Marketing imagination theodore levitt pdf

Marketing Sunil Gupta, Series Editor

Framework for Marketing Strategy Formation

ROBERT J. DOLAN HARVARD BUSINESS SCHOOL

8153 | Published: June 30, 2014

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Table of Contents

1 Introduction ................................................................................................... 3

2 Essential Reading ......................................................................................... 5

2.1 Overview of Marketing Strategy Formation ............................... 6

2.2 Analysis Underlying Marketing Strategy Formation ............... 7 Customer Analysis ................................................................................ 7 Company Analysis ................................................................................. 8 Collaborator Analysis ........................................................................... 9 Competitive Analysis ........................................................................... 9 Context Analysis .................................................................................. 10

2.3 The Aspiration Decision: Segmenting, Targeting, and Positioning ........................................................................................... 10

2.4 The Action Plan: The Marketing Mix Decision.......................... 13 Product Decisions ................................................................................ 13 Promotion Decisions .......................................................................... 16 Place Decisions ..................................................................................... 19 Pricing Decisions .................................................................................. 21

2.5 Conclusion ............................................................................................. 25

3 Key Terms ..................................................................................................... 26

4 For Further Reading .................................................................................. 27

5 Endnotes ........................................................................................................ 27

6 Index ............................................................................................................... 30

Robert J. Dolan, MBA Class of 1952 Baker Foundation Professor of Business Administration, Harvard Business School, developed this Core Reading.

Copyright © 2014 Harvard Business School Publishing Corporation. All rights reserved. To order copies or request permission to reproduce materials (including posting on academic websites), call 1-800-545-7685 or go to http://www.hbsp.harvard.edu.

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1 INTRODUCTION ccording to Peter Drucker, the renowned management scholar, “the purpose of

business is to create a customer.”1 A decade later, Harvard Business School

marketing professor Theodore Levitt articulated an important addition to Drucker’s

statement: “the purpose of a business is to create and keep a customer” (emphasis

mine).2 For Levitt, achieving those goals (and, implicitly, the financial goals of the

firm) required “differentiating what you do and how you operate.”3

The contributions of Drucker and Levitt were seminal, and there is now little debate about the value of defining the purpose of business around creating and keeping customers. But how do organizations do that? Benson Shapiro, in “The Marketing Process,”4 helps answer that question by showing the relationship among the six key elements of a customer-centered marketing process. (See Shapiro’s flowchart in Exhibit 1.)

EXHIBIT 1 Relationships Among the Six Parts of the Marketing Process

Source: Reprinted from Harvard Business School, “The Marketing Process,” HBS No. 584-146 by Benson P. Shapiro. Copyright © 1984 by the President and Fellows of Harvard College; all rights reserved.

Shapiro defined the parts of the process as follows:

1 Marketing strategy formation. Set the overall, long-term goals and basic approach to the marketplace. This typically involves making choices about specific customer groups to serve, customer wants to address, and the best way to create value for customers.

2 Marketing planning. Depending on the industry, the time horizon for planning can vary. In dynamic situations, for example, in a technology-driven industry, plans need to be reworked regularly. In other, more stable situations, the basics of a plan might extend over two or three years.

A

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3 Programming, allocating, and budgeting. Set near-term objectives and detailed plans (typically once a year), including how resources will be allocated to the necessary activities.

4 Implementation. Execute the programs specified in step 3.

5 Monitoring and auditing. Evaluate results against goals and develop corrective action plans as needed.

6 Analysis and research. Gather necessary data from inside and outside the company to support the four action steps (steps 1 to 4 above). This data gathering should occur before executing each of the first four steps and should be ongoing, as depicted in Exhibit 1.

This reading focuses on the top portion of Shapiro’s diagram, the market strategy formation stage, in which an organization articulates its overall goals (especially, which kind[s] of customer it will seek to create and keep). We will also outline the basic approach for achieving those goals. A good way to think about marketing strategy is, in Robert Davis’s words, as the “blueprint by which the firm plans to compete.”5 In this reading, we will set down the process for developing that blueprint.

