Cracking the Marketing Code Training Session Columbia Business School October 29, 2010 Marketing...
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Transcript of Cracking the Marketing Code Training Session Columbia Business School October 29, 2010 Marketing...
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
STP
• Segmentation• Targeting• Positioning
4P´s
• Product• Price• Place • Promotion
3C´s
• Corporation• Customer• Competitors
How they relate
Corporation
Competition
CustomerSegments
Marketing Mix4P´s by segment
CustomerSegments
TargetCustomerSegments
A simple example…us
AM Inc.
Marketing Mix
Product – CPG marketing tutorialPlace – herePromotion – email invites Price ???
1st. yr. Columbia
MBA´s
Value proposition – 25% increased chances of getting CPG summer offer
How much would you pay? How much should I charge?
Add a competitor
AM Inc.
RK Inc.
1st. yr. Columbia
MBA´s
Offers same product at 20% discount across the hall
What do I do?Lower my price ?Differentiate product and promote it?Segment and target?
A segmented strategy
35% 65%
1st yr. Columbia MBA´s
Analitics
More likely to succeedBetter fit with my capabilitiesAM target
Tailored marketing mix
Product CPG analytical marketingPricing premiumPromotion to analytical “elite”Place here plus “web tutorial”
Leave to RK
Basic marketing concepts
STP
• Segmentation• Targeting• Positioning
4P´s
• Product• Price• Place • Promotion
3C´s
• Corporation• Customer• Competitors
Customer segmentation
What is Segmentation? Why is Segmentation Useful?
Allows us to assign people and limited resources more efficiently and effectively
Facilitates the uncovering of needs and opportunities not exploited by our current approach
Helps orient the design of products and services for specific sub-groupings of customers, shoppers, and consumers
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
“The science of finding, within a heterogeneous customer universe, homogeneous groupings of customers which meet segmentation criteria defined by us”
“Segment quality improves dramatically to the extent that we utilize both subjective and objective criteria to define the segments”
Segmented value propositions
Direct cost to serve – sales, transportation, warehousing, etc.
Commercial terms – channel margins, credit terms
CTS optimization opportunities must be considered
Service levels Product portfolio Service offering Commercial offering Channels Sales and distribution model
Brand and product portfolio strength
Value proposition Client satisfaction with competing
value propositions
Impact on ROI vs. competition and other product categories
Include a holistic assessment including all elements of the value equation
Cost to Serve
Customer Requirements and
Satisfaction
Economic Benefit to Customers
Competing Value Propositions
Value Proposition
Intensive use of market research tools – e.g.,
Choice analysis, Conjoint analysis, cluster analysis,
etc.
Segmentation and targeting process
Right
Perform Competitor Analysis
Define Market
Target Segments
Overall Market
Overall MarketOverall
Market
C
Set Strategic Objectives
Define MarketAssess Market Structure & Trends
Identify Attractive Market Segments
Analyze Right-to-win
Select Target Market Segments
A
B
D
E
F
Define marketExample
Market Definition: Aquafina Bottled Water
Share of Water Share of Beverage Share of Stomach
Substitute products– Other brands of bottled
water– Tap water– Filtered water
Market of drinking water
Substitute products– Carbonated drinks– New age drinks– Nectar– Coffee and tea
Market of non-alcoholic beverages
Substitute products– Non-alcoholic beverages– Salty snacks– Sweet snacks– Fruits and vegetables
Market of snack food and beverage
1 2 3
Options
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?
