·         Competitor Target:

o   The organizational entity against which the firm decides to compete

·         Customer Target:

o   Individuals and/organizations that the firm tries to make its customers

·         Implementation Strategy:

o   Alternative approaches for the firm to achieve its objectives

o   In the context of market strategy; these include the marketing mix and other functional programs

·         Market Strategy:

o   The firm’s game plan for addressing the market

·         Means/Ends Tree:

o   A diagrammatic method for outlining, assessing, and choosing among various alternatives

·         Performance Objectives:

o   Describe the business results the firm hopes to achieve

Two Components:

Strategic

Operational

Strategic

·         The qualitative and directional results the firm wants to achieve

·         Typically fall into three categories:

o   Growth and market share, profitability, and cash flow

Operational

·         Quantitative statements of business results the firm hopes to achieve that relate directly to the strategic objectives

·         How much is required and by when

Positioning

o   The heart of the market strategy that should create a unique and favorable image in the minds of target customers

oRequires four key decisions:

§  Select customer targets

§  Frame competitor targets

§  Design the value proposition

§  Articulate the reasons to believe

·         Reasons to Believe:

o   Support the firm’s value proposition

o   Provide compelling facts to make the firm’s claims believable

·         SMART Goals:

o   Goals that are Specific, Measurable, Attainable, Realistic, Timely

·         Strategic Focus:

o   Selected from a tree of alternatives and states broadly how the firm will achieve its performance objectives

Synergy

o   Occurs when the combined effect of two or more elements is greater than the sum of their separate effects (Positive Synergy)

o   Negative Synergy:

§  Results when the combined effect is less than the sum of the separate effects

·         Value Proposition:

o   The heart of positioning that provides a convincing answer to a deceptively simple question:

§  Why should target customers prefer the firm’s offer to competitor’s offers?

·         Bundling

o   Firms sells a product and sets a price only in combination with other products and/or services

Unbundling

o   Firms sells products and sets prices for each item individually

·         Mixed Bundling:

o   The firm offers its products as part of a bundle, but also individually

Counterfeiting

o   Illegal copying of a firm’s products

·         Financial Analysis Approaches:

o   Methods for making resource decisions

·         Economic Profit or Economic Value Added (EVA):

o   The firm’s annual profit less an explicit charge for capital

·         Internal Rate of Return (IRR):

o   A method of evaluating investment opportunities using future cash flows

o   IRR is the discount rate that equalizes cash inflows and cash flows

·         Net Present Value (NPV):

o   A method of evaluating investment opportunities using future cash flows

o   NPV is the dollar value from discounting cash flows at a predetermined rate, typically the firm’s cost of capital

Payback

o   The forecast time to pay back the investment

o   In general, shorter paybacks are better than longer paybacks

·         Return on Investment (ROI):

o   Calculations project future accounting data

o   They compare the product’s forecast rate of return with the target (or hurdle) rate

·         Financial Analysis Perspective:

o   Making resource allocations based on financial analysis

Firewalls

o   Brands or products that defend the firm’s profitable products, sometimes termed “fighting brands”

·         Growth-Share Matrix:

§  Dimensions are forecast long-run market growth rate and relative market share

§  Cash Cows:

·         High market shares in low growth markets;

·         Should generate cash

Dogs

·         Low market shares in high growth markets;

·         Many “Dogs” products have poor financial performance, but some are respectable

Stars

·         High market shares in high growth markets;

·         Comparatively rare

·         Many “Stars” consume significant cash, but should create generous returns later

§  Problem Children, Question Marks, Lottery Tickets, or Wildcats:

·         Low market shares in high growth markets

·         Need a lot of investment and are high risk

·         Hurdle Rate:

o   A minimum return that any investment opportunity must exceed

·         Multifactor Matrix:

o   A portfolio analysis system using several variables to define each of two key dimensions

·         Negative Complementarity:

o   The negative effect on sales of one product caused by customer dissatisfaction with another product

·         Portfolio Analysis:

o   A method of evaluating investment opportunities that arrays the firm’s products in two dimensions

·         Portfolio Approach:

o   Individual products play different roles in the firm’s portfolio

o   Some products generate growth and market share, some products earn profits, and some deliver cash flow

·         Product Cannibalization:

o   Sales of the firm’s lower margin product decreases sales of a higher margin product

