Strategic Market Management, 11th Edition , David A Aaker , Christine Moorman Solution Manual

Type:

Solution Manual

Resource:

Strategic Market Management

Edition:

11th Edition

Author(s):

David A. Aaker Christine Moorman

SYLLABUS AND CASE SELECTION GUIDE Strategic Market Management can be used in marketing strategy courses at both the undergraduate and graduate levels. These courses often include some combination of cases, projects, papers, and computer simulations such as MARKSTRAT or STRATSIM. The best combination of these depends on the student population and the instructor’s comfort with teaching cases and/or simulations. In teaching this class, we have found that only about 25-33% of the class time needs to be spent on reviewing concepts and frameworks and the rest on cases.

These cases, including longer cases such as a case from Harvard Business School, shorter cases from HBS or other sources, the cases offered at the end of this book, or the best digital and global practice case studies offered in each chapter of the book.

This guide is organized as follows. We begin by offering a sample syllabus that can be modified to fit any class. Several projects are described in this syllabus. We then offer a set of recent cases that could be used for each chapter. This is followed by a summary list of all of the best practice case studies contained in the book. We close by briefly describing the short cases contained at the end of the book. Detailed guides for leading class room discussions of the best practice and cases in the book can be found on the instructor site.

SAMPLE SYLLABUS This sample syllabus outlines seventeen class sessions which can reduced or expanded depending on whether a module, quarter, or semester-long class is taught. The class can be shortened by removing any of the topics, combining topics, or by eliminating the in-class presentations or the mid-term exam.

Strategic Marketing Management Instructor Name Instructor Email Office Location Office Hours Classroom Location Semester and Year Course Summary This course is concerned with strategic market management and marketing planning. The focus is on strategic decisions (decisions which have a long-term impact on the organization and which are difficult and costly to reverse). The strategic decision-making process is supported by an external analysis (an analysis of the organization's environment) and an internal analysis.

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Learning Outcomes 1. Conduct the external and internal analyses that support the development of strategies.

2. Identify and address questions such as: • What environmental opportunities and threats does the firm face?

• What are its organizational strengths and weaknesses relative to competitors?

• How are markets evolving and what changes are occurring and can be expected in customer behavior?

• What are its biggest key strategic questions or uncertainties?

• What are its strategic alternatives?

• What is the company’s sustainable competitive advantage?

• What business should the company be in?

• What product markets are attractive to the company?

• What type of customer value should we offer and what strategies are important to achieving customer value leadership?

• How should the organization’s resources be allocated?

• What assets and competencies need to be developed and maintained?

• How should it develop valuable customers?

• What growth directions are most attractive?

• Should it diversify? How? • What should be the strategy with respect to product line, distribution, branding, manufacturing, and finance?

3. Understand and work with a set of useful and important concepts such as unmet needs, strategic groups, first mover advantage, positioning, sustainable competitive advantage, risk, key success factors, strategic opportunity or threat, strategic strength, weakness, or problem, strategic question, vision, product market, segmentation, industry structure, portfolio analysis, and scenarios.

4. Develop an understanding of asset building and leveraging as the core of business strategy.

The focus of asset building in this class will be on customer assets (customer equity) and brand assets (brand equity).

Case Analyses The class is designed around * case studies. These cases are the most important feature of this course. The cases describe ambiguous, uncertain, and difficult-to-solve marketing strategy problems for which important company decisions need to be made. In nearly all situations, a case will represent your first exposure to a particular problem. Solutions will not be straightforward.

Students should form (or can be assigned) teams of 3-5 student to process these cases together before class. Debate the problem and strive to develop several alternative strategies for the firm.

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Industry Analysis Students will perform an industry analysis in small teams of five students. The groups need not be the same as those you use for case analyses, but it is usually efficient to have some overlap.

Select an industry that is of interest to your team. An industry can be selected from a firm in which a group member is working, but it need not be. Select an industry in which the information is available in trade magazines and business publications like Business Week and Fortune. Possible industries include gourmet frozen foods, wine, retail banking, business software area, frozen novelties, fiber optics, food retailing, a type of restaurant, automobiles, cross country skis, drug equipment, personal computers, tennis equipment, etc.

Perform your analysis as if you were going to deliver it to a client. Selecting one of the firms in the industry to use as your client can be useful. Doing so will help you focus on the strategically important material and avoid getting overwhelmed by information and becoming too descriptive.

At the outset of the report it will be helpful to indicate the nature of the strategic decisions the client is (or should be) facing if such decisions can be identified. The industry analysis should include: 1. A customer analysis, including an identification of the key market segments. Create, if useful, a segment by motivation grid.

2. A market analysis, including a market definition, demand trends, product life cycle analysis and an identification of key success factors.

3. Identification of the important competitors and their strategic objectives, weaknesses, and problems. Attempt to identify the sustainable competitive advantages (SCAs) of each of the major competitors. Were the firms founded with these SCAs? If not, when and how were they developed? If appropriate, a historical view of the strategies pursued by one, two, or more competitors. Perhaps two competitors can be identified who were similar at one point in time, but have since pursued very different strategies with different results. Specify what the strategies were, their rationale and the reason they worked or did not work.

5. Contact, if appropriate and feasible, one or two managers from your client firm. Ask: • Who is the leading competitor in his/her business?

• What are the respective sustainable competitive advantages (SCAs), if any, for his/her firm and for the leading competitor?

• Determine which of the SCAs the involved firms were “born” with and which they “developed” over time.

6. Perform an analysis of the major environmental trends, opportunities, and threats facing this company. Use the tools in Chapter 5 to understand current and potential future conditions faced by the firm Develop one or two alternative scenarios different from baseline assumptions. The scenario could be the accentuation of a trend or the occurrence of a future event. Or it could be motivated by a strategic question. For that (or those) scenario(s), address the following questions:

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• What factors will influence whether the scenario emerges?

• What steps should be taken in the external analysis?

• How should the firm prepare in terms of assets and competencies, if at all?

• What are the implications for external analysis?

• What strategies would be optimal?

7. Offer 3-4 marketing strategy decisions the firm should take to thrive in this marketplace now and into the future. Focus on strategic, not tactical, decisions for the firm.

Marketing Strategy Analysis Report There will be a 15-minute oral presentation on (Date). This presentation should be professional, rehearsed, interesting, and useful to your client. You should regard it as an excellent opportunity to improve your presentation skills. All team members should be present. Students should turn in their PowerPoint files as part of this requirement.

The report should go beyond descriptive material to focus on strategic implications. It is helpful to begin with an introduction that briefly describes the client, sets forth the objectives of the study, motivates the project and provides an overview of the paper’s structure. It is very helpful to provide a feel for the strategic problems and alternatives facing the client. When covering a section like competitor analysis, do not attempt to be completely comprehensive—instead, focus on those areas that add value to the client. Introduce strategic questions, threats, opportunities, and judgments about strategic options as you go along. Do not save them for the end. The recommendation section can then be a summary of the questions and options that have already been raised and discussed in the context of the analysis. Be sure to create a link between the external analysis and the recommendations. You should consider defending and justifying each summary recommendation with respect to the rationale, effort/cost and risks involved. If more information is needed, it might be worthwhile to set forth how it might be obtained and used.

During the presentation of the other groups you will be asked to provide written comments on the presentation skills of each speaker (not the content) and to offer suggestions for improvements. A set of the comments on your group’s presentation will be copied (with the author's name excluded) and returned to you on the last day of class. The goal is not only to provide feedback but also to sensitize you to such feedback.

Final Exam This course will use a final exam to assess how well you have learned the concepts, tools, and frameworks. The exam will be open book and open note. A new case will not be introduced for the final, but instead will draw on the cases we have used throughout the term. All questions will come directly from the cases, readings, and in-class materials. Your best preparation for the exam is to prepare for each class and case and attend class regularly.

Exam questions will be of two types. First, some questions will involve calculations using tools we have learned in class. Second, other questions will involve short answer responses that

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examine how well you have learned the case lessons. To help you prepare for the final exam, I will provide an exam review guide in advance. This guide will outline all of the course elements that you should have familiarity with before the exam. This guide will also contain a set of sample questions from previous years to give you a sense of the types of questions I will use.

These questions do not involve cases we are using this year, so focus more on the type of questions I ask, not on the specific content of the question.

Course Assessment

Assessment type

Due date

Weighting

Course grades are based on four elements: Class participation (20 points), team oral report (25 points), midterm exam (20 points), and final exam (35 points). Given this design, 75% of your final score is driven by individual work. Details are summarized in the table below:

Group/ Individual

Participation (sum of points for each class) Oral industry report Midterm exam Final exam

In class To be included To be included To be included

20 points 25 points 20 points 35 points

Individual Team Individual Individual

Required Text David A. Aaker and Christine Moorman (2017), Strategic Market Management, 11th Edition, New York: John Wiley & Sons.

Course Schedule Chapters are found in Strategic Market Management. Cases will be provided in the coursepack distributed at the beginning of the term.

Date Class 1 Class 2 Class 3

Topic Strategic Market Management - An Introduction Customer Analysis Competitor Analysis

Class 4

Environmental Analysis and Strategic Uncertainty

Class 5 Class 6 Class 7 Class 8

Customer Value Leadership Mid-term Exam Managing Customer Relationships Creating Valuable Customers

Chapters Chapter 1 Chapters 2 and 4 Chapter 3 Chapter 5, Appendix A Chapter 6

Assigned Case1

Chapter 7 Chapter 8

1 Cases are listed in the section “Recommended Cases for Each Course Topic.”

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Class 9 Class 10 Class 11 Class 12 Class 13 Class 14 Class 15 Class 15 Class 16

Managing Brand Equity I Managing Brand Equity II Growing the Current Business Innovating New Business Global Marketing Strategies Oral Presentations How Marketing Assets Create Value for Companies Harnessing the Organization Final Exam Review and Written Reports Due Final Exam

Chapter 9 Chapter 10 Chapters 11-12 Chapter 13 Chapter 14 Chapter 17 Chapter 16

RECOMMENDED CASES FOR EACH BOOK CHAPTER If you chose to use cases, which we recommend, you may consider assigning one of these articles on the Case Method for the first class: • • • • •

An Introduction to the Case Method (P/N 9-576-031) Case Method Teaching (P/N 9-581-058) Learning by the Case Method in Marketing (P/N 9-590-008) Persuasion, Argument, and the Case Method (P/N 2447BC) What is a Case? (P/N 2448BC)

Cases are offered for Chapters 2-16 of the book. Chapters 1 and 17 are better suited for other pedagogical approaches. We do offer a teaching note for Chapter 1 that we think will be helpful to many instructors. Most of the recommended cases were published since 2016 and offer a mix of industries and companies of different sizes. All of the cases reviewed can be found at: Harvard Business School, Kellogg, and Darden cases can be found at https://cb.hbsp.harvard.edu/cbmp/pages/home, while INSEAD and IMD cases can be found at http://www.thecasecentre.org/main/.

Chapter 1: Strategic Market Management – An Introduction •

A Note on Market Definition, Segmentation, and Targeting: Three (of Four) Steps in Developing Marketing Strategy (Darden Business School UV7286-PDF-ENG): Marketing strategy, part of the marketing planning process, flows directly from a company's goals and helps define how the marketing organization will help the firm achieve its objectives.

Marketing strategy is guided by the goals and objectives of the organization, the business unit, or the particular product or service for which the plan is developed. The choice of which marketing strategy (or strategies) to pursue then guides the marketing mix decisions, which, taken together, become the value proposition offered to the target market segment(s).

Marketing strategy involves four steps, and this note addresses the first three.

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Chapter 2: Customer Analysis •

Bringing Digital to Wimbledon (Harvard Business School 517093-PDF-ENG): It was midDecember, 2016 as Alexandra (Alex) Willis read with satisfaction that The All England Lawn Tennis & Croquet Club (AELTC) had won yet another award for its use of social media to reach its fan base. As the organizer and host of "The Championships, Wimbledon," the oldest of tennis's four Grand Slams, the AELTC prided itself on tradition and decorum.