B
Asses market structure and trends
Rural Brazil Rural Russia Urban ChinaRural Brazil
CSDB Brands
Fruit Nectars/DrinksB brands
Juice B Brands
Fruit Nectars/DrinksA brands
Juice A Brands
CSDA Brands
Rural China Rural Russia
C
Non-alcoholic beverages value added path
Identify attractive market segments
Pleasure
Kick
Sharing
ConsciousStimulus
RelaxationFunctionalRefreshment
Expressive
Controlling
SocialIndividual
Candy
Pastilles
Chewinggum
ENJOYMENT
REFRESHMENT
Sugar confectionery consumer need diagram
D
Analyze “Right to win”
Example Description
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
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-of-stocks
Advantaged Innovation
Advantaged Customer Capabilities
Advantaged Ethnic Marketing
Advantaged DistributionSystem
Leve
l of C
onfid
ence
Reg
ardi
ng B
enefi
ts
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
Examples of capabilities led extension into adjacencies
E
Identify attractive market segments
Price Top Image
Emotional
Rational
"Techniker"
"Sparer" "Yuppies"
"Sportler"
"Rationalisten"
"Statusbewußte"
F
Position with different look and feel
Piech´s common components strategy: a few token gimmicks and the same products
Sextuplets
Basic marketing concepts
STP
• Segmentation• Targeting• Positioning
4P´s
• Product• Price• Place • Promotion
3C´s
• Corporation• Customer• Competitors
Price and product attributes
QUALITY CONVENIENCE
60 RMB / 5 L12 RMB / L
24 RMB / 1.8 L13.33 RMB / L
COST
~50 RMB / 5 L~10 RMB / L 20% premium 11% premium
Vegetable oil in China
Extruded B Extruded A Chips B Chips A
Rural Brazil Rural BrazilUrban China Urban Russia
Snacks value added path
212121
Rural
Urban
Extruded B, Large Extruded B, Small Chips A, Large Chips A, Small
Extruded BLarge Size, Small Size
Chips ALarge Size Small Size
Price points and premiums
Place…retail channels evolve
100 %
0 %
ILLUSTRATIVERetail channels evolution
India China Brazil & Mexico
50 %
Large Format Modern Trade
Small Format Modern TradeTraditional Trade
Growing convenience stores &Discounters forLow Income Consumers
Large Formats stalledLow penetration amongLow Income Consumers
US & Europe
Guidelines for a Successful Go to Market Model
Upgrade Go-to-Marketand OrganizationalCapabilities
Crack the Economics to Serve Each Channel
Understand product dynamics and requirements Understand customer requirements/satisfaction Understand competitors offering Segment customers based on needs
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-to-serve
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
SuccessfulGo-to-Market Model
Craft an Optimal ValueProposition for Each Channel
Understand Business and Customer Requirements
”Go to Market” model
26
Crack the economics to serve“Profit-to-Serve” Equation
Volume (reach and lift)– Number of accounts reached
– Shelf and cold space
– Categories and # of SKUs carried
– 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
Profit to Serve
Costs
Revenues
less
Net Price Realization– Consumer price
– Trade margins
– Trading terms
Shopper and Customer Marketing
– In-store advertising– Shopper marketing– Customer activation
Trade PromotionAsset Amortization Working Capital
27
“Modern Trade” economics$
Per S
tat C
ase
Customer Costs as a Percent of Sales Dollars
36% 37% 29% 25% 24% 26% 22% 22% 21% 22% 18% 15% 19% 17% 15%
Route-To-Market – Variability Among Retailers in Cost to Serve
Source: BAH Analyses
28
Varied Customer Contribution
Customer 1 Customer 2 Customer 3 Customer 4
Customer 5 Customer 6 Customer 7 Customer 8
Channel Categories
(80%)
(60%)
(40%)
(-20%)
0
20%
40%
100 1,000 10,000 100,000 1,000,000
Client Size (kg)
% C
usto
mer
Pro
fitab
ility
Mean Customer Profitability
“Traditional trade” economics
RPMX-JGB-Feb23-06
Channel definition
Break-Even Point of Direct Service
Additional Go-to-Market Benefits Due to Additional Wholesalers
0
1
2
3
4
5
6
7
8
0 1 2 3 4 5 6 7 8
Order Size (Units)
US$
Vol
ume
Distributors and WH´s margin
Direct Service Cost
If a customer buysless than 4 - 5 units, it cost less to use distributors
$0
$20
$40
$60
$80
$100
$120
1 2 3 4 5 6 7 8
Go-
to-M
arke
t ($M
M)
Leading Products
SKUs
Complementary Products
New Products
Go-to-Market using Current WH´s
Incremental revenues due To additional customer base
Source: BA&H Analysis
Benefits of direct service
Better coverage of total portfolio
Better service levels
Value offering by channel
0
0.2
0.4
0.6Bonificaciones
Licencia
Crédito
Refrigeración
Imagen
Promociones /Activaciones
0
0.2
0.4
0.6
0.8Bonificaciones
Licencia
Crédito
Refrigeración
Imagen
Promociones /Activaciones
0
0.2
0.4
0.6Bonificaciones
Licencia
Crédito
Refrigeración
Imagen
Promociones /Activaciones
Survey / Conjoint AnalysisSegments
% C
TS /
Rev
enue
volume
Optimized Cost to Serve1.7 1.9 2.2 2.9 3.3 3.91.2 1.4 1.6 0.5
0.51.1 1.3
1.44.6
5.36.0
0.4
0.0
2.0
4.0
6.0
8.0
10.0
12.0
C M G C M G
Negotiation Oriented
Finance Oriented
Value Offering
Trade Terms/Support
Product Offering
Delivery Model
Service Levels
Maximize value/ Minimize Cost
Segments
Promotions…”ROI Marketing”
Market ResultsMarketing Investments Purchase Behavior
Market share
Unit sales
Price premium
Penetration of key segments
Etc.