Note that while a company is making the all-important choice about the customers it hopes to acquire and retain, other firms are making similar decisions—each attempting to achieve Levitt’s “differentiation” among a specific customer set. For example, in 2012, Pebble Technology decided to serve customers wishing to connect with their smartphones via a wrist device. By entering the smart-watch market, Pebble Technology would compete with both small firms, such as Fitbit, with its focus on fitness-related activities, and larger ones with more general-purpose functionality, such as Samsung, with its Galaxy smart watch. For today’s highly informed customers, accessing information on the web and staying connected to social media forums is paramount. To succeed in its chosen customer segment, then, Pebble Technology would have to differentiate itself from competitors in the value it could deliver.

Later in this reading, we will examine the story of how Pebble Technology fared. But for now, our point is that winning at this contest in a way that yields revenues to cover costs and contribute to profits is no simple task. Most new products, in fact, do not find a way to do so and thus fail—often before they even get to market.6 Organizations therefore must recognize that they need not try to create a mass-market product loved by everyone. Rather, a company could focus, for example, on the customer segment looking to trade off frills for a basic product at a low price (e.g., Vizio in televisions, often sold through discount clubs such as Costco) or the price-insensitive group seeking maximum performance (e.g., Bang and Olufsen with its home theater system). Marketing strategy is about the process of selecting these customers, deciding on the competitive point of differentiation to present to them, and developing a plan for accomplishing this.

In this reading, we set out a basic framework for thinking through the decisions to optimize an organization’s chance for success. We begin with a description of the classic five Cs analysis for developing a marketing strategy (customer, company, collaborators, competition, and context). We then discuss two sets of decisions every organization needs to make: the aspiration decision (what the company hopes to achieve in the market) and the action plan decision (commonly known as the four Ps of the marketing mix—product, promotion, place, and price). Finally, we briefly set out the different kinds of actions required for customer acquisition versus customer retention. As an overview of marketing strategy, this reading does not provide extensive treatment of each area, but it does offer references throughout to appropriate sources of in-depth coverage.7

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2 ESSENTIAL READING There is no one way to market a product or service effectively; indeed, organizations often adopt different strategies for their different offerings.8 For example, General Electric’s approach to selling microwave ovens to millions of households differs, more than a little bit, from how it sells aircraft engines to the handful of firms that buy them. Similarly, different firms within the same industry employ different approaches. Steinway devotes itself to “Making the World’s Finest Pianos” (and nothing else) by strictly limiting the types of pianos it manufactures and the types of outlets through which it sells. Competitor Yamaha, on the other hand, offers everything from grands and uprights to digital pianos and portable keyboards. L’Oréal of Paris has a policy that its cosmetics can be found at a wide variety of retail partners in the United States, including department stores, grocery stores, drugstores, and mass merchants, while Mary Kay cosmetics can be purchased only from a certified Mary Kay beauty consultant (including online, telephone, and in-person orders).

A given organization might also change its marketing approach over time. Samsung Elec- tronics, for example, launched in 1969 with a low-cost strategy, and in 1990, the company’s marketing head referred to Samsung as a “third-tier commodity brand with very little product differentiation.”9 Shortly thereafter, Samsung focused on developing manufacturing expertise to compete on the basis of the highest quality products. In 2013, it was rated number 8 in Interbrand’s “Best Global Brands of 2013” tabulation—the highest rated non-US company on the list. That same polling had rival Sony at number 46, showing the extent of Samsung’s transformation from a low-cost player, with a reputation lagging far behind Sony, to a top quality producer.10

Customer differences—in what they value in a product or service, how they want to buy, and how they trade off price versus benefits—mean that some customers more naturally fit the capabilities and aspirations of a given company. As companies seek to find and keep different kinds of customers, it logically follows that the market will be populated with products of varied specifications, promoted and distributed in a variety of ways, and priced at different levels. For more detail, see Core Reading: Segmentation and Targeting (HBP No. 8219).

Even though there is more than one way to go to market, we can nevertheless articulate a best practice for thinking about how to develop a marketing strategy for a particular circumstance. Such a framework is shown in Exhibit 2.

EXHIBIT 2 Schematic of Marketing Strategy Formation Process

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2.1 Overview of Marketing Strategy Formation

In Exhibit 2, we see three interrelated elements in the marketing strategy formation process: analysis, decisions, and outcomes. The middle of the diagram depicts the two different sets of decisions an organization needs to make: the aspiration decision and the action plan decision.