Widely regarded as the most prestigious professional tennis tournament in the world and contested each year over two weeks in late June and early July, Wimbledon, in many ways, had changed little over the years. Its showcase venue―the 15,000 seat "Centre Court," complete with a "Royal Box"―was built in 1926. Slazenger had been the official and only supplier of tennis balls since 1902. A strictly enforced ban on any player clothing other than white dated back to the 1800s. And, whereas other tournaments referred to their Men's and Women's Championships, at Wimbledon, these events were referred to as the Gentlemen's and Ladies' Championships. It was against this "steeped-in-tradition" background that Willis, hired by Wimbledon in 2012 and promoted to Head of Digital and Content in 2015, had to figure out the proper role for digital and social media at Wimbledon. The motivation behind the push into digital was one of communicating and engaging with fans and potential fans around the world, as noted by Richard Lewis, Chief Executive of the AELTC.

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Unilever Canada: Redefining the AXE Brand (Ivey Publishing W16887-PDF-ENG): In 2015, AXE, one of Unilever's largest and most well-known personal care brands, was experiencing challenges in growing sales across its full product portfolio. Historically, AXE's unique activations and campaigns had been successful in generating high brand awareness and, ultimately, driving sales in Canada. However, sales growth had slowed over the past three years, and the AXE team wondered whether the brand's current messaging still resonated with consumers. The previous year, Unilever's global consumer insights team had conducted significant research to better understand the AXE consumer. The company now needed to prepare and present a client brief to AXE's advertising agency in preparation for a major 2016 campaign.

Chapter 3: Competitor Analysis •

Global Wine War 2015 (Harvard Business School 916415-PDF-ENG): The case contrasts the tradition-bound Old World wine industry with the market-oriented New World producers in the battle for the Chinese wine market in 2015. China's wine consumption growth presented a large and fast growing export target that was extremely attractive both to Old World producers burdened with oversupply and declining demand, and to New World winemakers faced with rising costs and a deteriorating image. But changing Chinese market conditions and consumer preferences required both sets of players to devise new strategies to gain share in this fast-growing market. The case allows analysis of the way in which newcomers can change the rules of competitive engagement in a global industry. It also poses the question of how incumbents can respond, especially when constrained by regulation, tradition, and different capabilities than those demanded by changing consumer tastes and market structures.

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The Multichannel Challenge at Natura in Beauty and Personal Care (Darden Business School UV7303-PDF-ENG): Faced with declining market share and sales, Natura, Brazil's second largest brand in the cosmetics, fragrances, and toiletries market, expanded its customer reach by moving from a direct-sales company to a multichannel company. In 2014, Natura added online catalogs, physical stores, and drugstores to its well-established direct-selling model, but the results were disappointing. Between 2014 and 2016, three different Natura CEOs attempted to lead the company in the strategic transition to focus less on the direct sales consultants and more on reaching the end consumers directly with multiple channels and touchpoints. On October 2016, the company's board appointed its former commercial vice president, João Paulo Ferreira, as the most recent CEO. Ferreira's challenge was to find the right balance between the direct-selling and other channel formats to market Natura, thus enabling it to thrive in the face of intense competition in the beauty and personal care market in Brazil.

Chapter 4: Market/Submarket Analysis •

Hotel Vertu: Analyzing the Opportunity in the Boutique Hotel Industry (Harvard Business School 917501-PDF-ENG): Two soon-to-be MBA graduates are considering a business opportunity in the boutique hotel industry. Having found a seemingly attractive property in Savannah, Georgia, Yvonne D'Arcy and Elisabeth Whiting face questions about career issues, planning, financing, and the possibility of unequal power dynamics. Students assess the merits of the proposed project, as well as the overall attractiveness of the boutique hotel industry and the career opportunity it presents. Exhibits include a Letter of Agreement between D'Arcy and Whiting, the hotel's historical performance data, lodging statistics for the Savannah market, and the project budget. Students will learn how to perform an opportunity analysis in regard to a specific industry and project. The career management aspects of the case can be left as a case follow up discussion for the class.

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Wynton Marsalis & Jazz at Lincoln Center (Harvard Business School 515701-HTM-ENG): Under the leadership of artistic director Wynton Marsalis, Jazz at Lincoln Center (JALC) hosts performances and education events year-round for audiences in New York and across the U.S. Despite the popularity of JALC's events, however, the U.S. audience for jazz is small and aging relative to other music genres. This case asks students to apply marketing principles to the challenge that JALC faces in seeking to expand the reach of and appreciation for jazz music despite a shrinking audience. The case features a multimedia format of audio and video clips in order to engage students directly with JALC protagonists and with jazz music-the real protagonist of the case.

Chapter 5: Environmental Analysis and Strategic Uncertainty •

Pricing the EpiPen: This is Going to Sting (Darden Case UV7186-PDF-ENG): This case examines the public controversy that erupted over the increasingly high price of EpiPens.

Mylan Inc., (Mylan), a generic drug maker, bought the EpiPen product line from Merck in 2007. Since that time, the company both invested in marketing to raise awareness for the drug and dramatically increased the price, lifting it from $100 to $600 per two pack in the U.S. In 2016, simmering consumer anger about the high prices of pharmaceutical drugs

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finally reached a boiling point and a media firestorm ensued. The case challenges students to think about the role of fairness in pricing. How can Mylan justify the dramatic price increases? How can it justify the variation in prices across countries, as an EpiPen is priced at an equivalent of $85 in France? The case challenges students to think about how they would handle a public controversy. The EpiPen case is well suited for students in MBA, MBA for Executives, and executive education programs. For MBA students, it can be placed in firstyear marketing, pricing, or marketing communications courses. For executives, it can serve as a vehicle to discuss both ethical issues of pricing and how to handle a public controversy.

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Tequila Patrón (Harvard Business School 517108-PDF-ENG): Tequila Patrón was one of the most successful tequila marketers in the United States. Patrón needed to grow and in Mexico, the second largest market for tequila, the brand was perceived as American. What portfolio and branding strategy would best serve Patrón to conquer the Mexican market? Furthermore, what would expanding in Mexico imply for the company's marketing operations?

Chapter 6: Customer Value Leadership •

ASICS: Chasing a 2020 Vision (Harvard Business School 5170600-PDF-ENG): In early 2016, Motoi Oyama, president and CEO of ASICS, a major sports apparel and footwear manufacturer based in Japan, lays out his company's growth plan for the upcoming 5 years.

The new plan set ambitious goals in terms of revenue and profit increases. At the heart of the strategy to achieve these goals are a desire to embrace a more direct to consumer mindset, expand into new customer segments, and communicate a more consistent and emotional brand worldwide. With its primary core customer currently the "serious" runner and its innovation strategy geared towards high-end performance, pursuing these objectives in light of the fierce competitive landscape posed a multitude of challenges. Moreover, the company had recently launched several lifestyle brands (using brand names it had revived), which posed brand architecture issues. Lastly, the company had just acquired a digital fitness app, RunKeeper, and was wondering how best to leverage this asset and how it fit with the main pillars of the growth plan strategy. The Tokyo 2020 Olympic Games would coincide with the conclusion of the 5 year plan, and ASICS had paid over $100 million to be a Gold Sponsor of the games- Oyama wondered whether his company was on the right track to achieving the goals he intimated to shareholders.

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Virgin Atlantic Airways: Ten Years After (INSEAD 595-023-1):2 The Virgin Atlantic Airways (VAA) case was written on the occasion of the company's 10th anniversary. In 10 years, VAA has brought many innovations to the airline industry and won many awards for its service. It has fought against giants on an international scale and has survived the airline industry's most difficult years. The case describes the history of the firm, its achievements, and its practices especially in terms of operations, human resources and marketing. The case aims to discuss the concept of customer value delivery and to understand the mechanisms by which VAA can profitably offer its customers high quality service at a low price.

2 This is not a new case but it is included because it fits the topic very well and works exceptionally well in class.

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Chapter 7: Managing Customer Relationships •

Telenor: Revolutionizing Retail Banking in Serbia: Digital Transformation of the Customer Experience (INSEAD IN1328-PDF-ENG): Telenor, the international telecommunications giant, took advantage of the weak state of Serbia's financial sector to launch the country's first mobile-only bank. Telenor Banka's success story is shared by the CEO, an INSEAD alumnus, who was instrumental in the study. The central issue of the case - devising a marketing plan for a new financial service in a new market - allows for discussion of themes such as digital marketing, digital disruption, customer experience strategies, customer segmentation, omni-channel strategies, and brand positioning and architecture.

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Unlock the Mysteries of Your Customer Relationships (Harvard Business Review R1407EPDF-ENG): Despite the $11 billion spent on CRM software annually, many consumer companies don't understand customer relationships at all. They aren't aware of the variety of relationship types and don't understand what kind their customers want. Through research in a wide variety of consumer industries, the authors have identified 29 types of relationships.

For example, some customers want to be "best friends" with a brand; others are looking for a passionate "fling"; still others find themselves as "ex-friends" and would welcome a closer bond. To understand the current portfolio of relationships, companies must pick up on signals from multiple sources. Companies can then build a strategic mix of connections by bolstering desired relationships and shifting customers to more-valuable types. There are many issues to consider: For example, some relationship types are more profitable than others. No actions will bear fruit unless a relationship orientation pervades not just the marketing function but every aspect of the company that touches customers or affects interactions with them.

Customers don't just represent the next upsell or cross-sell opportunity; they are individuals looking for a certain kind of interaction. Companies need to respond accordingly.

Chapter 8: Creating Valuable Customers •

AnswerDash (Harvard Business School 516106-PDF-ENG): It is 2014 and AnswerDash, a startup backed by venture capital, has not seen the widespread adoption of their online selfservice customer support solution that they were expecting based on early success in helping clients save and generate substantial amounts of money. Dr. Jacob O. Wobbrock and Dr. Andrew J. Ko are revisiting their go to market strategy to determine how to build a viable business out of their groundbreaking technology. The case raises issues in entrepreneurship and B2B marketing such as analyzing economic value to the customer, designing optimal price metrics, aligning pricing with marketing strategy, customer lifetime value, organizational selling, and influencing innovation adoption.

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Allianz Turkey: Focus on the Customer (A) and (B) (Harvard Business School 316093-PDFENG and 316094-PDF-ENG): At the age of 39, Solmaz Altın took over the helm at Allianz Turkey. Solmaz quickly realized that, although the insurance market was thinly penetrated in Turkey, the company was operating in a very competitive environment with pressure on prices and, hence, cost control. Consequently, customer satisfaction was suffering. Despite the growing Turkish economy and a favorable regulatory environment, Solmaz was struggling to grow the company without further sacrificing customer satisfaction or

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profitability. Used as part of a course on service excellence, the case provides an insurance context in which to explore the link between customer satisfaction and competitive performance and challenges the students to ponder the extent of the relationship between customer satisfaction and financial performance. In the (A) case, the Allianz Turkey executives focus their initial efforts on the claims process of the automobile insurance business-a lowly rated segment of the insurance industry by their policyholders. They begin by creating a map of the customer experience and then doing extensive consumer research to determine what really matters to the policyholder. The insights gleaned from the detailed consumer analysis are quite different than the original beliefs of the management team.

Students must devise a new customer service model for the claims process based upon the customer analysis. The (B) case describes the new customer service model for the claims process and the resulting increase in customer satisfaction as measured by the Net Promoter Score (NPS) metric. Students must first decide whether the initial effort is a success and then develop a plan for the future.

Chapter 9: Building and Managing Brand Equity •

Choosing the Right Metrics for Listerine Brand Management in Brazil (Darden Case UV7205-PDF-ENG): Ronaldo Art, brand manager for J&J's Listerine, reflected on the progress he had made in market penetration for the oral hygiene product from the time he started in the position in 2010 to late 2014. He wanted to develop a long-term strategy for the brand rather than stimulating short-term increases in market share, which could compromise the equity of the brand, its profitability, and its long-term competitive advantage.

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Shang Xia: The Creation of a Chinese Luxury Lifestyle Brand (Harvard Business School 517032-PDF-ENG): The case traces the birth of Shang Xia, a joint venture between the Hermès Group and Chinese designer Jiang Qiong Er. Launched in 2009 in Shanghai, the new brand's core mission is to revive and promote China's 5,000-year-old cultural heritage and leverage Chinese craftsmanship to design contemporary products. Describing the brand evolution over its first eight years of existence, the case allows for an exploration of the challenges associated with creating a luxury brand and reconciling several strategic imperatives: the need to build a strong, desirable, and prestigious brand identity and grow a profitable and sustainable business. The case also provides an opportunity to discuss the benefits and challenges associated with 1) building a luxury brand from scratch and 2) being a luxury brand "made in China" with global ambitions.