·         Product Complementarity:

o   Relationships among the firm’s products

o   Positive complementarity occurs when one product helps another

o   Negative complementarity when one product hurts another

·         Product Portfolio:

o   Describes the set of products that the firm or business unit offers

·         Product Portfolio Imbalance:

o   The firm’s products are misbalanced between resources generating and resource consuming

o   In the growth/share matrix, this imbalance refers to cash flows

·         Product Proliferation:

o   The firm offers a large number of products

o   Often viewed as undesirable, but can act as a barrier against competitive entry

o   Sometimes confused with market segmentation

·         Secondary Market:

o   Resale of a product or service

o   Most financial markets are secondary markets

·         Auction Pricing

o   A product’s price resulting from competition among potential buyers

o   English Auction:

§  Prices start low and the potential buyers bid the price up

o   Vickery Auction:

§  A form of “sealed-bid” English auction where the winning bidder pays the price of the second-highest bid

o   Dutch Auction:

§  Prices start high; the seller reduces the bid until a buyer bids

o   Reverse Auction:

§  The buyer states product requirements; suppliers bid to provide the product, and price goes down

·         Bait and Switch

o   Retailers advertise a low price for a product with limited availability

o   The “bait” sells quickly

o   Retailers offer most customers a higher-priced product – the “switch”

·         Bundling

o   The firm sells a product and sets a price only in combination with other products and/or services

·         Unbundling

o   Firm sells products and sets prices for each item individually

·         Mixed Bundling

o   Firm offers its products as part of a bundle, but also individually

·         Contribution Margin (CM)

o   Sales revenue less variable costs

·         Contribution Margin Per Unit (CMU)

o   Contribution margin stated on a per-unit bases

·         Contribution Margin Rate (CMR)

o   Contribution stated per dollar of sales revenues

Fixed

§  Do not vary with the volume of sales or production over a reasonable range

§  Usually comprise overhead items like managerial salaries, depreciation, and selling, general, and administrative expenses (SG&A)

Variable

§  Vary directly with the volume of sales and production

§  Increase as volume increases and decreases as volume decreases

Marginal

§  The cost to make and sell one additional unit

§  Includes all variable costs and some incremental fixed costs, but excludes overhead charges

o   Fully Loaded:

§  Incremental costs plus overhead charges

o   Dollarmetric Method:

§  For several pairs of alternatives, the customer states which alternative she prefers and how much extra she would pay

o   Direct Value Assessment:

§  The firm simply asks the customers what they would pay for various products

o   Economic Value for the Customer (EVC):

§  The price the customer pays for a competitive product, plus the net additional value the firm’s product provides

§  EVC is the upper bound for price

o   Perceived Value Analysis:

§  The firm secures data directly from customers, but sometimes experienced managers provide best-guess data that can be validated later by marketing research

o   Price Experiment:

§  The firm offers the test product at different prices in different market areas, like geographic locations

·         Demand Curve

o   A graph of the relationship between price and volume showing price sensitivity

·         Dumping

o   Selling products in foreign markets below home prices at “less than fair market value” and often below average costs

·         Dynamic Pricing

o   A special case of price discrimination where the price varies over time

·         Floor Price

o   The price below which a firm should never sell a product, typically the marginal cost

·         Perceived Customer Value

o   The value the customer believes the firm is delivering

·         Pocket Price

o   The amount of money the firm actually receives – in its pocket

·         Predatory Pricing

o   Pricing below cost with the intent to eliminate a competitor

·         Price Discrimination

o   Setting different prices for the same product to different segments or customers

·         Price Sensitivity

o   Degree of change in volume related to change in price

·         Price-Elastic Market

o   Volume increases/decreases significantly as price decreases/increases

·         Price-Inelastic Market

o   Volume is relatively insensitive to price changes

o   Cost-Plus Pricing:

§  Setting price by identifying costs and adding a satisfactory profit margin

o   Competitive-Driven Pricing:

§  Pricing based on competitors’ prices

o   Customer-Driven Pricing:

§  Customers name the prices they are prepared to pay

§  If the product is available, they must complete the purchase

Deceptive

§  False prices and prices that might confuse or mislead customers

o   Flat Rate Pricing:

§  Pricing for a fixed time period

o   Variable Rate Pricing:

§  Pricing by use

o   Loss-Leader Pricing:

§  Retailers deliberately take losses to build customer traffic

o   Psychological:

§  A common retail practice of pricing just below a benchmark number, like .95 or 99

o   Variable Pricing:

§  Setting different prices for different customers or segments

·         Pricing Strategies:

o   The firm’s overall approach to setting prices; should be based on four considerations – perceived customer value, costs, competition, and strategic objectives

·         Penetration Pricing:

o   The firm sets prices close to costs as it seeks growth and market share

o   Volume increases, unit costs fall, the firm reduces price, and volume increases… in a virtuous spiral

o   The firm forgoes high profits today in favor of achieving high volumes and ultimately earning profits from high unit volumes, but low profit margins

