Market-based management.

510 Pages·2014·32.267 MB·English

by  Best, Roger

Market-Based Management
Roger Best
Sixth Edition
ISBN 10: 1-292-02039-3
ISBN 13: 978-1-292-02039-6
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ISBN 10: 1-292-02039-3
ISBN 13: 978-1-292-02039-6
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A catalogue record for this book is available from the British Library
Printed in the United States of America
111223333481592603691977375399333
P E A R S O N C U S T O M L I B R AR Y
Table of Contents
Glossary
Roger Best 1
1. Customer Focus, Customer Performance and Profit Impact
Roger Best 9
2. Marketing Metrics and Marketing Profitability
Roger Best 43
3. Market Potential, Market Demand, and Market Share
Roger Best 83
4. The Customer Experience and Value Creation
Roger Best 117
5. Market Segmentation and Segmentation Strategies
Roger Best 157
6. Competitive Position and Sources of Advantage
Roger Best 193
7. Product Positioning, Branding, and Product Line Strategies
Roger Best 227
8. Value-Based Pricing and Pricing Strategies
Roger Best 265
9. Marketing Communications, Social Media, and Customer Response
Roger Best 303
10. Portfolio Analysis and Strategic Market Planning
Roger Best 339
11. Defensive Strategies
Roger Best 369
12. Offensive Strategies
Roger Best 393
I
444415799377
13. Building a Marketing Plan
Roger Best 419
14. Marketing Metrics, Performance, and Strategy Implementation
Roger Best 453
15. Market-Based Management and Financial Performance
Roger Best 477
Index 497
II
G L O S S A R Y
From Market-Based Management, Sixth Edition. Roger Best. Copyright © 2013 by P earson Education, Inc.
Publishing as Prentice Hall. All rights reserved.
1
G L O S S A R Y
acquisition cost T he marketing expense to acquire one new brand-image communications M arketing communications
customer. designed to build a brand image and create an emotional
a djacent segment strategy Strategy that targets a segment of response.
customers who have slightly different needs than current brand-information communications Marketing communica-
customers. tions designed to communicate specific information about
a dvertising carryover effect S ales that occurs in periods after the brand.
which an advertisement was run. brand liabilities Liabilities a brand can incur as the result of
advertising elasticity T he percentage change in volume per customer dissatisfaction, environmental problems, product
1 percent change in advertising expenditures. failures and recalls, lawsuits, consumer boycotts, and ques-
advocates Customers classified as “top performers” who buy tionable business practices.
nearly everything a company has to sell. brand management T he process of naming products and
agents, brokers, and reps S alespeople who work for a busi- managing brands and brand-line extensions to attain maxi-
ness on a commission basis. mum brand equity and a brand’s full profit potential.
American Customer Satisfaction Index (ACSI) A company b rand personality T he personality a brand takes on based on
customer satisfaction index that varies from 0 to 100, cal- human personality characteristics.
culated every year for companies in many industry sectors. break-even market share The market share needed to reach a
a rticulated market demand Current market demand, calcu- break-even volume.
lated on the basis of articulated customer needs. break-even volume The number of units that a business
assets C ash, accounts receivable, inventory, plant and equip- needs to sell to produce an operating income equal to zero.
ment, and other assets. b uild brand (pure brand) A communications strategy that is
backward-looking metrics Metrics that track performance designed to create an emotional customer response in an
over a previous period (such as a month or a year). attempt to build an emotional connection between the tar-
bottom-up marketing budget A budget based on the cost of get customer and the product.
each specific marketing task needed to implement a tactical c apital T he sum of the owner’s equity and the long-term
marketing strategy. debt the company had incurred; the amount obtained from
bottom-up price presentation Presentation of the lowest investors and lenders that the company has invested in its
priced product in a product line first, followed by the next business.
lowest priced product, and so on until the highest priced captive customers C ustomers who want to switch to another
product in the product line is presented. brand but cannot because of the cost, difficulty in switch-
brand assets A ssets that a brand can attain, considering fac- ing, or lack of options.
tors such as market leadership, awareness, brand relevance, c hannel mapping The process of mapping all relevant chan-
reputation for quality, and brand loyalty. nels from a pocket price to target customer prices or from
brand encoding T he process of branding products within a target customer prices to the company’s pocket price.
business using a combination of company name, name, sub- channel margin The margin required by a channel intermediary.
brand name, number, letter, product name, or key benefit. channel marketing expenses M arketing and sales expenses
b rand equity T he attractiveness of a brand due entirely to its associated with a marketing channel.
name and brand image. Also can be measured as brand channel partners C ompanies within a business’s marketing
assets minus brand liabilities. channels that distribute, resell, or add value to a business’s
brand image The perceived image represented by a brand in products and participate in the process of connecting busi-
the mind of a target customer. nesses with end users.
brand interaction (information exchange) A communica- channel system A particular combination of distribution and
tions strategy designed to create a customer dialogue and sales channels.
information exchange. cluster analysis A statistical method that is used to group cus-
b rand-action communications M arketing communications tomers on the basis of similar needs into needs-based mar-
intended to prompt some type of customer action. ket segments.