Chapter 10: Toward a Strong Brand Relationship •

Lululemon Athletica (Kellogg School of Management KE1010-PDF-ENG): The case traces the development of Lululemon Athletica (Lulu) from founder Chip Wilson's first post-yoga euphoria in 1997 through the sale of all his shares in 2015. Officially founded in 1998, Lulu was built on the foundation of its "miracle" figure-enhancing yoga pants made from a proprietary stretch fiber. The case outlines Wilson's early experience in technical performance wear, which gave him the expertise needed to launch the Lululemon brand with its premium-priced, fashion-designed product line targeted at upscale women. The case also highlights the retailing and promotion approach that drove Lulu's first decade of success. The

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snapshot of how the Lulu brand cult was born and diffused provides the backdrop for assessing whether the brand has already hit its peak or whether it can sustain the explosive growth that effectively created the athleisure category. To aid in this determination, the case presents two competitors as comparative foils (Under Armour and Athleta) to contextualize Lulu's growth prospects. The Lululemon case highlights the importance of the competitive frame of reference when positioning a brand and describes how this may differ for the three competitors. The case also allows for a discussion of the challenges of maintaining the congruence of a retail brand with a diverse product line. This struggle is unique to retailers who must fit ever-varied product assortments (not just a single product line) under the umbrella of a single brand proposition, and is particularly relevant to vertically integrated brands such as Lululemon.

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Pepperfry.com: Marketing to Manage Customer Experience (Ivey Publishing W17332-PDFENG): In 2016, Pepperfry.com was India's leading online retailer of furniture and home products. As a pioneer in the online furniture and furnishings space, Pepperfry had a firstmover advantage that led to the achievement of significant milestones within a short period.

Online marketing, however, involved distinct challenges compared with traditional marketing practices. Improving customer experience at the different stages of a consumer's purchase could be the foundational strategy to resolve these challenges. How could Pepperfry's service design further enhance the customer experience and achieve a competitive advantage?

Chapter 11: Energizing the Business •

The Coca-Cola Company's Case for Creative Transformation (Harvard Business School 815714-HTM-ENG): In 2013, the Coca-Cola Company was awarded Creative Marketer of the Year by the Cannes Lions Festival (known as the "Oscar of Advertising") for the first time ever in history and nearly 50 years after the Festival's inception. Just one year before that, Jonathan Mildenhall, Senior Vice President of Integrated Marketing Content and Design Excellence, orchestrated the development of Content 2020, a blueprint for how all CocaCola's branding content ranging from traditional TV commercials to viral and social media content should be procured, built, tested, and distributed in the next 10 years. This case provides a unique opportunity to "look under the hood" and understand how the main principles of Content 2020 work and infer how the beverage company achieved its most prestigious marketing award of all time. This case presents four primary learning objectives.

What is the value of creativity to businesses? When is creativity in advertising more important? How can firms produce creative content in a networked world?

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Casper Sleep Inc.: Marketing the “One Perfect Mattress for Everyone” (Harvard Business School 517042-PDF-ENG): “A Warby Parker of mattresses? Somebody is going to do it.

Why not us?" This was the topic of a conversation begun in spring 2013 among Gabe Flateman, Philip Krim, Neil Parikh, and T. Luke Sherwin. The four met as members of a New York City venture accelerator program. All admired Warby Parker's success in delivering on the promise of "designer eyewear at revolutionary prices," via a direct-toconsumer sales model. "Big Mattress," their term for the current manufacturer / retailer

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system, featured not only high prices, but also, as they would describe to many in the days ahead, "one of the worst buying experiences in the world."

Chapter 12: Leveraging the Business •

LongChamp (Harvard Business School Case 316086-PDF-ENG – 2016): Longchamp's Le Pliage is one of the fashion world's most successful products, a cultural icon across the globe.

But managing the low priced, nylon handbag is challenging as Longchamp tries to move its brand upmarket into higher priced, luxury leather goods. How much should Longchamp focus on Le Pliage versus its leather handbags? How should the subbrand be distributed, merchandised, priced, and promoted? How does Le Pliage both contribute to and detract from Longchamp's brand equity? This case offers students insight into the opportunities and challenges associated with managing a luxury brand. Discussion opportunities include: How to build and maintain heritage that grants legitimacy to a luxury brand; How to manage brands over time as consumer tastes change and as new competitors shift the landscape; How to move a brand upmarket; How to manage a multi-product product line and product extension strategy; How to extend a brand across categories via brand extensions; How to balance retail and wholesale distribution of luxury products and how to incorporate ecommerce into a distribution system; How to build marketing programs that deliver short term sales and build long term brand equity.

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Singapore Airlines: Premium Goes Multibrand (Harvard Business School Case / #517017): Singapore Airlines had long been considered the gold standard because of its innovative customer service. However, the company was faced with new sources of competition, from the rapid growth of Southeast Asian low-cost carriers on the one hand to the expansion of premium Gulf carriers on the other. The company therefore decided to launch a low-cost airline of its own called Scoot, the fourth brand in its portfolio. Now CEO Goh Choon Phong must consider how to grow all 4 airlines without cannibalizing its own market share or diluting the sterling brand of the parent airline.

Chapter 13: Creating New Businesses •

UFO Moviez (Harvard Business School 716447-PDF-ENG): UFO Moviez is an Indian technology services provider that enables low-cost, digital delivery of films to cinemas.

UFO's satellite-based technology enables a significantly wider release of films compared to traditional analog prints and standard, higher-resolution digital prints that must be transported physically. By 2015, 54% of all cinemas in India were using UFO's digital cinema system.

UFO has achieved this without upsetting the industry's value chain of producer-traditional distributor-cinema-owner. The company earns revenue through three main streams: fees charged to the producer/distributor for converting films to digital format and distributing them over satellite, fees charged to the cinema owner for leasing the projection systems, and advertising revenue from ads shown during the screening of films. With cinemas in India mostly digitized, however, UFO faces challenges to continual growth. Should UFO focus on increasing its advertising revenue, leveraging UFO's core technology in other areas, or entering the business of film distribution?

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•

Pintura Corporation: The Lena Launch Decision (Harvard Business School 917523-PDFENG): A maker of paints and product coatings is considering introducing a new highperformance, environmentally-friendly hardwood coating called Lena. To proceed with the next phase of development, Pintura's VP of new product development must present a convincing analysis of the product's feasibility-along with a proposed marketing program.

The VP must consider the relationship of the proposed product to the rest of the Industrial Finishes Group's product line, as well as how it would contribute to corporate and divisional objectives.

Chapter 14: Global Marketing Strategies •

Global Wine War 2015 (Harvard Business School 916415-PDF-ENG): The case contrasts the tradition-bound Old World wine industry with the market-oriented New World producers in the battle for the Chinese wine market in 2015. China's wine consumption growth presented a large and fast growing export target that was extremely attractive both to Old World producers burdened with oversupply and declining demand, and to New World winemakers faced with rising costs and a deteriorating image. But changing Chinese market conditions and consumer preferences required both sets of players to devise new strategies to gain share in this fast-growing market. The case allows analysis of the way in which newcomers can change the rules of competitive engagement in a global industry. It also poses the question of how incumbents can respond, especially when constrained by regulation, tradition, and different capabilities than those demanded by changing consumer tastes and market structures.

•

Harmonie Water: Refreshing the World Naturally (Harvard Business School 917527-PDFENG): The marketing director of Harmonie Mineral Water-the second-best selling bottled water in the world-is using findings from two project studies to assess how to establish a global brand identity for Harmonie via television advertising. He must decide what product attributes are sufficiently important across countries that they can be used for global brand communications. He also must determine the extent of local customization he should allow and the roles of headquarters and country managers in these communications.

Chapter 15: Setting Priorities for Businesses and Brands •

The Walt Disney Studios (Harvard Business School 516105-PDF-ENG): In December 2015, Alan Horn, chairman of The Walt Disney Studios, celebrates the world premiere of Star Wars: The Force Awakens - only the latest in a string of big bets that he has overseen.

Disney pursues a 'tentpole strategy' that revolves around at least eight big-budget movies each year—most from its acquired labels Pixar, Marvel Studios, and Lucasfilm. In fact, Disney produces nearly twice as many tentpole movies as any other major Hollywood film studio, but fewer movies overall than all but one of its rivals. Box-office failures can be extremely costly, since Disney (unlike its rivals) chooses not to enlist the help of financing partners. Is Disney Studios pursuing the right number of tentpoles as well as the right mix of new versus existing properties, under the right financing structure? And will the tentpole strategy pay off-in the short and long run? Students will learn to analyze product-portfolio

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management strategies, and especially how to balance bigger versus smaller bets as well as how to find the right mix between investments in existing versus new properties.

•

Crown Distilleries: Multi-Brand Extension (Ivey Publishing W16592-PDF-ENG): The chief marketing manager of Crown Distilleries (Crown) in Raipur, the capital city of the Indian state of Chhattisgarh, faced cumbersome brand-building activities and maintenance of its brand equity. Competitors began taking market share from Crown's well-established brand.

Crown added new brands to its portfolio in response to its competitors' activities. Would it be fruitful for the company to opt for an umbrella brand in a particular segment or continue to add new names to its product portfolio? How would the company develop an action plan to beat competitors, choose a brand name for its new product, and build strong brand equity?

Chapter 16: Harnessing the Organization •

DBS Transformation (A-C): Becoming a World-Class Multinational Bank (IMD-7-1836): This case series examines the two-stage transformation of DBS 2009- 2017. In both stages the bank places the customer as the centre of its thinking about how to structure, resource and play in the market. In 2009 DBS was an underperforming national bank with overseas branches, losing traction and lacking a compelling strategy. Under new leadership the A case describes the initial implementation of its turnaround strategy with the objective of creating a competitive world class multinational bank. DBS must decide which overseas market to focus on and how to enter. It raises the issue of the role of the fintechs in shaping the future of banking and its likely impact on the bank's strategy. The B case describes DBS's digital pure-play entry into the Indian market, its strategic reset now with an ambition to be like a 22,000 person start up prompted by its assessment of what the fintech landscape populated by the likes of Alibaba/ant financial. The case describes significant progress but asks whether this is sufficient given how the industry is evolving. The C case describes the company's progress up to 2017 and highlights why Euromoney named DBS as the World's Best Digital bank. It asks whether this progress is sufficient in given the amount of sectoral change.

•

Royal DSM (A-C): Creating a Chief Marketing Officer (CMO) Position in a B2B Firm (IMD-7-1646): This three-part case series examines the change management challenge of putting corporate marketing at the top of the corporate executive suite (C-suite) agenda in a business-to-business (B2B) multinational. It follows the four-year journey, from 2010 to 2014, of Mauricio Adade, the newly appointed chief marketing officer (CMO) of Royal DSM - a global leader in life sciences and material sciences headquartered in the Netherlands. The case series, together with the video supplement, delves into the issues faced by the company’s top leadership, including Adade, in its effort to transform a diversified industrial company into an organization with best-in-class marketing and sales capabilities.

Case A begins by highlighting the culture and organizational structure of Royal DSM and the decision to raise the profile of headquarters-based corporate marketing, with the appointment of Adade in 2010. It discusses the marketing and sales excellence project launched by the new CMO during his first year at the helm and concludes by putting the spotlight on the resistance posed by the company’s most powerful stakeholders: the business group leaders.

Case B focuses on the implementation journey during the period 2011-2014. Adade and his team adopted a new plan of action and positioned the corporate marketing department as a

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partner that worked with the business groups to deliver projects with quantifiable results. Did the new strategy work? Case C provides an update on the replacement of Adade (announced in December 2014) and allows for a discussion on the challenges that lie ahead for the new CMO and the organization as a whole.

BEST PRACTICE CASES IN EACH CHAPTER With the exception of the first chapter, each chapter contains two contemporary best practice case studies that examine how one international company and one digital company have implemented the principles in the book. A set of discussion questions are offered that will allow instructors to extend the analysis in class. Answers to these questions are contained in “Best Practice Teaching Notes.”

A summary of these cases are listed below.