Television
Consumer EventsPromotions
RelationshipMarketing Sponsorships
… which in turnaffects …
$ Spendaffects …
SOM
Billboards(OOH) Consideration
Brand and Product Awareness
Intent
Purchase
Loyal- -ty
Allocation of funds across marketing levers
Optimization of spending within each lever
Allocation across levers
Efficiency: Cost per GRP’s (US$)
Effectiveness: Awareness / GRP– Relative to TV(1)
100%3%
1%
34%19%
3569%1028%1428%
682100
40
3191790
173,01041,522
69,204
(1) Relative effectiveness to TV = (Media awareness /Media GRPs) / (TV awareness / TV GRPs)Source: Economic Model; Booz Allen analysis
Media Effectiveness x Efficiency(Relative to TV – 100%)
1.0x
4.0x
4.4x
2.5x
25.0x
12.9x
10.7x
12.9x
EXAMPLE
Optimization within leversEv
ent R
OI
Events
ROI Over All Events and Products (Four Account Sample)
-63% median event ROI.-48% average ROI
91% of events yield a negative ROI
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
Sample Trade Promotion Event ROI
Even
t RO
I
Events
Kmart -63% median event ROI
Even
t RO
I
Events
Product 1
-43% median event ROI
Share of Market – ValueAll Appliances
2004 to 2006 Change in Spend vs.Change in Market Share
2004 to 2006 Point Increase inShare of Market
Share of Spend vs. Market Share(2004 to 2006)
2004
to 2
006
Poin
t Inc
reas
e in
Shar
e of
Med
ia S
pend
Shar
e of
Med
ia S
pend
Kenmore
LG
Maytag
Whirlpool
GE
KitchenAid
Source: TNS Data, AHAM, Traqline, Booz Allen Analysis
Maytag
KitchenAid
LG
Whirlpool
GE
Kenmore
Competitive impact
Scale impact
Beer BrandsMarketing investment by hectoliter
Millions of HL/year
USD
/HL
Budweiser
Miller Lite
Coors Light
Bud Light
Heineken
Miller Genuine Draft
Corona Extra
Michelob Light
Coors
Amstel Light
R2
= 89%
-
5
10
15
20
25
0 5 10 15 20 25 30 35 40 45
Budweiser
Miller Lite
Co ors Light
Bud Light
Heineken
Miller Genuine Draft
Corona Extra
Michelob Light
Coors
Amstel Light
R2
= 89%
-
5
10
15
20
25
0 5 10 15 20 25 30 35 40 45
Fuente: Morgan Stanley Quarterly Report. Beverages US. Análisis BAH
Consumer purchase funnel
Potential Problem
Inadequate advertising/PR support? Positioning not unique, meaningful?
Brand A
99%
27%
27%
19%
-73%
0%
-30%
Brand B
99%
55%
46%
-44%
-16%
-65%
Awareness
Preference
Intent
Purchase 16%
Identified Issue:
Product positioning is not truly differentiated or compelling
Retail outlets steer customers to competitive products on which the outlet earns superior returns
Positioning not unique, meaningful? Product, service offering does not deliver
positioning?
Perceived pricing overrides benefit of positioning?
Perceived availability (channels) doesn’t support positioning?
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?
Source: Client Data; Booz Allen analysis
Consumer Purchase Funnel
Mass Media Outdoor advertising
Marketing Vehicles
Conventional Alternative Product placement Unconventional print Internet marketing Graffiti advertising
Marketing vehicles mix and purpose
Retention
Mass Media Outdoor advertising
Event marketing Buzz marketing Guerrilla marketing Viral marketing
Broad market sampling Event marketing One-to-one sampling Direct marketing Lifestyle shop placement Switch Selling
Mass Media Outdoor advertising Promotions Pricing
Direct marketing Event marketing Lifestyle shop placement
Awareness
Consideration
Trial
Occasional Buyer
RegularBuyer
Pene-tration
Search for long term value valueIncremental Spending on Marketing Levers and Impact on EBITDA, SOM and Enterprise Value
Incre. Share
EBIT
DA (U
S$ M
M)
Enterprise Value ($B)
340
345
350
355
360
365
370
375
380
0
1
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Source: Client Data; Booz Allen analysis
Managing Trade-off’s 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
0 2% 4% 6% 8% 10%
0 $10M $20M $30M $45M $65MIncre. Spending
Base Vol Trend 0 (2%) (1%) 0% 1% 2%
EBITDA (Annual) Enterprise Value
EXAMPLE