The aspiration decision (which we can think about in terms of what value the product will represent to what kind of customer) specifies what the firm hopes to achieve in the market. This involves three steps: (1) segmenting the market to identify possible groups to serve, (2) selecting or targeting a specific group or groups to address, and (3) determining the desired positioning in the mind of the selected customers (that is, what should the customer be thinking about the firm’s offering, relative to other options?). The steps in working out the aspiration decision are popularly known as STP (segmenting, targeting, and positioning).

Once the aspiration decision has been made, the firm can begin to work out its action plan, commonly known in marketing as the four Ps of the marketing mix (we use the term mix because the elements all need to work together to form a cohesive plan.) Three elements of the plan create value for the customers—the product offered, communication to the customer about the product (promotion), and mechanisms to distribute the product to the customer (place). The final element of the mix is the price charged for the product, which generates revenue for the firm. The value created for the customer through the first three Ps is the upper bound on the price the company can charge and still attract a customer. Obviously, organizations aspire to create value, such that the upper bound on price is greater than the unit cost of producing the value.

As shown on the left side of Exhibit 2, an organization needs to analyze the market in order to make good aspiration and action plan decisions. Usually this requires an analysis of the five Cs (customer, company, collaborators, competition, and context). To indicate its primacy for marketing decision making, Exhibit 2 places the first C—customer—in the middle of the circle under analysis. Here we assess who is involved in a purchase decision and how customers approach that process. For example, when purchasing a laptop computer, what criteria does the customer use to make a decision? Does she trade off various attributes against one another (e.g., weight versus screen size versus price) or does she have a set expectation that the product must meet or exceed for each attribute? The customer analysis is followed by close examination of the remaining Cs, which we will explore in the next section of this reading.

A company’s choice of actions in the middle of Exhibit 2 then has to be funded and implemented. For example, if part of the chosen marketing mix is promotion via a company- owned sales force, the company must then develop and field such a sales force. The decisions in the middle column thus determine how successful the company will be at acquiring a customer, whether that customer is retained over time, and at what rate of purchase. The decisions made also determine the costs of the product or service and the supporting marketing costs.

As Exhibit 2 illustrates, the actions of the firm create not only short-term financial results but also a franchise, the platform for future marketing efforts such as its brand reputation and customer loyalty. This is not a linear process. Rather, there is a back and forth between analysis and decisions. The need to choose between action alternatives determines the specific analysis the firm should undertake. For example, if a manufacturer decided to distribute its goods through retail channels, rather than just selling on its own website, it would need to drill down further in its analysis to decide between, say, Target and Walmart, or to identify smaller, local firms.

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We will keep the interactive process between analysis and decisions in mind while, in the sections that follow, we describe the other concepts shown in Exhibit 2, moving from left to right. Thus, we begin with analysis and a brief discussion of the five Cs.

2.2 Analysis Underlying Marketing Strategy Formation

When developing a marketing strategy, a company should undertake a five Cs analysis, starting with the primary C of (1) customer behavior (see Exhibit 2), supported by analysis of the (2) company (e.g., what special skills, competencies, and assets does the organization bring to the task of creating and keeping customers?), plus (3) collaborators (e.g., which suppliers can partner with the firm in its effort to attract and keep customers, and how they can be enlisted and motivated to participate as desired), (4) competition (e.g., who else seeks to create and keep the same customers? What capabilities do firms bring and what are their aspirations? What is their blueprint for competing?), and (5) context (e.g., what cultural, technological, and legal factors limit what is possible?).

In the sections that follow, we will look at each of the five Cs in an actual company context—the example of Pebble Technology, which we introduced at the beginning of this reading.

Customer Analysis11 In 2013, Pebble Technology shipped its first-generation Pebble smart watch, which sold for $150. By January 2014, at the Consumer Electronics Show (CES) in Las Vegas, Nevada, Pebble Technology’s CEO Eric Migicovsky and his creation—the new, improved Pebble Steel smart watch—were among the stars of the show.12 Of the 18 smart watches on display, Pebble Steel was dubbed “the most generally useful of all the wearable devices at CES 2014.”

How did Migicovsky develop his smart watch from an idea to a hit product? Like many entrepreneurs, Migicovsky’s initial customer analysis was on himself. An avid cyclist, he wanted a device that would notify him of text or e-mail messages coming to his smartphone while he was cycling. Rather than an “on the wrist” replacement for a cell phone, he preferred a device that would complement his phone—and his instincts told him that other cyclists would want the same.