Chapter Chapter 2

Chapter 6 Chapter 7

Best Digital Practice case Glossier: Using Beauty to Talk Back to Consumers T-Mobile: The Un-Carrier BeMyGuest: Experience Economy in Asia Kraft Mac and Cheese: A Stealth Marketing Approach CVS: In the Healthcare Business Panera 2.0

Chapter 8

Netflix Customer Loyalty Machine

Chapter 9 Chapter 10

Chapter 13 Chapter 14 Chapter 15 Chapter 16

REI’s #OptOutside Brand Identity How Sephora Creates Beauty Across Brand Touchpoints Chiquita Banana Growing the Audience for Hamilton Adobe’s Subscription Model Mars + Alibaba Microsoft Acquires Skype Itaú Unibanco

Chapter 17

LinkedIn’s Greatest Assets

Chapter 3 Chapter 4 Chapter 5

Chapter 11 Chapter 12

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Best International Practice case P&G Customer Analysis Guides Marketing Communications in China Xiaomi: Less is More Cholula: America’s Hottest Sauce How Airbnb Managed Uncertainty in the Sharing Economy Tetra Pak How Electricity Wizard Manages its Funnel How Starbucks Rewards Reward Starbucks This Girl Can: Building Awareness Lifebuoy Maersk Tanita Wanglaoji Tea Gillette India Target Canada The Philips Journey to Customer Centricity Apple: Building the World’s Most Valuable Brand

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CASES AT THE END OF THE BOOK The following short cases were updated from the tenth edition: •

The Energy Bar Industry: This case examines the evolution of the energy bar industry and the creation of different submarkets. It is a good context to discuss the creation of submarkets and the resulting submarket competition (which can become more important than brand competition). It highlights the different brands that are players in the market and how they have evolved to serve different customer segments. It could be used to for Chapters 4, 5, and 10.

•

Assessing the Impact of Changes in the Environment: This is a set of three short case studies that could be used in Chapters 1-5. Environmental forces can inform and affect strategy choices. This case encourages the reader to understand and project those forces and to experience how the difficulty of doing so.

•

Creating a New Brand for a New Business: This case study examines the development of brands in the field of contemporary art. It is a vehicle to understand how an offering that lacks objective evaluation information (as is often the case—think of a new investment advisor or packaged cereal or a pricy wine) gets evaluated. These questions arise in the context of the fascinating question about why some contemporary art gets priced so high and other art just as good (in most eyes) does not. It could be used in Chapters 9 or 10.

•

Competing Against the Industry Giant: This case examines the challenge of competing against Amazon and profiles Costco as a company that competes differently. Amazon’s strategy is a relevant role model for others in other industries that would like to be a dominant player. Amazon is a huge factor for virtually any retailer that now must consider how to compete in a post-Amazon marketplace. It could be used in Chapters 68.

•

Leverage a Brand Asset: This case examines the development of the Dove brand by Unilever. It chronicles the “Campaign for Real Beauty” and discusses the challenges and the opportunities associated with this positioning. It shows that brand visibility and liking need not be based on product excellence alone. This case could be used effectively throughout the course but may be best suited to Chapters 9-14.

Each case contains a set of discussion questions. Answers to these questions are contained in “Case Teaching Notes.”

The remainder of the cases from the 10th edition have been eliminated from the book but are available on the instructor website for Instructors that would like to continue to use them.

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BEST PRACTICE TEACHING NOTES CHAPTER 2: DIGITAL BEST PRACTICE Glossier: Using Beauty to Talk Back to Consumers 1. What is Glossier’s key customer analysis tool?

Since its founding, Glossier has focused on exploring and satisfying its customers’ unmet needs. The company identified the lack of personalization in the makeup purchasing process as a major pain point among consumers, and introduced a brand that encourages women to share beauty tips and recommendations with each other. Today, Glossier continues this practice of uncovering and fulfilling perceived customer gaps in a number of ways, including mining user-generated content on its website for future product ideas.

2. What, if anything, should major cosmetic competitors such as L’Oreal or Estee Lauder do in response to Glossier’s success? What customer-based actions can Glossier take to protect itself against these moves?

Though Glossier is still at an early point in its growth trajectory, the success of its business model signals that it could pose a long-term threat to other industry players. As a next step, major cosmetic competitors such as L’Oreal or Estee Lauder could imitate some aspects of Glossier’s strategy while also identifying other unique unmet customer needs and adjusting their offerings to fit them. To do this, they could consider creating online communities where customers can converse, conducting qualitative research via focus groups, in-depth interviews or ethnographic analysis, and mapping out the ideal customer experience. In response to these moves, Glossier may want to leverage other customer analysis tools such as further segmenting its consumer base according to their needs, motivations, and characteristics. Further, Glossier should focus on creating customer loyalty as a way to protect the business it has built.

CHAPTER 2: GLOBAL BEST PRACTICE P&G Customer Analysis Guides Marketing Communications in China 1. Do you think “Delight, don’t dilute” is a principle that P&G can easily apply to other emerging markets? Why or why not? What customer analysis tool would be most helpful in making this determination?

To determine whether the “Delight, don’t dilute” principle will be as impactful in other emerging markets, P&G should more deeply consider customer motivations. Prior to further expansion, it would be beneficial to assess what elements of the Pampers product customers value the most, what their purchasing objectives are, and whether those objectives differ by segment. Collectively, this data will help P&G optimally position Pampers within each new market it enters.

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2. Why were the photos of sleeping babies more effective than just reporting P&G research reports?

Research had revealed that new parents in China were very concerned over the impact on a child’s development that low quality sleep could have. Utilizing photos of babies peacefully sleeping in Pampers diapers allowed P&G to frame the product as an aide to quality sleep, a message that may not have come across as explicitly in research reports. The company’s ability to tap into this core customer motivation with its marketing content was key to it successfully growing market share in China and increasing the size of the overall disposable diapers market.

CHAPTER 3: DIGITAL BEST PRACTICE T-Mobile: The Un-Carrier 1. Perform a competitive analysis of the wireless telecommunications industry.

A competitive analysis of the telecommunications industry should address the following eight elements: •

•

• • •

•

Size, growth, profitability: T-Mobile’s growth is an indication that it has achieved a successful strategy. It may want to also understand where its additional 22.5 million subscribers came from. Were they mostly from particular carriers? This assessment might shed light on the weaknesses of the carriers from which T-Mobile stole those customers.

Also, it can be inferred from the case that Verizon, AT&T, and Sprint all were larger in size than T-Mobile.

Image, positioning and strategy: Of the eight elements, this one should be emphasized since the case study focuses on positioning. T-Mobile was a smaller player in the telecommunications space and realized that it could not succeed simply by doing the same things as its competitors. T-Mobile identified pain points in the category, realized that the key competitors were not improving on them, and used the resolution of these pain points as the basis for its unique selling proposition. While other carriers’ position themselves on price, coverage, and plan types, T-Mobile has taken a different approach through its “uncarrier” positioning—being everything they are not.

Objectives and commitment: Competitor’s objectives were not addressed. Given TMobile’s growth, it could be deduced that the big carriers may attempt new strategies to respond.

Current and past strategies: AT&T, Verizon, and Sprint have all been communicating “best coverage” and employing competitor bashing in their communications. T-Mobile has not included that in its communication strategy and it has worked.

Organization and culture: Given the size of the other three competitors, it might be difficult for them to be disruptive in the same way T-Mobile has. The case doesn’t cover this, but it would help to understand what drives these other carriers (e.g., cost-driven, consumer-driven, etc.).

Cost structure: Competitors put caps on data to maximize revenues. Additional data is an additional cost to the consumer. Getting out of a contract is another cost.

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• •

Telecommunication companies are notorious for the fees associated with small changes to a plan. T-Mobile no longer follows this trend. Discuss possible implications of TMobile’s different cost structure. For example, does it make forecasting revenue more difficult? Is T-Mobile capturing enough new customers to compensate for how easy it allows current customers to leave?

Exit barriers: An investigation into the companies’ investment in equipment, people, and fixed costs could elucidate how significant the exit barriers are.

Strength and weaknesses: The other carriers have strengths in customer base (size) and they might have an edge in industry knowledge and technology. T-Mobile’s strengths lie in its marketing abilities and innovation. It has proven to be agile in its ability to respond to consumer needs.

2. How can T-Mobile maintain its competitive advantage?

T-Mobile can maintain its competitive advantage by remaining consumer-focused, agile, and innovative in its communications and overall marketing strategy. The company was open to embracing a radical message and it worked. If other carriers follow T-Mobile’s lead in removing data limits and contracts, T-Mobile should look for other ways to differentiate based on consumer pain points that are aligned with its brand. If the company continues to focus on its target consumer and tries to satisfy meaningful consumer needs, it can continue to grow.

CHAPTER 3: GLOBAL BEST PRACTICE Xiaomi-Less is More 1. What assets and competencies are central to Xiaomi’s success as a challenger?

Xiaomi identified and addressed white space and unmet needs in the mobile phone industry.

Its key competencies are the ability to sell high-end smartphones at a good price, strong customer engagement activities (day-long festivals, gifts for VIP customers), and word-ofmouth promotions. These competencies are a result of its assets such as its direct-toconsumer distribution model, austere design, efficient manufacturing, and a willingness to accept low margins. These assets and competencies work together in a symbiotic way. For example, Xiaomi can sell its phones at a low cost since it has eliminated costs in areas that its competitors invest significantly in, such as paid media and retail stores. Also, Xiaomi’s successful word-of-mouth promotion from its strong loyal consumer base is a result of its customer engagement activities.

2. What is Xiaomi’s greatest vulnerability that could be exploited by global incumbents or local niche players?

Xiaomi’s greatest vulnerability is its low price. Price can be easily imitated by competitors such as Apple, Samsung, or small niche players simply by designing cheaper phones, accepting low margins, and/or cutting costs. While Xiaomi has strong competencies and assets, it is mostly known for its low cost. The company should strive to add to its brand

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persona in ways that are more aligned with its unique competencies and assets and that are more difficult for competitors to imitate—such as connecting low-cost to customer benefits, such as Walmart’s “Save Money. Live Better.”

CHAPTER 4: DIGITAL BEST PRACTICE BeMyGuest: Experience Economy in Asia 1. BeMyGuest is developing a two-sided market by facilitating the development of service providers and customers. What strategies have been most effective on each side of the market?

BeMyGuest has gained favor among service providers by offering a number of different platforms on which to advertise tours. Such variation is attractive to companies because it allows them to choose what type of outreach work best rather than being forced into a “one size fits all” marketing model. BeMyGuest also helps seamlessly manage multi-channel content, which some providers—depending on their size—might not have enough budget or resources to do. With customers, BeMyGuest has focused on optimizing the user experience of searching for a travel experience online. By incorporating customer-centric features such as an option to browse based on personality type and a tool that compares service providers, BeMyGuest has been able to win travelers’ share of mind and wallet.

2. Are there any potential conflicts or additional sources of strategic opportunity between the two submarkets BeMyGuest targets? How should it manage these?

BeMyGuest’s success has come from offering both tour providers and travelers a unique value proposition—as the two sides of the market make it function effectively. Therefore, problems could arise if one submarket perceives that it is no longer benefiting. For instance, crowding the website with travel experiences in an effort to publicize a greater number of tour companies would likely alienate a customer base that prefers a clean, easy-to-use interface. BeMyGuest can prevent this conflict by ensuring it continues to balance the services and technology each submarket most desires, while focusing on those actions that both groups value. In terms of strategic opportunity, BeMyGuest should think about how to create stronger connections between tour providers and travelers. One example could be to offer customers discounts on their next travel experience in exchange for referring a peer to their favorite tour provider.

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CHAPTER 4: GLOBAL BEST PRACTICE Cholula: America’s Hottest Sauce 1. Based on the information in the case and any outside resources, perform a profitability analysis of the hot sauce industry. What is Cholula’s biggest challenge?

According to Porter’s approach, a market profitability analysis would consist of looking at five factors. In the context of the hot sauce industry it would be as follows: • •

• •

•

Competition Among Existing Firms: High o Cholula has 10% market share in the U.S. hot sauce category, but faces fierce competition from Tabasco, Thai Sriracha, and Korean Gochujang.

Threat of Potential Entrants: Medium o With the hot sauce industry’s explosive growth, the number of companies looking to enter the category is rapidly increasing. However, two major barriers to entry are distribution and production scalability.

