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Chapter 10 Marketing & R&D (R&D comes up with new product…
Chapter 10
Marketing & R&D
Marketing
Process of creating, communicating, delivering and exchanging offerings that have value for customers, clients, partners and society at large.
B2B:
Create value for other business
B2C:
Create value for customers
Marketing Strategies
(Ansoff Matrix):
Market Penetration
Market Development
Product Development
Diversification
1. Market Penetration Strategy:
(Present Market, Present Products)
Increase share in present market (ie. sell more to existing customers)
How?
Lower price, loyalty scheme
Promotion - increase advertising with different channels
E.g. Supermarkets in Singapore have regular promotions and loyalty rewards program.
Challenges:
Mostly used in a matured/saturated market
Need to drive competitors out to gain market share - they may react with aggressive pricing and advertisement
Limited growth, need to go international to increase sales
2. Market Development Strategy:
(New Market, Present Products)
Opportunities to grow sales and revenue.
Product may require some development (e.g. Left hand/right hand drive)
E.g. Differences in technical standards between UK and USA means that DVD equipment have to adapt their product to each market.
May refer to new customers in the same country.
E.g. Hair products traditionally targeting female users now sold to male customers through customised advertising and packaging (promotion)
E.g. Handphones sold to young users have limited features (products), cheaper price with limited calls (price) and advertised through social media (promotion) with no change in distribution.
E.g. Marlboro: Initial target market were women - then shifted to men with new promotion with pictures of rugged cowboy smoking, and then to youths recently with promotional pictures of youth having fun and being decisive in their choices.
Challenges:
Need to account CAGE differences: (Need to customise marketing mix)
E.g. Religious taboo for food
(Pig skin not allowed in shoes)
E.g. Administration difference: Gov. rules
(Pharmaceutical companies need to adapt to gov. legal regulations when entering new markets)
E.g. Economical difference:
(Developed countries have demands for more sophisticated products, while developing countries only need basic products with high reliability. E.g. Cars)
3. Product Development Strategy:
Present Market, New Products
E.g. Marks & Spencer extend their products from clothes to food.
Kit Kat introduces new seasonal flavours, such as pumpkin and green tea in Japan.
Apple sold smartphones in addition to PC
Challenges
Expensive in R&D and marketing.
Should not confuse customers, and need to understand their habits.
E.g. Kit Kat found that UK does not have a preference for new flavours, but new flavours are popular in Japan.
4. Diversification Strategy:
New Products, New Markets
Increase market power
More efficient in using resources - apply existing resources to new markets
E.g. Failure: Richard Branson's Virgin company entered beverage business but failed - Virgin Coke, Virgin Vodka
E.g. Dyson expands business into electric cars, and production will be in Singapore.
Challenges
Riskiest approach
May require JV, collaborations with other companies to mitigate the risks
Marketing Mix (4Ps):
Product
Pricing
Promotions
Place
1. Product
Centre of marketing effort
Challenges:
Much time and money needed for development to meet customer's needs
Success rate is small - most never reach market/failed
-Have limited life cycle and becomes obsolete by new products/technologies
2. Pricing
Cost of production, price customers willing to pay, competitor's pricing, total cost of ownership
Pricing Strategies:
Skimming
Penetration pricing
Predatory pricing
Experience curve pricing
Price discrimination
Multipoint pricing
a)
Skimming
❌
Set high price initially to attract high profit per unit from less price sensitive customers
Price set lower after that to attract price sensitive market.
b)
Penetration pricing
❌
Set low price during the initial offering to build a mass market (lure customers away from competitors)
Idea: low price make customer aware of new product and entice them to try
c)
Predatory pricing
Use profits earned in one country to support aggressive pricing in another market to drive out competitors in that market. Once the competition leaves, the company then raises its prices.
May be considered illegal in some country - this makes market vulnerable to monopoly
E.g. Price war between Uber and Grab in South East Asia Market:
Grab’s continuous promotion and offers cuts prices to a very low level that eventually Uber lost in the competition and decides to leave the market by selling their business to Grab.
E.g. Matsushita: Used this strategy in the 1980s to gain market share in USA
Challenges: Same as Experience curve pricing
d.)
Experience curve pricing
Set low prices worldwide to quickly build sales volume
Idea: Companies take a loss initially as they believe that in the future, once they have moved down the experience curve, they will have a cost advantage over less aggressive competitors.
Challenges:
May not work if there are anti-dumping regulations in place.
Many countries have government policies that promote competition and restrict monopoly practices.
e.)
Price discrimination
Consumers in different countries are charged different prices for the same product.
Charge at whatever prices the market will bear.
Need to keep its national markets seperate
E.g. Charge a higher price in France and Germany than the price
charged in the UK because right-hand drive cars are sold in the UK, while left-hand drive cars are sold in both France and Germany.
Price elasticities of demand is different among countries:(Determined by income level and no. of competitors in the market)
Charge higher prices when demand is inelastic
E.g. TV is considered a luxury item in India, but a necessity in USA. TV companies can charge higher price for US consumers and lower to India to gain more market share.
E.g. In 2007, international company Tommy Hilfiger, for example, successfully priced its jeans in Europe at roughly three times the price of its jeans in North America.
f.)
Multipoint pricing
Company’s pricing strategy in one market may have an impact on how a
rival prices products in another market.
Example:
If a company uses aggressive pricing in one market, its rival may resort to aggressive pricing in another market.