Pebble Technology’s CEO adopted a minimalist approach and developed the Pebble smart watch to work with the Blackberry phone he used at the time. But designing a more mainstream product required broader customer input, and he soon discovered that potential customers most wanted to know whether it would work with their iPhones. Migicovsky’s job at this point was to systematically map out the key needs and the decision-making process (DMP) of potential customers of smart watches. He found that an appealing Pebble smart watch would work with iPhone and Android, be visible in direct sunlight, operate for a week or more without recharging, and be waterproof.

To market the product effectively, Pebble Technology executives also had to know how customers became aware of and informed about the features of a product like a smart watch. Did they conduct deliberative research on the Internet? Was word of mouth important? Did they need to touch and feel the product before buying? The answer to the first two questions was “generally, yes,” and to the third was “some did, some didn’t.”

In general, the next part of customer analysis involves determining who the decision- making unit (DMU) is—that is, who is involved in the purchase process? In Pebble Technology’s case, this was relatively straightforward because the purchase of a $150 smart watch would likely involve only the end users themselves. But particularly in business-to-

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business (B2B) situations, the DMU can be much more complex. Thus, customer analysis also requires in-depth understanding of customers’ purchase and usage patterns.

When trying to ascertain the DMU, the marketer should ask the following question: Who are the participants in the buying process, and what role does each play? In an influential article, Thomas Bonoma set out six major roles generally played across a broad set of buying situations:13

• Initiator(s). Initiators recognize the value of solving a particular issue so they stimulate the search for a product.

• Gatekeeper(s). Gatekeepers act as problem or product experts and control information and access to other members of the DMU.

• Decider(s). Deciders make the purchasing choice.

• Influencer(s). Although they do not make the final decision, influencers have input in it.

• Purchaser(s). Purchasers consummate the transaction.

• User(s). Users consume the product.

In his work on capital equipment and service purchasing, Bonoma found an average of seven people involved in the six roles. But often one individual plays all six roles, which was usually the case in Pebble smart watch purchases, as it is with laptop purchases and other personal electronics purchasing decisions. For more involved or expensive purchases, such as a car or a house, married couples frequently make up the DMU, sometimes joined by their parents if financial help is required. The DMU might also include children if the products are home furnishings or a family vacation spot.

After determining the DMU, a marketer must next understand the purchaser’s decision- making process, which includes finding responses to questions such as the following: Will there be a search for information, and how will it be conducted? How do the DMU members interact? What criteria will be used in making the decision? What is the relative importance of each? Can one criterion be traded off against another, or is there some minimal level that must be reached on each?

A variety of research methods can be used to answer these questions, ranging from quantitative surveys to qualitative methods such as focus group discussions or customer interviews. (For a survey of these methods, see Core Reading: Marketing Intelligence [HBP No. 8191]). Pebble Technology sought input from users via surveys to such an extent that Wired magazine called the Pebble smart watch “crowd-designed.”14

Company Analysis The second C for Migicovsky to consider in Pebble Technology’s marketing strategy was his company’s strengths and weaknesses. Through his customer analysis, he attempted to design a product that fit the market; the next requirement was to ensure that his product and approach fit the company.

Generally, assessing product/company fit requires an understanding of the finances, research and development (R&D) capability, manufacturing capability, and other assets of the firm. A highly influential concept, developed by Prahalad and Hamel, is a company’s core competency. Two key elements of core competency are to (1) make a significant contribution to the creation of perceived customer value in products and (2) be difficult for competitors to imitate.15 As we will discuss next, the complement to company analysis is collaborator analysis: If the company does not have a requisite skill or capability in-house, can it be obtained from another organization?

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In Pebble Technology’s case, the initial demand for the smart watch indicated the need for large-scale production capability, which the company did not have. The strengths that the company analysis identified, however, were that Pebble Technology was early to the market, and its executives had a native understanding of their potential customers, since they were avid cyclists themselves.

Collaborator Analysis The C of collaborators involves analyzing the set of external assets that may be accessed to complement those of the company, thus allowing the organization to implement an effective marketing program. Pebble Technology’s company analysis identified some significant holes to fill. It had a good smart watch idea, yes, but it still needed money for R&D; the capacity to manufacture at large scale; a distribution system for customers needing to “touch and feel” the product before buying; and applications that would work on the Pebble smart watch, thus increasing its market appeal.