Threat of Substitutes: Medium o Other condiments that could be substituted in for hot sauce could be brown sauces, mustard sauces, tomato ketchup and soy-based sauces.

Bargaining Power of Customers: Mixed o Consumers of hot sauce: Millennials, in particular, have shown an affinity for trying out different flavors of hot sauce both in the home and while eating out.

This strong desire lowers consumer power. At the same time, these customers have many choices and can easily switch between brands thereby increasing their power. o Retailers carrying hot sauce: The market is not yet saturated means that Cholula and other brands have more latitude to charge a premium to distributors, who then pass those costs on to customers. Retailers do have some power given they have limited shelf space and therefore can charge companies trade allowance (slotting fees as they are called in the industry) for placement on the store shelf.

Bargaining Power of Suppliers: High o As many current brands rely on their product being imported into the United States, strong relationships with suppliers are crucial.

2. Using outside resources, offer an assessment of the size of the hot sauce market in the U.S. Be prepared to defend your method for market sizing.

• • • •

Population in the United States is 320 million people.

Most prominent hot sauce users are assumed to be Millennials and Baby Boomers, who represent approximately 50% of the population, so 160 million people.

Of these customer segments, assume 25% are consumers of hot sauce, so 40 million people (check this against market shares for the category relative to all condiment users).

Assume that each person consumes .5 of a bottle of hot sauce per month, so 6 bottles per year.

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• •

Assume that the average cost of a bottle of hot sauce is $5.

Multiply these numbers together to get a total market amount of $1.2B for hot sauce in the U.S.

References: https://www.fastcompany.com/3050328/hot-sauce-usa http://www.cholula.com/ CHAPTER 5: DIGITAL BEST PRACTICE Kraft Mac and Cheese: A Stealth Marketing Approach 1. Develop a scenario in which Kraft’s strategy might have backfired. How might Kraft have prepared for this possibility?

One scenario in which Kraft’s strategy might have backfired is uncertainty around the cost of the ingredients. If the costs of the new more natural ingredients were higher, Kraft might have had to increase its price to the end consumer. If this happened, consumers might have noticed the price increase and complained to Kraft for changing the price for a product where consumers had specific expectations (product, quality, and price). The change in something that has been constant might consumers them to notice something different about the taste.

This would have called attention to the change to natural ingredients and Kraft’s plan might have backfired.

Another scenario where its strategy might have backfired has to do with the root of the strategy itself. Consumers care increasingly about the ingredients in the foods they consume.

Given this concern, consumers are more likely today than ever to look at ingredient and nutrition labels. If consumers noticed the reformulated ingredients, they might feel tricked or betrayed by a brand that they trust. They might sound off on social media, spreading the word of the new change which might negatively affect Kraft’s image. Kraft could have prepared for this possibility by having a claim or call out on the package saying “new ingredients, same great taste” so that consumers don’t feel completely blind-sided by the change. Making no mention at all of the change was a risky move that paid off for Kraft, but it could just as easily have backfired.

2. How should Kraft respond to the demographic trends examined in the chapter?

Kraft could respond to the demographic trends examined in the chapter by addressing these groups and understanding their differences. It would be valuable for Kraft to understand how the attitudes and behaviors of Latinos or Baby Boomers, for example, are different and/or similar from its target consumer. Kraft should address these groups due to their growth potential and understand their behaviors and attitudes. If market research shows that Kraft Macaroni and Cheese appeals to at least a subgroup of this demographic group, it might consider marketing programs that speak specifically to this group in a way that resonate with them. Additionally, if it finds that when it comes to Kraft Macaroni and Cheese these groups have similar attitudes as its current target, it might not need to alter its communication to them as its current strategy will work.

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CHAPTER 5: GLOBAL BEST PRACTICE How Airbnb Managed Uncertainty in the Sharing Economy 1. Should Airbnb replicate its Paris strategy in other major European markets? Why and why not?

Airbnb’s entry into Paris appears successful and serves as a good model for deeper expansion into other European markets. The basic approach of establishing good relationships with government regulators, emphasizing the positive economic impact Airbnb listings will bring to the city, listening to local concerns, and making sensible compromises should be replicated across markets.

However, Airbnb must recognize that other markets likely will have different government regulations and therefore expect variations in tactics and results. It should examine the demographics, culture, business climate, government policies, economic trends, as well as any other external forces before deciding to expand into a particular city.

2. How should Airbnb prepare to manage the emerging cultural trends listed in the chapter?

How should Brazil’s cultural values influence its strategy in this country?

Some of the emerging cultural trends that fit well with Airbnb’s mission are transparency and simplification. Airbnb should manage these trends by showing how its service aligns with these trends, perhaps highlighting the transparent nature of an Airbnb transaction or how booking an Airbnb is simpler than a hotel reservation.

Given that countries can vary on six dimensions, Airbnb should look at how Brazil varies in those dimensions from other countries where Airbnb already operates. For example, Brazil is high on power distance and uncertainty avoidance, but low on individualism. Factors such as these must be taken into account when creating marketing communications. Given the country’s level of discomfort with ambiguity, the communication should be very informative so that consumers know exactly what they are getting, perhaps describing it as “the Uber for homes” or another product/service that most consumers are familiar with. Because Brazil is more of a collective than an individual society, Airbnb could show a group of friends enjoying a vacation together and emphasize testimonies since potential customers will trust the opinions of others in their cohort.

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CHAPTER 6: DIGITAL BEST PRACTICE CVS: In the Healthcare Business 1. What type of value does CVS Health offer to the market? Was it necessary to ban tobacco from its stores to make this strategic move?

CVS Health has many core values such as concern for customers, good service, social responsibility, and innovation. It shows concern for customers through its mission of helping people live healthier lives. It has service-oriented offerings like its MinuteClinics and Telehealth Pilot programs.

Removing tobacco products is a socially responsible move that aligns with CVS Health’s brand positioning and trends within the healthcare industry. CVS Health did not want its brand to be purely functional (a retail store), but rather to be a brand with psychographic associations (cares about me). By making the move, it was further clarifying the meaning of the brand and the associations. These strong associations can positively affect CVS Health’s performance and, in turn, long-term profit. In this sense, banning tobacco was necessary.

2. What strategic synergies should CVS Health exploit to improve its effectiveness in this market?

CVS Health should exploit synergies through its partnership with IBM, the tech giant known for cutting edge technological innovation. To maintain its competitive advantage, CVS Health should continue to improve its app and Telehealth Pilot as well as look for additional ways to use technology to make it easier for customers to use CVS Health as the supplier of their healthcare needs.

Additional strategic synergies should focus on ways for CVS Health to keep current with (or ahead of) its customers’ increasing interest in health and wellness. For example, a partnership with WebMD could lead to relevant health news and tips being sent to customers based upon their prescription histories. Alliances with supplement makers, organic food producers, and even high-end food preparation equipment makers (e.g., blenders, steamers, food storage) could use CVS Health’s nationwide stores as sites for education, demonstrations, and of course, sales. Individual stores could donate use of their parking lots to local groups for periodic demonstrations of various health techniques, including first aid strategies, etc. The goal is to further position CVS Health as more than a retail store and increase the ways consumers associate CVS Health with health and wellness.

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CHAPTER 6: GLOBAL BEST PRACTICE Tetra Pak 1. Discuss how Tetra Pak aligned its value proposition and business model for competitive advantage.

Tetra Pak created competitive advantage by emphasizing its value proposition of food safety and adjusting its business model to fit the markets it serves. In the case mentioned in the chapter, Tetra Pak could have chosen not to enter the underdeveloped Bangladesh milk market. Instead, it chose to strengthen the entire milk industry value chain, study and overcome barriers to consumers’ adoption of sterilized milk, and to make changes to its product that fit the needs of the people of Bangladesh. The new business model increased the efficiency, quantity, and safety of milk production and distribution and educated the public about the benefits of Tetra Pak’s sterilized milk products.

2. If Tetra Pak were to become a relational value leader (like Redpath Sugar in the Chapter), how would its strategy change?

Tetra Pak is already somewhat of a relational leader—it anticipates problems it can solve for customers. The scope of its business model is broad and it covers food preparation, distribution, packaging solutions. In order to become more of a relational value leader, Tetra Pak might solicit its customers for their input on the product and what they like and dislike about it. From that feedback, it might provide various offerings for different customers so the customer perceive a greater commitment to the relationship. Tetra Pak could also customize services that meet the needs of customers in different industries.

CHAPTER 7: DIGITAL BEST PRACTICE Panera 2.0 1. How does Panera 2.0 influence the customer experience?

Introduced in 2014, Panera 2.0 brings together technologies in digital ordering and payment that improve the customer experience. Panera has created an integrated comprehensive, end to end solution for customers by removing or reducing pain points (long lines, wait time, inaccurate order taking) and improving service (letting customer order from their tables).

2. What part of the customer journey does Panera 2.0 influence and with what effect?

The customer journey can be thought of as pre purchase, purchase, and post purchase. The area that Panera 2.0 influences the most is the purchase phase. Panera basically separated the experience for eat-in guests and take-out orders. The Rapid Pick-Up lets customers place online orders up to five days in advance with pre-determined pick up times with no wait. In the restaurants, using Fast Lane order kiosks and allowing mobile orders from tables reduces wait times for all customers. The Wall Street Journal reported in June 2017 that Panera 2.0

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restaurants have reduced average wait time from eight minutes to one. Digital sales now provide nearly one-quarter of total sales at Panera 2.0 restaurants.

Panera 2.0 also offers personalization of the entire Panera experience. At the kiosks, the web, or the app, guests can save customizations and favorites to make ordering even easier the next time. Credit card information can be stored for instant payment. The positive purchase experience results in increased loyalty. Stores with Panera 2.0 have reported significantly higher same-store sales.

3. Is Panera 2.0 defensible source of competitive advantage? Why and why not?

Panera 2.0 takes a holistic approach at improving the customer experience. If it monitors Panera 2.0 as a whole rather than the individual parts, it can be defensible. Panera has employed many common tactics to maintain a competitive advantage such as differentiating value (free Wi-Fi, healthy ingredients, welcoming atmosphere), raising switching costs (app and loyalty program), increased investments in its customers (improved service, kiosks, app), refreshing the relationship (new customer touch points), customer co-creation (ability to customize and save menu items), and exclusivity (loyalty program). Panera’s ability to cover multiple areas sets it up for success.

The reason this might not be a defensible source of competitive advantage is that any restaurant can make a loyalty program, install kiosks, and create an app to imitate what Panera is doing. In order to improve its competitive advantage Panera should continue with tactical improvements, but also include more emotional improvements that are less imitable.

Offering “secret, one of a kind recipes” that can only be found at Panera is one idea.

CHAPTER 7: GLOBAL BEST PRACTICE How Electricity Wizard Manages its Funnel 1. How will Electricity Wizard’s strategies affect its bottom-line?

Electricity Wizard successfully identified where it was losing prospects in the funnel.

Improving its digital ads attracted better prospects to its website. Diagnosing when customers’ preferred to call for more information led to better staffing decisions and fewer dropped calls. By addressing these problems Electricity Wizard has maintained more customers through the funnel by converting them from consideration to preference and ultimately purchase.

2. Assume the next stage in the sales process is to perform a follow-up call to those customers that have made an initial inquiry. Describe one step that Electricity Wizard could take to use information from the customer inquiry call to manage this follow-up call.

One step Electricity Wizard can take is analyze the inquiry calls to determine how serious prospects are about purchasing, then segment customers based on that level. Part of that process involves collecting specific information during the inquiry call (budget, specific

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current problems to be solved, schedule, whether a home owner or renter, etc.). Knowing where a customer is in the information gathering process will impact the type of follow up call used by Electricity Wizard’s customer service agents. The agents should have scripts for different scenarios that match the type of prospect they are dealing with. Potential customers will receive a more personalized and efficient follow up call that is more likely to lead to purchase.

CHAPTER 8: DIGITAL BEST PRACTICE Netflix Customer Loyalty Machine 1. What actions to you recommend Netflix take to increase its Customer Lifetime Value?