E.g. Kodak and Fuji photo have been playing this game for years. When Fuji started a competitive battle in the USA in the late 1990s, rather than responding by dropping prices in its home market, Kodak dropped prices in Japan instead.
3. Promotions
Most visible of the 4Ps
Strategies:
Pull strategy: Mass media (e.g. TV advert)
Works for selling in large qty to mass market. Better for longer distribution channel.
Push strategy: Personal selling
Works well for industrial/complex new produdcts (e.g. Sport cars). Better for shorter distribution channel.
Challenges
Cultural barriers:
E.g. Language
A message may mean different things in 2 different countries
Solution:
Hire a local advertising agency, use local sales force
E.g. Electrolux: Nothing sucks like Electrolux
Noise levels:
Number of messages competing for a potential consumer’s attention.
Tend to be higher in developed countries than in emerging countries.
Source and Country of origin effects:
Place of manufacturing influences the customer’s product evaluations.
E.g. Haier chose to manufacture their refrigerators in USA to improve its perceived quality.
4. Place
Location where products/services are provided
2. Distribution strategy: How the company delivers products to consumers.
Distribution channels are set of intermediaries that moves goods to consumers
How distribution differs in countries:
a) Retail concentration
b) Channel length
c) Channel exclusivity
d) Channel quality
a)
Retail concentration:
Concentrated:
Few retailers supply most of the market
E.g. Supermarkets
Fragmented:
Many retailers, each with
a non-significant market share; each seller is a specialist. (More common in Asia)
E.g. Market stalls - Egg sellers
b)
Channel length
Number of intermediaries between the producers and the consumers
Short:
producer sells directly to consumers (common for concentrated system)
Long:
Producer sells through import agent, wholesaler, retailer (Common with fragmented system)
c)
Channel exclusivity
Difficulty of outsiders to access the market
Companies may have a hard time breaking into a new market because they can’t access the distribution system.
Retailers carry well-established brands rather than taking a chance on something new.
E.g. Japan: Relationships between retailer, manufacturers and wholesalers, goes back to decades. In some industries are virtually impossible for foreign companies to break into.
d)
Channel quality
Expertise, competencies and skills of the retailers in a foreign country to sell and support a foreign company's product
Generally better in developed countries
Some companies may still depend on themselves in retailing even in developed countries
E.g. Apple, opened its own stores in developed countries like UK to sell its products. They believe that product knowledge is essential to its success, and relying on an outside firm could affect its sales.
E.g. Selling sports cars and houses needs more skills than selling shoes
R&D
comes up with new product ideas to meet new demand and competition
Product development happens in countries where:
Competition is intense
Consumer are affluent
Demand for new products are strong
More money spent on R&D
E.g. Japan: leader for video games
Europe: leader for wireless telecom
Reasons why R&D is necessary
Intensifying competitions in industries
cultural differences: different versions of a product for different market
Adjust features to comply with regulatory requirements
Products have shorter life-cycle and becomes obsolete quickly (consumers get bored easily)
Meet lower local price points by removing/reducing features.
E.g. Tata One-lakh car
Adjust features to account for local supply chain characteristics
Examples of R&D products:
KitKat: Japan has 300 over different flavour (Adapt to taste)
KFC: Offer porridge instead of mash potatoes in Asia (Adapt to local needs)
Oreo: Wafer sticks sold in China (Adaptation)
Where to locate R&D facilities:
Place where consumers are affluent, new product demands are strong
Place with intense competition: Force companies to keep pace, make use of new technologies)
Capacity: Availability of engineers and researchers from universities nearby.
E.g. India’s Bangalore has more than 2 dozen technical colleges, making it the perfect location. Honeywell Technology Solutions Lab, and Intel Indian Development Centre is located in Bangalore.
Availability of reliable infrastructure:
E.g. communication lines, sufficient power and energy supplies, modern transportation systems.
Innovation clusters: Interconnected firms with skilled expertise for a given industry：
E.g. Eastern Europe countries are known for their automotive design and engineering cluster. India is known for their software development clusters.
Communication and Culture: Shared history, close time zones as headquarters, physical closeness, etc.
E.g. E.g. European companies such as Volkswagen, Siemens, ABB, established their R&D centres in Eastern Europe, although it may cost more than in other developing countries.
Need for Close Coordination between R&D, marketing and production for the development of new products
Reason
High failure rate/ Costly:
Only 10-20% chance of commercial success.
(Commercialisation of new technologies is very costly, and companies may need to produce multiple versions to meet the consumers’ needs)
Close coordination needed to increase the odds of commercial success
Coordinations:
Between R&D and Marketing:
Marketing team can feedback to R&D team what consumer wants, so they produce the right thing.
Between R&D and Production:
Reduce cost of production so that consumers can afford.
E.g. Apple made PCs affordable for consumers, hence leading in the PC market.
Products need to be designed for ease of manufacture and availability of raw materials, if not it will be very costly.
Speed: Minimise the time to market
- beat competitors in bringing products to market
Need to be careful not to rush products:
E.g. Samsung Note 7 battery overheating an explosion shows the risk of rushing a product to market. This severely affected Samsung’s reputation in an otherwise very successful model.
Other points for R&D Success:
Test multiple version with pilot consumer
Market consumer trends
R&D in countries where government is supportive of innovation and copyright
Countries with good infrastructure/ fast communication
E.g. Singapore government supports R&D by providing companies incentives such as raising the tax deduction for qualifying expenses incurred on R&D and tax deduction for IP registration fees.