With respect to money, Pebble Technology’s collaborator was the website Kickstarter. After failing to acquire venture capital investment on suitable terms, Migicovsky turned to the Kickstarter model, hoping to raise $100,000 from those willing to invest $125 against later delivery of a Pebble smart watch, which was then only in prototype phase. Within 37 days, Pebble Technology found 69,000 such backers and raised $10.3 million. Pebble Technology then engaged a firm with knowledge of Chinese manufacturing options to find the best production sources. Key parts were obtained from STMicroelectronics (the internal microcontroller) and Corning (the glass for the device’s cover).

Pebble Technology initially began selling the Pebble smart watch only via its own website in January 2013, when its first product shipped. By July 2013, it signed on with Best Buy as its first and exclusive consumer electronics store distributor. Several months later, it added some AT&T stores and finally, near the end of 2013, Amazon.com became an online seller of Pebble smart watches. Thus, through collaborations, Pebble Technology gained access to many customers, including those wishing to try the product and discuss it with a salesperson at Best Buy.

To provide a wide set of applications, Pebble Technology created an open platform and a software development kit. This led to collaboration with many popular services, including Yelp, Foursquare, and ESPN. Thus, Pebble Technology had upstream collaborators making the product, downstream collaborators making the product easily accessible, and developers of complementary products adding their items to the Pebble platform. Effective management of these business ecosystems requires understanding the goals and capabilities of all partners.

Competitive Analysis Winning the customer acquisition game requires creating more value (benefits minus costs) for customers than any other options known to them. Thus, a firm must identify who its competitors are now and who they are likely to be in the future.16

Pebble Technology demonstrated best practice in this area by defining the competition in an appropriately broad way: Pebble Technology regarded its biggest competitor to be an empty wrist because many of the young people the company targeted normally did not wear any kind of wristwatch. While Pebble Technology was early to market with its prototype, it was clear that it would face major players eyeing the smart-watch market. Competitors and potential competitors were of two types: niche players focusing on specific applications along with telling time (such as Fitbit for fitness customers) and more general-purpose players such as Qualcomm and, most notably, Samsung. By 2014, there were 30 smart watches on the

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market.17 (While many rumors about an iWatch from Apple circulated, the company had yet to make a definitive announcement.)

Competitive analysis requires assessing others’ offerings, the market they address, how they address it, and how all that will evolve over time. As with company analysis, any realistic assessment of the competition must begin with a fundamental understanding of its strengths and weaknesses. Marketers can gain this information in a number of ways, including analyzing competitors’ statements about themselves (for example, 10-K filings for publicly traded companies) and interviews with potential customers about their perceptions of competitors’ offerings. Marketers can also observe a competitor’s marketing actions, including the product it has on the market and, when possible, reverse-engineer or “tear down” a product to understand its features and likely cost.

Part of competitive analysis is also assessing the extent to which one can influence competitors’ actions. For example, Pebble Technology wondered if, by providing an open platform for applications, it would discourage another “fitness-only” potential competitor from entering the market.

Context Analysis A good marketing strategy takes very little for granted. The context shapes what is possible, and the context is always changing. This point is vividly illustrated by the disruption that the capabilities of the Internet brought to existing business practices. For Pebble Technology, context analysis identified a cultural trend towards crowd participation that it exploited in designing and funding its product.

Like technology itself, a context such as culture can shift and bring surprises unless it is carefully monitored. Many fortunes are made by anticipating cultural trends (e.g., consider the success of McDonald’s and Nike). Products and services acquire meaning from their place in a culture, and they acquire economic value from that meaning. Thus, value is vulnerable to shifts in the culture. The systematic analysis of cultural trends (popularized recently as coolhunting and consumer ethnography) is increasingly an integral part of marketing strategy formation.

Similarly, politics, regulation, law, and social norms are not fixed features of the marketing landscape; rather, they are dynamic factors to consider and monitor for signs of disruption. Markets such as banking, television, and pharmaceuticals operate in particularly unstable settings. It is dangerous to design marketing strategies for such environments without a carefully developed point of view on the regulatory context.

Each of the five Cs we have just examined is critical—but in marketing, none is more important than the C of customers and looking at the world through their eyes. Devising an effective marketing program requires deep analysis to support decision making on a host of interrelated issues. With this preliminary understanding of key analysis types, we will now explore in depth the specific marketing decisions to be made.