2
Glossary
cobranding Combining two brand names to create a new c ustomer loyalty index A measurement of a business’s level
brand. of customer satisfaction, customer retention, and customer
c ompany benefits The level of perceived benefit that a cus- recommendation.
tomer attaches to a company or brand name. customer metrics M arketing performance metrics that track
competitive advantage A relative advantage of one business customer satisfaction, customer retention, customer loy-
over another that is sustainable and that translates into a alty, and customer value.
benefit that is important to target customers. customer mix marketing budget A marketing budget based
competitive benchmarking C omparing a company with on the cost of new customer acquisition and retention.
another company outside the first company’s industry (the customer profitability G ross margin per customer, minus the
benchmark company) with regard to a business practice in marketing and sales expenses needed to serve a customer.
which the benchmark company is known for excellence. customer reactive pricing S etting price by reacting to customer
c ompetitive bid pricing P ricing a bid using the historical demands for price and product features but without taking
success of past price-to-cost bid ratios and the competitive into account competitors’ prices and product positioning.
bid situation. c ustomer relationship management A process of developing
c ompetitive performance metrics M arketing metrics that and managing one-on-one relationships with target customers.
gauge the competitive position of a product or business. customer relationship marketing Marketing programs that
c ompetitive position A business’s position relative to a are designed to personalize or customize a business’s offer-
benchmark competitor’s position with regard to price, ings to selected customers.
product quality, delivery, new product sales, and so on. customer retention rate T he percentage of customers
competitor analysis Benchmarking a key competitor with retained from one purchase period to another.
respect to important areas of performance. c ustomer satisfaction T he degree to which customers are sat-
competitor orientation T he degree to which a business isfied or dissatisfied with a business, product, or specific
tracks competitors’ strategies and benchmarks its perform- aspect of a product or service provided by a business.
ance relative to competitors. c ustomer satisfaction index An overall index of a business’s
c ompetitor reactive pricing Setting price on the basis of com- customer satisfaction.
petitors’ prices without knowing what customers need or c ustomer surveys Marketing surveys that track customer pur-
would be willing to pay for the business’s product or service. chases, intentions to repurchase, and performance perceptions.
competitor response price elasticity T he percentage change c ustomer terrorists D issatisfied customers who share with
in a competitor’s price per 1 percent change in the price of others the bad experiences they have had with a product,
a business’s product. brand, or company.
c omplementary product A product that is sold along with customer touch points The opportunities that a business has
another product. to interact with customers and thereby improve the cus-
conjoint analysis (measurement) A statistical method for tomer’s experience.
deriving the customer preferences for different levels of customer value T otal benefits minus the cost of acquiring
price and product performance. those benefits.
c ontinuous innovation I ncremental improvement of prod- c ustomerization value pricing A pricing process in which
ucts along the same technology curve. customers build their own product and price.
c ost advantage A sustainable lower cost relative to competition. d atabase marketing A database of customer purchases, pref-
c ost of capital T he percentage paid (like interest) for capital. erences, needs, and demographics that is used in custom-
c ost of purchase index A measurement of a product’s rela- ized marketing communications, product offerings, and
tive advantage against competing products with regard to extra services.
price and other customer cost considerations. day in the life of a customer A market-research approach
c ost-based pricing Pricing that is determined by a business’s that involves observing from the customer’s point of view
cost and margin requirements. the process of acquiring, using, and disposing of a product.
cost-plus pricing Pricing based on the cost of the product plus d efensive strategy (defensive strategic market plan) A
a desired profit margin. long-run plan to protect or exit a market position.
c ross price elasticity The percentage change in volume in one d emographic trap Segmenting customers on the basis of
product when the price is changed 1 percent in another demographics alone without considering customer needs.
product. d ifferentiation advantage A sustainable product or service
c rowd sourcing O btaining ideas from consumers on-line and advantage that translates into a benefit that is important to
through other social media for product improvements or target customers.
new products. digital marketing The use of web sites, blogs, e-mail, podcasts,
c ustomer focus T he degree to which a business seeks to mobile, and social media platforms in marketing.
understand customer needs and use situations and tracks d irect channel system A channel system that retains owner-
customer satisfaction. ship of the product and requires management of its sales,
c ustomer life T he number of purchase periods a customer is distribution, and customer service.
retained by a business. discontinuous innovation Product improvement that occurs
customer lifetime value T he net present value of cash flows when the current dominant technology is abandoned for a
produced over a customer’s purchase life of a company’s new technology (e.g., the switch from vacuum tubes to
product or service. solid state electronics).
c ustomer loyalty Allegiance on the part of customers to a d iscount factor T he net present value of $1 when discounted
particular business or product. from a particular point in time and at a particular discount rate.
