 The same marketing actions that create a customer may not help retain that customer because relationships naturally experience entropy through eroding sensitivity and attentiveness. - Theodore M. Levitt, The Marketing Imagination: New, Expanded Edition, 1986

• The three purposes of marketing are:
  • acquiring customers
  • retaining customers
  • incentivizing customers to become brand ambassadors

💡 Memory Hook

Acquisition without retention leads to relationship entropy; loyalty can turn customers into brand ambassadors.

📊 Synthesis Tables

Marketing Strategy Formation Decisions

Marketing Mix Elements