2.3 The Aspiration Decision: Segmenting, Targeting, and Positioning

As we’ve said, the aspiration decision specifies what the firm hopes to achieve in the market. This decision involves three steps: segmenting the market, targeting a specific customer group or groups to address, and determining the desired product or service positioning in the mind of the selected customers (commonly abbreviated as STP).18

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Examples abound of firms consciously positioning products and services to target a particular set—or segment—of customers. In fact, many companies renounce some potential customers so they can focus exclusively on a select customer group, whose wants their product is particularly well suited to serve. The Coca-Cola Company describes its Coke Zero as being “created with young adults in mind.”19 IKEA particularly wants you as a customer “if you can do simple things like pick up your purchases and assemble them at home.”20 “Bugs” Burger Bug Killers unconditionally guarantees pest elimination, not just pest control, and therefore accepts only customers willing to follow its strict cleanup regimen—and to pay premium prices.21 Marriott designed its Courtyard hotels for business travelers and its Residence Inns for those on an extended stay. Zipcar’s car-sharing service, first operating in Boston, sought to solve the transportation and parking problem of urban dwellers and college students, who were generally neglected by car-rental companies with their “no one under 25” rules. Outotec of Finland offers its gold- and copper-mine design and construction services for the most challenging set of circumstances, because those circumstances play to the firm’s distinctive engineering skills.22

Looking at customer segments and how the purchase process varies across them allows organizations to fine-tune the marketing mix to meet the particular needs of chosen customers. Indeed, segmenting customers has become a key aspect of marketing today. In the words of Theodore Levitt, “if you’re not thinking segments, you’re not thinking.”23

An organization’s target market selection decision is critical, because customers ultimately set their own purchase criteria and thus dictate the rules by which the marketing game will be played. Thus the target market selection should consider the firm’s corporate goals and the fit of the segment with these goals; it should also consider the firm’s comparative strengths and weaknesses vis-à-vis competition, given the target market’s purchase criteria.

As the examples listed earlier suggest, and as Exhibit 3 shows, markets can be segmented in a variety of ways. Note also that segments can be defined by simultaneous use of more than one variable; for example, Zipcar combines age (under 25), geographic location (urban), and psychographic (environmentally concerned) to define its ideal customer.

EXHIBIT 3 Common Segmentation Variables

Variable Type Example Segment Defined

Demographic

Coke Zero Age: young

Zipcar Age: under 25

Marriott Courtyard Business traveler

Geographic Zipcar City dwellers and college students

Psychographic/lifestyle Zipcar Environmentally concerned

Ikea Value-oriented

Benefit sought “Bugs” Burger Bug Killers Pest elimination (not control)

Outotec High performance

Usage Marriott Residence Long stay

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The most widely used segmentation bases are demographic (e.g., age, income, gender, occupation), geographic (e.g., nation, region of country, urban versus rural), and lifestyle (e.g., hedonistic versus value-oriented). An alternative type of segmentation variable is the customer’s behavior or relationship to a product: for example, the customer’s user status (nonuser versus user), usage rate (light, medium, or heavy user), and loyalty status (none, moderate, strong, or totally loyal). With the widespread use of customer loyalty cards, usage- related customer segments can now be readily identified and targeted. For example, Catalina Marketing maintains three-year purchase histories for over 200 million unique loyalty-card identifiers.24

In the segmentation and target market selection process, a company has to play out various scenarios. Consider the positioning part of the aspiration decision: If we pursue this segment, how would we approach it and what would we want segment members to see in us? Positioning answers these questions. The answers should be formalized in a positioning statement. A positioning statement can take many forms, but effective statements specify the following essential elements:

1 The target customer, as defined by the segmentation variables

2 The wants of that customer

3 The product type and category, as seen by the customer

4 The key benefit to be provided to the target customer.

For example, Tybout and Sternthal recount the following positioning statement for Zipcar:

To urban dwelling, educated, techno-savvy consumers who worry about the environment that future generations will inherit, Zipcar is the car sharing service that lets you save money and reduce your carbon footprint, making you feel you have made a smart, responsible choice that demonstrates your commitment to protecting the environment.25

The Ross School of Business at the University of Michigan developed this positioning statement for its MBA program:

For prospective students seeking leadership capability development, Ross is the best MBA program because of the opportunity sensing skills and teamwork capabilities developed through extensive action-learning experiences, complementing classroom learning.26

The positioning statement is intended to get the whole organization aligned regarding the aspiration decision. External statements derive from the positioning statement. For example, Zipcar and Ross both had taglines related to, but shorter than, their positioning statements— Zipcar proclaimed “Wheels When You Want Them” and Ross touted itself as “Leading in Thought and Action.”