3
Glossary
discount rate A business’s cost of capital. frontal attack strategies Competitive strategies that directly
d iscriminant analysis A statistical method that helps identify attack a competitor’s market share.
demographic characteristics that differentiate one needs- f unctional brand names B rand names that are derived from
based segment from another. the basic function of a product.
disruptive innovation Product improvement that occurs G E/McKinsey Portfolio A portfolio matrix that uses multiple
when the current technology is altered over time (e.g., factors to index market attractiveness (on the vertical axis)
gradually making a product smaller, less expensive, or eas- and competitive position (on the horizontal axis).
ier to use). g eneric product life cycle T he product life cycle for a product
d istributors I ntermediaries who take title (ownership) of a category, or “generic product market,” such as cereal or cars.
product and are responsible for its sale and distribution and g ross profit T otal sales minus total variable costs.
for customer service. g row market share strategy A long-run offensive strategic
d ivest market strategy A defensive strategic market plan to market plan to grow market share.
exit a market by selling or closing down a business. harvest market strategy A defensive strategic market plan to
e arly adopters C ustomers who follow innovators in adopting slowly exit a market while maximizing profits.
a new product or technology (13.5 percent of the total). h arvest pricing R aising price in a series of steps in an effort
e arly majority C ustomers who follow innovators and early to improve margins and maximize gross profit until the
adopters in adopting a new product or technology (34 per- product exits the market.
cent of the total). heavy-up message frequency A period during which a busi-
earnings per share Net profits (after taxes) divided by the ness increases its advertising effort.
number of shares held by shareholders. high potentials Profitable customers who are not yet loyal to
economic profit N et income after taxes minus capital times a product or business.
the cost of capital. horizontal brand-line extension E xtending the brand to a
economic value T he customer value created by a product, as line of related products.
determined by the difference in the total cost of purchase of horizontal market opportunity A market with closely related
a competing product. substitute products.
economic value-added Net profit (after taxes) minus the indirect channel systems Channels in which intermediaries
product of a business’s investment in capital assets times take ownership of a business’s product and take the respon-
its cost of capital. sibility for its sale and distribution and for customer service.
e mpathic design process An observational approach to dis- i ndustry analysis A structural analysis of a competitive
covering the problems, frustrations, and inconveniences environment that is based on competitor entry/exit, buyer/
that customers experience when they use a company’s supplier power, substitutes, and competitive rivalry.
product. i ngredient cobranding A dding a brand name to another
evocative brand names Brand names that are designed to product’s brand (e.g., “Intel inside” on Dell and Compaq
evoke a feeling or perception. computers).
exit market strategies Defensive strategic market plans that internal performance metrics P erformance metrics that are
specify a market exit strategy, ranging from immediate internal measures of a business’s operations.
exit with a divestment strategy to slow exit with a harvest innovators The very first customers to adopt a new product
strategy. or technology (2.5 percent of the total).
e xperiential brand names Brand names that communicate in-the-box strategy I nternal strategy that lacks both customer
the experience provided by the product, such as the and competitor intelligence.
experience of discovery conveyed by the brand name i nvented brand names B rand names that are created from
Navigator. root words, partial words, or names that are poetic con-
external performance metrics Marketing performance met- structions on the basis of the rhythm or the experience of
rics that track external performance with respect to mar- saying the name.
ket penetration, competitive position, and customer inventory turnover T he number of times an inventory is sold
satisfaction. per year.
fighter brands L ow-priced, lower performance brands that k nowledge advantage An advantage in both customer and
are designed to fight low-price competitors while protect- competitor intelligence that a business has over its com-
ing the price-performance position of higher priced brands petitors.
in a product line. l aggards T he last customers to adopt a new product or tech-
f lagship brand The highest priced and highest quality brand nology (16 percent of the total).
in a business’s product line. large-segment strategy A segment strategy that is focused
flanker brand A product extension of a business’s core brand. on the largest market segment in a market.
f loor pricing S etting a price using a financial requirement, late majority The customers who adopt a new product or
such as gross margin or return on investment. technology after 50 percent of the market has already
focus groups A discovery method in which target customers adopted it (34 percent of the total).
answer questions about a product or customer use situation. l ead-user analysis A n examination of the ways in which
f orward buying The practice of buying a greater volume of a innovators and highly involved early adopters use a new
product when it is on sale. product, which can offer insights into how a product can be
f orward-looking metrics Performance metrics that are lead- improved or a new product developed.
ing indicators of future performance. l ife-cycle cost analysis A method for discovering the total
f ounder/owner brand names Brand names that are derived amount that a product costs a customer over the usage life
from the founder or owner of a business. of the product.