Key to Netflix’s ability to increasing Customer Lifetime Value (CLV) is to focus on strengthening customer loyalty and advocacy. Strong loyalty translates to a customer continuously repurchasing the service. Netflix currently attracts repeat customers in a number of ways, including through its low monthly subscription rate, but could consider adding in a loyalty program that offers special offers or discounts at certain subscription milestones (e.g. after three months get one month free). Advocacy is the next step, in which customers provide positive word of mouth and referrals to new prospects. Netflix could think about offering referral rewards to its existing customers, which would incentivize them to become true champions for the brand. Most important to positive referrals is to continue to provide novel and interesting content that can be the basis for consumer word-of-mouth.

2. How can Netflix improve its Prospect Lifetime Value?

To improve Prospect Lifetime Value (PLV), which is the potential value of a future customer, Netflix will want to ensure its acquisition costs and the system by which it prioritizes customer engagement is optimized. As awareness and interest are key in obtaining new customers, Netflix could bolster its marketing efforts among potential subscriber segments, tailoring messaging for each demographic based on its viewing interest. Also, by activating word of mouth among current customers, Netflix reduces its acquisition cost and boosts its acquisition rate.

3. What is Netflix’s biggest competitive vulnerability?

Other providers of streaming content are perhaps the biggest threat to Netflix. Amazon, for example, not only offers customers access to many of the similar TV programs and movies that Netflix does but also provide a platform on which to access it. To remain competitive, Netflix must closely monitor the unique customer features each of these services offers.

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CHAPTER 8: GLOBAL BEST PRACTICE How Starbucks Rewards Reward Starbucks 1. How might Starbucks use its rewards program to attract new customers to its stores?

To attract new customers to stores, Starbucks could focus on structuring outreach efforts according to the purchase funnel. Leveraging its rewards program specifically, Starbucks could build awareness and interest for the program among targeted prospects through creative marketing initiatives. As these prospects consider Starbucks’ rewards program, Starbucks should emphasize the unique value proposition it delivers both as a whole and compared to its competitors, such as its Mobile Order and Pay feature. Once these prospects are converted to customers, Starbucks should shift its efforts to fostering long-term loyalty to and advocacy for the brand by offering special rewards-only member perks like free refills and drinks.

2. The Roasteries format carries some risks for Starbucks. Discuss these possible risks as well as the strategic benefits Starbucks expects from this move.

While the Roasteries format has been successful in Seattle, the company may not see the same level of customer interest or engagement when moving it to other cities. The Roasteries concept is designed to appeal to individuals seeking an ultra-premium coffee experience, which likely encompasses only a select portion of Starbucks’ customer base. Additionally, Starbucks may find it difficult to shift brand perception from it being a mass-market brewer to a boutique, specialized brewer. If Starbucks is thoughtful about how and where it implements the Roasteries format though, it could create an entirely new revenue stream for the company and help further diversify it within a saturated market. Investigating markets based on current consumption of high-end coffee products is a good place to start.

CHAPTER 9: DIGITAL BEST PRACTICE REI’s #OptOutside Brand Identity Notes: Brand identity provides the direction, purpose, and meaning for the brand. It is a set of brand associations the firm aspires to create or maintain that implies a promise to customers from the organization.

1. Why does #OptOutside improve REI’s performance over the long run?

The role of a brand identity is to drive and guide strategic initiatives throughout the organization, drive communication programs, and support the expression of the brand value and culture to employees and partners. It provides the soul to the brand that makes it unique. #OptOutside improves REI’s performance over the long run because it successfully fulfills the roles of a brand identity outlined above. Very briefly, #OptOutside shows that REI puts people ahead of profits, which is a powerful message to send to customers. As a recurring

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event, it reinforces and solidifies REI’s brand identity over time and allows the company to adjust and add to it. REI can count on mentions and brand chatter to increase during every Black Friday and the surrounding days. It is broad enough to attract new and existing customers, but also targeted enough that it aligns with REI’s image. It also engages its employees so that they can embody the REI brand outside the stores. This will make employees better in-store brand ambassadors because they are actually living and breathing what REI stands for.

2. What are the risks associated with developing the brand in this way?

Black Friday is one of the biggest shopping times of the year. By removing itself from this important shopping period, REI is making a statement, but sacrificing revenue. While many people “opted in” by participating in #OptOutside, REI should look at whether those people still shopped elsewhere on Black Friday (in-store or online). #OptOutside and shopping are not necessarily mutually exclusive and REI could be missing out on an opportunity to make a positive statement and make sales.

CHAPTER 9: GLOBAL BEST PRACTICE This Girl Can: Building Awareness 1. Develop an ad campaign for “This Girl Can” that would motivate women who felt that engaging in sports was a sign that they were too selfish with their time.

The key is to overcome the judgement barrier. Potential campaigns that could communicate that women wouldn’t be viewed negatively for participating could include: • • • •

Show a woman playing sports with other images indicating that active and healthy women are more productive and engaging mothers.

Show women playing sports that include the whole family. This would position active mothers as positive role models.

Similarly, show women playing sports with kids, husband, siblings, boyfriend, etc. cheering on the sidelines. This indicates the playing sports can bring a family together in a fun activity.

A different angle is to target young girls early, before they think it is selfish and/or have other conflicting obligations. In this way, being active becomes ingrained into their behaviors and expectations.

2. What types of partnerships and sponsorships would reinforce this brand and further increase the number of women engaged in sports?

Partnerships and sponsorships are helpful to make a product or brand more relevant in a desired area. A brand can become more associated with certain attributes by aligning with a partner already associated with those desired attributes. This is an open-ended question and any brand that is relatable and active could be a good match.

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A partnership with Dove could be effective since it has the well-known Real Beauty campaign that celebrates the natural physical beauty of women. Dove’s campaign is similar to “This Girl Can” in that it counters gender stereotypes.

Since the idea is to get new people involved with the brand and its association, it wouldn’t make sense to target sports leagues since those women are already involved with sports.

CHAPTER 10: DIGITAL BEST PRACTICE How Sephora Creates Beauty Across Brand Touchpoints 1. Analyze how Sephora connects its brand to emotional, self-expressive, and social benefits for the customer.

Sephora successfully connects its brand to what customers value. It connects its brand to emotional benefits for the customer through its in-store experience. Its customers view beauty shopping as a “hunt” and its stores facilitate this through the InstaScent and Color IQ. It allows for a customized product search. When a customer finds the perfect color or scent, that experience will be all the more satisfying given her perspective of it being a “hunt.”

Emotions such as pride, satisfaction, and joy become associated with Sephora.

Sephora also connects its brand to self-expressive benefits for the customer through the instore experiential shopping experience mentioned above, but also online. Online, customers can post photos to get other users’ opinions, engage with the Beauty Board, or participate in the Beauty Talk forum to discuss their beauty needs with experts. These touchpoints allow shoppers to express their opinions and beauty personality to others.

Lastly, Sephora connects its brand to social benefits for its customers through digital touchpoints as well as the in-store experience. It has transformed the beauty shopping experience from transactional to an active and fulfilling process. Sephora makes customers feel they are making the right decision in their purchases through social validation from its experts as well as interaction with other users on its online forum.

2. How can Sephora’s brand touchpoints be improved to reach non-Millennials?

Sephora’s touchpoints are very Millennial-focused by turning the beauty shopper experience from observation to co-creation. Being active co-creators of customized products is a unique quality to Millennials. The Baby Boomer generation, for example, places comparatively more trust in the company and its associates and value recommendations by the “experts.”

Gen-Xers take some input from others, but their own opinions matter the most. Millennials like to try different things and are open to input from others.

The layout of the Sephora fosters sampling and testing which caters to Millennials. This store layout can potentially overwhelm Boomers. If Sephora wanted to reach other generations, it

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might emphasize the expertise of its beauty experts and create sections of the store that highlight Sephora’s beauty experts’ beauty favorite products and tips.

CHAPTER 10: GLOBAL BEST PRACTICE Lifebuoy 1. Lifebuoy used several storytelling tactics to communicate its brand message, including real, interesting, and authentic characters as well as the use of statistics of global infant deaths—all of which were shocking. What other factors do you think contributed to the success of this approach?

Showcasing the ease of preventing these deaths through a small investment in soap certainly was one factor. Seeing young and vulnerable children likely touched viewers in a way that made them feel guilty for the problem and prompted changes in behavior. Unilever found a real issue that people care about and placed its brand at the center of the solution.

2. What steps should Unilever take to ensure Lifebuoy is the only soap brand connected to health?

To ensure that Lifebuoy is the only soap associated with health, Unilever should continue to tell stories and provide other customer touchpoints that provide an emotional, feel-good element to an otherwise commodity product. For example, it could: • • • •

Run a promotion where, for a set period of time, a portion of sales goes to research connected to child mortality due to improper hand sanitation.

Have children “survivors” tell their stories and document their future successes.

Create a cheaper, more accessible product for low-income families to send the message that Unilever is concerned about the health of children instead of its bottom line.

Create a website filled with mini movies about the stories of children around the globe as a continuation of its movie in India.

CHAPTER 11: DIGITAL BEST PRACTICE Chiquita Banana 1. Develop an additional tactic for Chiquita’s campaign that further penetrates its key mother segment.

The two tactics described involved using bananas as a recipe ingredient and a partnership with Paramount to get kids excited through the Minion movie. Another tactic could grow consumption occasions by encouraging moms to include bananas in their kid’s lunches. The tactic could be done through social media in conjunction with the ingredient campaign.

Communication can include the health benefits of bananas (especially compared to “junk” foods) and how kids like eating them.

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2. Develop a completely new campaign to increase product usage among athletes—a key secondary market. What would you emphasize and what digital strategies and partnerships would you use?

A completely different campaign would be needed to reach athletes. Athletes are likely consuming bananas for health benefits, particularly potassium. Messaging should emphasize bananas’ benefits to muscles, health benefits (low calorie, low fat, high fiber), and their great taste alone and in nutritional smoothies. Partnerships could be with professional influential athletes, perhaps NBA or NFL players who are widely idolized by amateur athletes. Digital strategies might include athletes saying “Why I Chiquita,” in short, online blurbs.

CHAPTER 11 GLOBAL BEST PRACTICE Maersk 1. What are the risks of using social media campaigns for big industrial companies such as Maersk?

The biggest risk for big industrial companies using social media campaigns is that the efforts can come off looking inauthentic and forced. Large, industrial B2B companies do not typically have direct interaction with individual consumers, so it may be difficult to find meaningful content to share on social media. Maersk chose to feature narratives about its ships’ journeys and the people involved, not specifics about tonnage moved.

Social media content must be carefully curated so that the right content is in the right channels for the target consumer. What works on LinkedIn is not appropriate for Facebook or Twitter or Instagram. But all channels must be aligned to communicate the brand proposition in a consistent manner.

Another risk is that it may be hard for a large industrial B2B company to measure the campaign’s success. Consumer packaged goods, for example, have fast-moving products that can be manipulated far easier in marketing campaigns, so the effect of social media campaigns on sales is easier to monitor. Linking multi-year ocean freight contracts to a social media campaign is a more difficult task.

2. Why did this digital strategy work?

Maersk’s digital strategy worked because it went beyond its product/service; it added emotional content to a mostly dull category. Additionally Maersk was intentional in the content it shared on various channels. For example, it shared stories on Facebook and industry updates on LinkedIn, truly understanding why users visit the various social media channels and what they expect from them. It also worked because it engaged employees who are the front-line service and sales agents of the company. It created a sense of pride in the company that motivated them to work harder. Finally, Maersk realized that industrial customers are people too—people that use social media to learn about companies and engage with them in a meaningful way.

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CHAPTER 12: DIGITAL BEST PRACTICE Growing the Audience for Hamilton 1. How can Broadway leverage its success with Hamilton to increase its convert the younger demographic to be become habitual playgoers?

Many of the marketing and distribution tactics Hamilton utilized could be leveraged by Broadway to gain better traction among a younger demographic. For example, much like the “Ham4Ham” series, other productions could create video vignettes from rehearsals or even live performances that Broadway could organize on a central platform for easy access.

Additionally, to make this demographic feel truly engaged, Broadway could offer a “Meet the Star Behind the Show” series that allows individuals to live chat with leading actors and actresses from musicals and plays.

2. Using the criteria to evaluate business leveraging options, what other growth options exist as revenue-generating for Hamilton?

The criteria Hamilton should utilize to evaluate business leveraging options includes: • • •

Is the core business successful?

Can the core business be leveraged to enter a new market?

Is the leverage strategy repeatable?