A meaningful target market selection typically provides focus by deliberately excluding some customers from the market served. For example, in its early days, Dell consciously renounced first-time buyers of a personal computer because the buyers lacked the sophistication required to custom-design a machine on the web.27 The Ross School of Business consciously renounced MBA candidates not interested in developing teamwork skills through action learning. The previous positioning of the school was so general, focusing on the non- differentiating attributes of being collaborative and innovative, that no one was excluded. The new, narrower positioning caused a short-run decline in applications, as the school actively sought to discourage applications from those not sold on action learning. That strategy was

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validated by the fact that the percentage of accepted MBA students who enrolled increased dramatically because of the superior fit of the service to the selected target.28

The goal is to define a target market that can be reached by the firm efficiently, whose members value the firm’s comparative advantage, and who are willing and able to pay for it. Kotler articulated the fundamental importance of making the aspiration decision: “The advantage of solving the positioning problem is that it enables the company to solve the marketing mix problem. The marketing mix—product, price, place, and promotion—is essentially the working out of the tactical details of the positioning strategy.”29 That is the focus of the next section.

2.4 The Action Plan: The Marketing Mix Decision

Once an organization has made the aspiration decision, it needs to address the marketing mix decision (the action plan). Neil Borden of Harvard Business School originated the term marketing mix to describe the set of activities composing a firm’s marketing program.30 He noted the ways in which a firm blends mix elements into a program and that competing firms can have dramatically different mixes at work. Borden originally specified 12 distinct mix elements, ranging from product planning to display. Over time, an aggregation of these elements has become popular. As already shown in Exhibit 3, the four 4Ps terminology of product, price, promotion (communications strategy), and place (channels of distribution) is often used to set out the marketing mix in a memorable way. As suggested by Borden’s use of the term mix, it is important that the various elements blend well.

Benson Shapiro has identified “three degrees of interaction”: 31 consistency of mix elements—the minimum standard, implying a generally good fit; integration—existence of positive, harmonious interaction; and leverage—where each element is used to its best advantage to support the value creation/capture of the overall mix. In the sections that follow, we examine some of the major issues involved in setting the four Ps of product, promotion, place, and pricing, in that order.

Product Decisions The product (or service offered) is the centerpiece of the marketing mix. It is a complete set of ways that value is delivered to the customer, not just a single core feature. For more detail, see Core Reading: Product Policy (HBP No. 8208).

For example, a conventional home thermostat, costing about $25, senses the room temperature and automatically turns on the heat when the room temperature falls below a specified level (or it turns on the air-conditioning if the temperature rises above a specified room level). Programmable versions, costing slightly more, permit the desired temperature setting to vary by time of day and day of the week.

Even though the relatively low-tech thermostats work fine for most customers, the desires of some customers are best met by a thermostat called Nest, the “Learning Thermostat,” that costs five times as much as a basic one. Although its core function is the same as that of the $25 model, Nest provides added benefits. First, it is designed to be simple to install, but if help is needed, Nest provides a concierge service. Second, it is easy to use. The customer doesn’t have to program anything—just adjust the temperature as desired; Nest learns the desired temperature by the time of day, or the day of the week, and automatically programs itself to accommodate those desires. Third, if a customer is deviating from a usual pattern, such as heading home early from work, Nest can be controlled from a smartphone. Fourth, if a

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This document is authorized for use only by Michaela Adams in Marketing Management taught by MICHAEL PETTIETTE, University of Houston from Oct 2019 to Mar 2020.

customer is not at home, Nest senses that and adjusts the temperature to conserve energy. Fifth, Nest reminds the customer to change the air filter. Sixth, the customer doesn’t have to calculate the savings gained; Nest sends a monthly energy report. Seventh, Nest’s design and appearance have been highly praised in product reviews. In short, the Nest product is far more than just a device to turn the heat and air-conditioning on and off; rather, it is a complete bundle of benefits that can be offered to (and appreciated by) a particular segment of customers.