·         Skim Pricing:

o   The firm keeps prices high to secure high margins

o   Firm retains value for itself by pricing high

o   Provides less value to its relatively few customers

o   Reduce prices periodically – sequential skimming – to attract increasing numbers of customers

·         Price Waterfall

o   The reduction, by discounts and allowances, from list price to pocket price

o   CIF (Carriage, Insurance, Freight)

§  The supplier pays the cost, insurance, and freight

o   FOB (Free on Board)

§  The customer pays freight, insurance, and other charges

·         Pricing Toolkit

o   A set of pricing tactics for the firm to change a product’s price

·         Resale Price Maintenance (RPM)

o   A distribution practice where suppliers set the prices at which retailers can sell their products.

o   RPM is now illegal in the U.S. and many other countries

·         Tactical Pricing

o   The ongoing stream of pricing decisions the firm makes on a daily basis

·         Yield Management

o   Continuous price adjustments based on demand and available capacity

·         Antitrust

o   U.S. laws that prohibit actions to reduce competition

·         Direct Marketing (DM)

o   Paid and sponsored communications directed at individuals

o   Customers buying products receive them by direct delivery from remote locations, typically via third-party freight companies

·         Disintermediation

o   The removal of a layer in a distribution system

·         Distribution Approaches:

Exclusive

§  Focuses on a few well-chosen outlets

·         Distribution Approaches:

Intensive

§  Maximizes the number of outlets

·         Distribution Approaches:

Selective

§  Compromise between intensive and exclusive

·         Distribution Channel or Distribution

o   Encompasses the entities, interrelationships, and functions they perform, so that the supplier’s products reach customers

·         Distribution Channel Breadth

o   Number of members at a particular level in the channel system

·         Distribution Conflict

Operational

§  Focuses on the day-to-day issues like late shipments, invoicing errors, unfulfilled salesperson promises, unacceptable product quality, supplier attempts to load channels, and price and margin disputes

·         Distribution Conflict

Strategic

§  May change the relationships among distribution channels

·         Distribution Exclusivity:

Geographic

§  Supplier gives the distributor a monopoly on selling products in its territory

·         Distribution Exclusivity:

Product

§  Supplier gives the distributor exclusivity to sell a group of products

·         Distribution Exclusivity:

Supplier

§  The intermediary agrees to distribute only the supplier’s products

·         Distribution Function

o   The activities that the distribution channel must perform

o   Concerned with the physical product, information, and/or ownership

·         Distribution Method:

Direct

§  Supplier supplies products directly to consumers and end users

·         Distribution Method:

Indirect

§  Intermediaries like distributors, wholesalers, and retailers play a major role in transferring products to consumers and end users

·         Downstream

o   The firm’s customers and its customers’ customers

·         Franchising

o   A distribution strategy in which the franchisor develops a business model

o   Franchisees agree to implement the franchisor’s model and typically pay an initiation fee and ongoing fees

·         Full-line Forcing

o   Same as tying agreements

·         Just-in-Time (JIT)

o   An approach to reducing inventory by making raw materials and parts deliveries shortly before use in the production line

·         Logistics

o   Process of moving a product from point A to point B

o   Outbound:

§  Getting the product from the supplier to the customer

o   Inbound (reverse):

§  Getting the product from the customer back to the producer

·         Partnership Model

o   An approach to distribution channel members that involves building cooperation and trust

·         Power

o   The ability of one channel member to get another to do what it wants it to do

·         Reintermediation

o   The re-introduction of a layer in a distribution system

·         Retail Price Maintenance (RPM)

o   A distribution practice where suppliers set the prices at which retailers can sell their products

·         Slotting Fees

o   Payments that suppliers make to retailers for providing shelf space for their products

·         Systems Integrators

o   Firms that install, service, and integrate software from many vendors

·         Supply Chain

o   A coordinated system of organizations, people, activities, information, and resources that move a product or service, physically or virtually, from a supplier to a customer

·         Telemarketing

o   Communication by telephone, usually viewed as a subset of personal communication:

o   Inbound:

§  Initiated by customer

o   Outbound:

§  Initiated by the firm

·         Tying Agreements

o   Strong suppliers force resellers to sell their entire product line

o   This practice is illegal in the U.S. if it reduces competition

·         Upstream

o   Firm’s suppliers and its suppliers’ suppliers

·         Value-Added Resellers (VARs)

o   Firms that build additional software modules onto other firms’ platforms and modify hardware for niche markets