4
Glossary
l ow-cost leader pricing S etting price on the basis of cost of pro- shares, which provides a metric on the extent to which the
duction, in an effort to have the lowest price in the market. marketing effort contributes to earnings per share.
l oyal customers Customers under the broader classification marketing expenses All fixed expenses associated with sell-
of “top performers” who always repurchase a business’s ing, marketing, and managing a marketing strategy that is
products or services. targeted at a particular market.
margin per unit T he selling price of a product minus all the marketing mix A combination of the four Ps (product, price,
variable costs associated with producing, distributing, and promotion, and place) designed for a specific target market.
selling the product. m arketing performance metrics Metrics that track how a
market adoption forces Market forces that affect the rate of product or business is performing with respect to market
new-product adoption. performance, customer performance, competitive perform-
market analysis An external analysis of market demand, cus- ance, and marketing profitability.
tomer needs, competition, distributors, and environmental marketing planning process A process that starts with a situ-
forces that influence market demand and customer behavior. ation analysis; continues with a specific strategic market
market attractiveness T he relative attractiveness of a market plan, a tactical marketing strategy, and a marketing budget;
on the basis of market forces, competitive environment, and which results in a performance plan.
and market access. m arketing productivity T he amount of the net marketing
market-based management Delivering superior customer contribution that is produced by a strategy per dollar of
value and company profitability by having a strong market fixed marketing expenses.
orientation and managing the markets. marketing profitability T he net marketing contribution for a
market-based organization A business that is organized product, business, or company.
around markets and that uses market units as profit centers. m arketing profitability metrics N et marketing contribution,
market-based pricing Pricing on the basis of the needs of tar- marketing ROS, and marketing ROI.
get customers, competitors’ product positions, and the marketing profitability portfolio A portfolio matrix that
strength of a business’s product, service, or brand advantage. shows the positions of products or markets relative to mar-
market definition A specification of market scope that makes keting ROS on one axis and marketing ROI on the other.
clear who the current and potential customers are. m arketing return on investment (marketing ROI) T he net
market development index T he ratio of current market marketing contribution divided by marketing expenses for
demand to market potential (maximum market demand). a product, business, or company.
market focus A business orientation that is focused on cus- m arketing return on sales (marketing ROS) T he net market-
tomers and competitors. ing contribution divided by sales for a product, business, or
market infrastructure C hannel intermediaries and channel company.
influencers who shape opinions and communicate informa- marketing strategy T he year-to-year marketing mix plan that
tion about a business and its products. will guide an overall strategic market plan to a desired mar-
market orientation The degree to which a business has a keting and profitability objective.
strong customer focus and competitor orientation and mass collaboration A web-based methodology that is
works as a team across functions to develop and deliver a designed to allow customers, professionals, suppliers, and
market-based strategy. employees to share their ideas with respect to improving
market penetration strategies Offensive strategic market existing products or developing new ones.
plans that are designed to further penetrate existing markets mass customization A n individualized marketing mix in
or enter new markets. which products, prices, promotion, and place are custom-
market performance metrics Marketing metrics that track the ized to the individual needs of a niche market or individual
attractiveness of a market. customers.
market potential T he maximum market demand that should mass market A market that is not segmented; all customers
occur when all potential customers have entered a market. and potential customers are treated as one group.
m arket segmentation V iew of a market that groups custom- m ass personalization I ndividualized marketing communica-
ers into segments on the basis of similar needs and differen- tions that recognize individual customers by name, pur-
tiating demographic characteristics. chase behavior, needs, and demographics.
market share T he percentage of current market demand message frequency The average number of times a target
obtained by a business. customer recalls seeing or hearing an advertisement in a
m arket share index A hierarchy of market share factors (such given period of time.
as awareness, availability, interest, intention to buy, and Millennials T he generation that has been entering the con-
purchase) that results in an estimate of market share. sumer market since about 2000.
market vision A broad view of the market based on a funda- m isfits C ustomers classified as “nonprofits” who will not
mental customer need that goes beyond existing product remain customers due to a poor fit with the business’s prod-
solutions. uct; as a result the business will never recover the cost of
m arketing advantage A sustainable advantage over competi- acquiring these customers.
tors in channels of distribution, sales force, or marketing mixed channel system A combination of direct and indirect
communications. channels whereby a business reaches, sells to, and serves
marketing analytics A nalytical concepts and tools that allow some customers, but intermediaries reach, sell to, and serve
a company to conduct performance measurements that cre- others, or a business and intermediaries interact with the
ate specific marketing metrics. same customers at different customer touch points.
marketing earnings per share (EPS) The net marketing con- monetizing strategies S trategies that minimize marketing
tribution of a business or product divided by the number of and sales investment and seek to maximize cash flow.
5