Hamilton has already recognized the inherent value of its offering and potential for entry into new markets based on its decision to begin a tour of the production in select cities across the United States. Other growth options could be selling the rights to the play in order to make it into a film and books about the making of the show.

CHAPTER 12: GLOBAL BEST PRACTICE Tanita 1. Describe which assets and competencies were effectively leveraged by Tanita for growth.

Tanita’s core competency is a focus on healthy living, and it successfully leveraged this asset to extend its product offering beyond bathroom scales. Additionally, its opportunistic attitude helped Tanita identify and capitalize on new growth opportunities outside of company walls, most notably via the cookbook and the restaurant in Central Tokyo.

2. Evaluate the quality of its brand extensions using the criteria in the case. Using these criteria, what health products would not make sense for Tanita to introduce?

The quality of Tanita’s brand extensions can be evaluated by asking the following:

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• • •

Does the brand fit the context of the new products Tanita has introduced?

Does the brand add value to the offering in the new product class?

Will the extension enhance the brand name and image?

Each of Tanita’s extensions to date—the canteen, cookbook, and restaurant—fit within these criteria. Examples of health products that would not make sense for Tanita to introduce are items like first aid kits or oral care. While these certainly fall into the category of “healthy living”, it would be difficult for Tanita to add unique value to these product classes and it might even confuse customers as to Tanita’s brand image.

CHAPTER 13: DIGITAL BEST PRACTICE ADOBE’S SUBSCRIPTION MODEL 1. Why is Adobe’s subscription model a win-win for the customer and the company?

It is a win for the company because it brings in new customer segments that Adobe could not reach before due to the expense of the old model of delivering physical software packages with two year licenses. Now small business owners can be Adobe customers on a much less expensive monthly subscription. Additionally, the cloud-based delivery model allows Adobe to update its software much faster, responding to consumers’ needs for the latest technology.

From a company perspective, Adobe remained a leader in the fast moving and highly competitive tech industry.

It is a win for customers because they now receive the latest technology automatically, at a more affordable rate, and in a flexible plan.

2. Which part of the market is unlikely to prefer this approach? Should Adobe compete for this market?

At least two types of customers might not prefer the cloud-based approach. One type is hyper-sensitive about security and does not trust downloading from and uploading to the cloud. These customers prefer physical disks. The other type is comfortable using a certain edition of software and does not want to spend the time and expense to constantly learn new updates.

Whether Adobe should compete for these markets depends upon its size, trends, and cost of serving it. This risk of not serving this market is that it allows an opening for another software company to serve these customers, play upon a security theme, and erode Adobe’s dominance.

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CHAPTER 13: GLOBAL BEST PRACTICE Wanglaoji Tea 1. Why did Wanglaoji succeed as a healthy refreshing tea? What asset was central to its success?

The asset critical to Wanglaoji’s success what that it had “herbal” and a 200-year-old Chinese lineage in its equity to build upon. Pairing the tea with popular Chinese hot-pot dishes was an understandable association for consumers.

2. Who are Wanglaoji’s competitors? What factors are critical to the brand’s long-term competitive advantage?

In a broad sense, Wanglaoji’s competitors are all types of beverage companies, but more specifically beverages trying to be the beverage for certain meals. Factors critical to Wanglaoji’s success include understanding its consumers, the use occasions, and the competitors. Occasion-based marketing can work, but it can backfire if the occasion loses popularity. Wanglaoji must keep a close eye on the hot-pot market and develop additional associations with the tea, or consider new formulations of herbal tea for different occasions.

When Wanglaoji expands to other countries, it needs to identify white space in those countries’ beverage markets and research meaningful associations. What works in China may not necessarily work elsewhere.

CHAPTER 14: DIGITAL BEST PRACTICE Mars + Alibaba 1. Strategic partners often seek exclusive deals—in this case Alibaba would only sell Mars products and/or Mars will only sell its product on Alibaba ecommerce sites (other brick and mortar stores would not be included in the deal). Why would these partners strike such a deal?

Advantages of a strategic alliances for a partner include: • • • •

Obtaining economies of scale when it comes to development, sales and marketing, manufacturing and distribution; Access to a new customer base or geographic market that opens up additional revenue streams; Filling gaps in capabilities, ranging from resources to technology to knowledge of the local market; and Creating a barrier to entry for competitors seeking to create similar alliances.

However, partners should be wary of entering into alliances under two key circumstances.

First, if partners are not both gaining reasonable value from the alliance, it is not clear that it will continue over time. Second, if the systems, people, structure, and culture between the

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two companies are too disparate to reconcile, the partnership is unlikely to be successful over time.

2. Chocolate consumption decreased in China during the recent recessionary period in a country that is starting to opt for healthier treats and with lower chocolate consumption compared to Western Europe, U.S., and Brazil to begin with. Develop one other strategy for improving adoption in the Chinese market?

One example of a strategy could be to formulate localized marketing campaigns emphasizing the benefits of chocolate that consumers from each geographic segment most value. Tying marketing strategies to these focused benefits will likely increase adoption, despite recent health trends. Creating campaigns that emphasize the health benefits of chocolate may also spur more interest in it relative to other confectionary treats.

CHAPTER 14: GLOBAL BEST PRACTICE Gillette India 1. What is the downside to customizing Gillette’s products and marketing in India?

The main disadvantage of customizing Gillette efforts in India are cost and time. Crafting market-specific products and outreach requires significant capital and would be timeconsuming, as Gillette would have to do tremendous due diligence to ensure it is effectively connecting with local customers. Additionally, if these efforts are intended for India only, lessons learned and best practices may not necessarily be leveraged in other countries.

2. Perform a brief analysis of the Brazilian market. Do you think Gillette’s approach will work there?

• •

Demand: Sales of men’s cosmetics, including shaving products, has continuously increased in recent years. The market grew from $2.3B to $4.6B from 2008-14.

Cultural Norms: Brazilian men believe physical appearance impacts one’s personal life and career opportunities. It is not uncommon for men and boys to visit their local barbershop every day.

Given Brazil’s cultural norms about shaving, Gillette’s customization approach will likely work. However, marketing messaging and distribution channels would need to vary in Brazil. In India, Gillette was trying to instill a new behavior in men; in Brazil, Gillette would simply be encouraging the continuation of an already established behavior.

References: http://www.brazilbeautynews.com/brazil-set-to-take-the-lead-on-men-sgrooming-by,915

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CHAPTER 15: DIGITAL BEST PRACTICE Microsoft Acquires Skype 1. Make an argument for Microsoft to retain both Skype and Lync.

Typically, an exit or divesture should be considered under three circumstances: • • •

Business Position: Existing assets and competencies are inadequate Market Attractiveness: Category demand is declining at an accelerating rate Strategic Fit: The role of a particular part of the business has become superfluous

In Microsoft’s case, removing Lync from its portfolio was motivated by the third circumstance—strategic fit. However, one key consideration for retaining both Skype and Lync could be if Microsoft was not confident about the potential to seamlessly integrate the two platforms. In this case, it would have been more logical for Microsoft to position Skype as a tool for personal communication and Lync as the premier business communication tool.

2. Consider how Microsoft’s decision might have been affected if they had owned Skype and acquired Lync.

If Microsoft had owned Skype and sought to acquire Lync, they would have potentially chosen to add it into the portfolio as a sub-brand. Given Skype’s existing strong brand equity and easy to use interface, it would have been risky for Microsoft to begin integrating features of Lync for which customers might not have an explicit.

CHAPTER 15: GLOBAL BEST PRACTICE Target Canada 1. Evaluate the three criteria for divestment for Target Canada.

Given the terrible decisions that Target made in securing retail locations and managing its inventory, it is clear that market demand was going to be weak. The competitive intensity of Walmart’s attack added fuel to the fire by forcing Target to act (temporarily) like a low-price competitor, which further tarnished its reputation. The strategic thrust of the company was not problematic. However, the fact that the problems identified in the case arose so easily, suggests several fundamental management and planning problems that need to be resolved.

2. Imagine you were assigned President of Target-Canada at the time when Walmart started the price war. How would you respond?

It is unlikely that Target will be able to win a price war with Walmart. Target’s advantage lies in its more trendy and fashionable merchandise. Hence, ensuring that assortment fits this position is a first essential. After this, Target could selectively offer sales on top fashion items to drive customers into its stores. These sales should focus on products that are valued

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by customers and that could create greater customer value. Once the situation has stabilized, Target’s prices should be returned to more normal levels.

CHAPTER 16: DIGITAL BEST PRACTICE Itaú Unibanco 1. What organizational factors were important to Itaú’ Unibanco’s digital transformation?

The biggest factor that resulted in the digital transformation was the organizational shift to being customer-centric from product-focused. That shift prompted the bank to define new areas of emphasis (technology, user experience, innovation, communication, CRM, and business financial performance), new methods (design thinking, customer-centric design, and agile development), and shared goals between IT and banking to ensure a more collaborative environment. New employees, including anthropologists and sociologists, were hired to generate customer insights and identify customer needs as well as designers and technology experts to build the solutions.

2. What growth opportunities do you envision for Itaú Unibanco and what is the best organizational approach to develop and implement these growth strategies?

Itaú Unibanco should continue its customer-centric focus when thinking about growth opportunities. The bank needs to continue to ask itself “Why do certain customer segments not use banks and how can we make it easier for them?” Itaú Unibanco’s digital and mobile improvements are big steps to make its services more available when and where customers need them.

What other barriers do potential customers face to using banks? Lack of trust in banks?

Lack of financial literacy about the true costs of using alternative financial services such as payday lenders? Lack of time to visit a branch office? No internet connection to be able to use digital services? Feelings that the bank does not offer personal solutions or care about individuals?

What financial needs do customers have, but the bank does not serve? For example, can the bank offer its own check cashing service that will provide a foothold to transition customers to more inclusive banking services? Can the bank provide lessons showing customers how they spend their money and how to build wealth through the bank?

An organizational approach to achieve growth opportunities is to maintain a marketing and/or market research department whose purpose is to understand the needs of consumers and recommend targeted campaigns or product offerings that the customer wants.

3. Is Amazon or Alibaba a threat to Itaú Unibanco?

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Both Amazon and Alibaba are not currently direct threats to Itaú Unibanco, but are peripheral threats. Amazon has become a tech behemoth and can very likely get into the banking space if and when it chooses. Amazon is also a threat to creating high customer expectations. Both firms are pioneers in the tech space, creating mobile apps that are extremely user friendly. With those high standards in place, Itaú Unibanco must perform at least as well to deliver on customer expectations.

CHAPTER 16: GLOBAL BEST PRACTICE The Philips Journey to Customer Centricity 1. How did the new brand positioning guide the firm’s customer centricity?

Philips’ new brand positioning—dubbed “Sense and Simplicity”—helped re-orient the company in several fundamental ways. It became the internal brand of the company that put the focus on the customer’s experience instead of the technology itself. All new products had to be put through these criteria to ensure they were creating customer value. The hiring and firing of employees was driven, in part, by whether they were willing to support this new brand positioning. The metric used by the company—the Net Promoter Score—was focused on customers’ first, not firm sales or market share. Regarding competencies, Phillips identified gaps within their marketing organization that were key contributors to customer value, and sought to fill them through a governance board.

2. Why was the Net Promoter Score an effective metric for Philips to adopt during its journey to customer centricity?

The Net Promoter Score was significant for Philips because it helped the company measure long-term drivers of value, such as customer experience and satisfaction and shift away from short-term outcomes, such as sales and profits. By putting an emphasis on creating products that provide value to customers, Philips put itself in a position to receive customer loyalty, positive word of mouth, and more share of wallet over time. Also, because many different parts of the company came to rely on the net promoter score approach, it helped ensure that the voice of the customer played a critical role in driving investments and decisions across the company.

CHAPTER 17: DIGITAL BEST PRACTICE LinkedIn’s Greatest Assets 1. What are the three key aspects of LinkedIn’s customer management approach?

• • •

A self-reinforcing cycle that makes recruiters and job seekers equally attractive to one another.

The ability to quickly roll out new offering due to its existing customer relationships and brand equity.

An active user base that provide ongoing insights for future product development.

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2. What new customers might Microsoft target with the data it has acquired and will continue to acquire from the LinkedIn acquisition? What types of companies would be most interested in this data?

Microsoft might consider taking the data it is acquiring from LinkedIn and feeding it into its existing Customer Relationship Management (CRM) software. This would be particularly attractive to account managers and others sales leaders at major B2C and B2B companies, as it would enable them to tie outreach efforts to key relationships in their teams’ networks.

CHAPTER 17: GLOBAL BEST PRACTICE Apple: Building the World’s Most Valuable Brand 1. Take two of the ten factors contributing to Apple’s powerful brand and assess whether its actions over the last year support or dilute the brand?

Two factors to consider that have helped further strengthen Apple’s brand over the last year are: •

•

Don’t try to be all things to all customers: Apple has consistently struck the right balance between limiting its product areas of focus and delighting customers with new innovations. In contrast, Google has, at times, has over-extended itself with consumer offerings that have not piqued enough interest (e.g. Google Glass).

Create an ecosystem that makes offerings valuable: Apple continues to create complementary products that make it easy for a consumer to opt in to purchasing and staying engaged with its tools and technology.

2. Why is cannibalization such an important part of building an innovative brand?

Cannibalization can be utilized to bolster brand innovation by identifying areas of a business that have plateaued and replacing them with new products or services that better meet customer needs. In Apple’s case, the company dropped the iPod Mini from its line when it introduced the iPod Nano. Importantly, customers were willing to purchase the new iteration due to its appealing features and updated technology.

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Case Discussion Questions INSTRUCTOR NOTE—ENERGY BAR INDUSTRY This case is designed to explore “must haves” that define subcategories or submarkets. Aaker asserts in his writings that creating subcategories is the only way to grow (with exceptions) so understanding this topic is important to strategy. The Luna/Pria women’s product and KIND are great examples. The students should explore other products especially those that were not successful or whose future is now unknown.

1.

Identify the different submarkets or subcategories. Which have “must haves” that drive a loyal segment of size? What are the strategic groupings? For each to what extent do they represent fads that will peak and decline instead of grow. Why? • • • •

•

2.

There are now bars around natural, protein, sports and energy, diabetic, diet (the Atkins and Balance), soy (SoyJoy - a major Japanese brand), breakfast replacement, and nutrition.

Are strategic groups linked to these submarkets? At the brand level it may be yes but at the firm level a firm might engage in many submarkets. In pet food for example, the two big players are each in most of the segments (see the Planning Forms in the Appendix).

Take one or two bars (e.g., protein and soy) and explore whether they represent fads, a low sales ceiling, or high potential. How would you forecast there future? How do you hedge—by having a footprint in different subcategories just in case one takes off?

One conclusion is that soy may be a breakout ingredient but SoyJoy is not the vehicle to make it happen so the analysis needs to turn around other companies or organizations in the marketplace promoting soy. (The same could be said for seaweed snacks, they will draw upon trends rather than lead). How does a company manage this type of situation?

One learning is that there is a lot of uncertainty in strategy but there are ways to reduce it though research and through diversification.

To what extend to you think the KIND subcategory is driven by its Kindness initiatives? Are they “must haves”?

The Kindness initiative may only be known by a small subsegment but that might be an important one. This could talk about the brand with friends and in social media, which affects brand exposure in the marketplace and drives trial.

3.

What are the environmental trends that will affect this industry? Considering these trends, generate two or three viable future scenarios.

There are many possibilities—being active, eating right, weight control, nutraceuticals, local, and organic. Students can break up into small teams and develop a scenario for KIND for each possible trend. What does the trend mean for the business? How should it respond, if at all?

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4.

How can brands like Luna, Pria, and KIND by leveraged? What makes a brand extendable?

This could be a good vehicle to do a brand extension exercise. Take, for example, Luna—can the active, diet conscious women image be leveraged? What new products make sense? What else do these women consume? Could you have Luna ice cream? An extension should be helped by the brand and should help the brand. Does this work for Luna Ice Cream?

Generate a list of possible categories that would work for KIND. How does KIND help these new products and how do these new products help KIND?

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INSTRUCTOR NOTE – ASSESSING THE IMPACT OF CHANGES IN THE ENVIRONMENT These cases are designed to get students to address trends, to evaluate their importance and their future. Determining relevant trends and what to do about them is central to business strategies.

Democratization of Education 1. What is the business model for MOOCs? Massively Open Online Courses (MOOC) involve teaching a larger number of students in an online course. Materials, such as video, are offered and students participate in the course remotely, performing a range of individual and group activities. The business model for these courses depends to a large degree on the reputation of the professor/university offering the course and on the value of the topics being covered. MOOCs reach the market through companies such as Coursera or edX which act as learning channels that house courses from many different university partners around the world. Success depends on the existence of large markets of education-seeking people, such as those found in emerging markets and also in developed markets that have seen displacement due to technological change. The price began as free and this allowed MOOCs to gain attention and to achieve traction around their important social mission to help educate the world. Many providers now charge small fees which for certifications. These funds can be funneled back to University partners who are paying for content creation. This link contains a good overview of business model related questions: https://www.class-central.com/report/mooc-business-model/ 2. What should a business school do to adapt? What are the options?

Many business schools are forming partnerships with MOOC providers such as Coursera and edX. Arrangements between the school and these companies offer school’s a channel to reach the market. The other option is to try to go it alone. To succeed, schools would need the computing infrastructure and a large enough reputation to draw student to its courses. Finally, schools need to consider whether the courses will be offered for credit or a teasers to generate students at the bricks-and-mortar facilities. Motivations for universities are addressed in this blog conversation. https://www.quora.com/What-incentives-do-universities-have-for-offering-freecourses-through-Coursera-Udacity-and-other-MOOCs 3. What are the threats and opportunities for a text publisher like Wiley? What changes will they have to make to be relevant?

The opportunity is that many more students could be buyers of texts. The threat is that the MOOCs may not use texts at least in the conventional way. The challenge is to adapt texts so that they will be used in MOOCs. Generate ideas regarding how this might be done.

4. What do these education trends mean for corporate training and company hiring?

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• • •

What characteristics of corporate training would make MOOCs irrelevant? Probably those that are closely tied to a specialized industry or a specialized activity. Can you list some?

Corporate training might use existing MOOCs or create specialized ones for their employees. Many large organizations now use MOOCs to train employees Regarding company hiring, companies may reach out to MOOC providers for access to students around the world that have completed courses. Employers will seek to verify the quality of MOOCs so they can be used in hiring decisions.

Changing Payment Forms 1. What companies will be the winners and which will be the losers?

• •

Mobile payments. The winners will include PayPal and Apple Pay and other apps that will control the transactions. Another winner will be the credit card companies as they will benefit with a higher percentage of buying going to them.

Security. Winners will be those that keep ahead in the secured-data game because security is a priority all over payments and e-commerce. Ask what is a very secure ecommerce site and why?

2. How will these trends affect retailers?

• •

Mobile payments. The retailers that get mobile linked into the in-store experience will win. Ask the students to identify retailers that have exploited mobile like Starbucks or Best Buy. Ask how that has affected their attitude toward the brand.

Security. o Retailers will need stronger cybersecurity systems. To stay at the cutting edge, these systems will likely come from large-scale external providers. Outsourcing this aspect of business will likely be increasingly common. Companies may also for larger collective systems that work in unison for the common goal of security.

It is critical that consumers have confidence in e-commerce and hacks in the industry hurt all players. o Ask what retailers have faltered with respect to security. Remember Target who had 40 million credit cards info hacked. How did that set back the brand (besides the 10 million dollar settlement)? o Two factor authentication (finger print and password) may soon be here as might things like eye prints. How will this impact payments? E-commerce?

The 3Ps of Digital Health These are strong trends and their trajectory is not in dispute. But they do represent change that will affect everyone in the industry, an opportunity to those that can exploit it, and a threat to those that cannot.

1.

How has your own health care been affected by the 3Ps?

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Great way to personalize the discussion. Look for specific programs or stimuli that emerge. Why these and not others are visible?

2. How should health insurers act on this trend to influence their bottom lines and the health of their subscribers?

There is a proposal for insurance companies to put a monitoring device in cars to detect safe drivers. Should medical insurance companies do something similar to detect those that have their illness under control (take their medication or engage in physical therapy) and those that do not and have premiums adjusted accordingly?

3. Dream up two new products or services ideas (including apps) that take advantage of these trends.

• •

•

Students will come up with many ideas.

A good discussion can be developed around health-monitoring wristwatches. Will this catch on to include all types of monitoring, not just step counting, or is it just a fad? How can the idea be pushed or refined to be more effective? Can it be linked to a broaderbased health program? Can or should it be linked to doctors or pharmacies?

What is the practical advantage of having all your health data at your fingertips? Any down side?

4. What types of businesses stand to lose and gain the most from these trends?

In general, those firms in the healthcare industry that are on the forefront of the 3 Ps will do well and those that lag will not. That has a lot of implications for the organizational structure and vision of the firm.

However, it is possible to get too carried away and fail to deliver the basics. What people want in all contests is for firms to just delver the basics well and consistently. So that should not suffer with a stampede toward the 3Ps.

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INSTRUCTOR’S NOTE--CONTEMPORARY ART A fascinating context to explore buying behavior and brand strategy. Clearly people are not evaluating and buying contemporary art objectively. So why those huge prices?

1. Why do people buy contemporary art? Why might the demand for contemporary art increase?

The investment motivation is one. Although if you compare to alternative investments, art pieces that have had a dramatic increase over a long time period may still not match that of stocks. It is true, however, that there is a lot of variability of art and artists and if you would get lucky and pick a future star, the returns could be high. There is the attraction of the gamble; however, most don’t really buy for investment.

A main reason is for social and self-expressive benefits. A purchase means that you: (a) have sophistication and taste; (b) are interesting; (c) are part of a small and special group of people; (d) are associated with a dealer or auction house or museums that are the authorities of the field; and/or (e) have arrived financially and socially.

Demand forecast. There are more and more museums opening and also more serious collectors.

At the same time, the supply of name artists is limited. Many of the established ones are dead and the future reputations of many of the rest are uncertain.

2. How does an artist develop a brand?

The artist develops a brand through associations. Surprisingly, art critics are not very influential.

What is important is the implied approval of dealers, auction houses, art fairs (there are four major international fairs), and museums. So the first step is to get exposure into a dealer. The dealers have variable prestige from at least three levels. So you would try to start with level three and work up. Collectors are very important. Note the Charles Saatchi story about how the Hirst brand was started. Actually Saatchi will buy a dozen works of a new artist and his purchase will make the works go up in value. In addition, he can buy works from dealers at big discounts because having him as a client and collector of a dealer’s artists means so much. He can also get deals at the auction houses for the same reason. The auction houses are the ultimate seal of approval but they only handle a limited number of artists and it is hard to break into that group.

The same is true for museums.

But how do you get started and start the march up the ladder? There are several approaches that are relevant. You can be an outrageous personality in the news like Andy Warhol and Tracy Emim. Second, you can put out pieces that have shock value because they are so outrageous; anything to get into the news. Third, your work can be distinctive. It helps to have a style so that when someone sees a piece they can say that is a Pollack or Warhol or Hirst. You don’t want to be an artist whose work is hard to identify.

2. What about an art dealer in brand development?

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A dealer will base its reputation on artists. So it is crucial to cultivate up and coming artists and equally crucial to keep them when they are ready to move up to a more prestigious dealers. One thing that dealers do is to make sure that their artists’ work do not decline. If a piece is out there at a low price, the dealer will snap it up so the market price for the artist is not compromised.

3. Is Damien Hirst famous because of his work and it shock value, because of Charles Saatchi, or because he is famous?

All of the above.

4. How would to develop a brand if you were a new investment advisory service? Can you use any of the techniques that artists use?

Could start out by asking how it is similar to an artist brand. It may be hard to evaluate, etc. The similarities are amazing. That is why there is so much to be learned from this case.

It is all about associations. Can you get some clients that will legitimize your service? Can you get something distinctive that has value—perhaps brand some aspect of your service?

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INSTRUCTOR NOTE -- COMPETING AGAINST AMAZON Ten years ago it was Walmart that was charged with putting small neighborhood retailers out of business, exploiting and mistreating employees, using its power to damage suppliers, defacing communities, buying so much from Asia that the US workers and economy suffered all in the name of “helping the customer” with low prices. How to stop Walmart, how to sell to it and survive, and how to compete with it and live was the issue of the day.

Today’s evil empire is Amazon and many of those same observations are made about it. It is good or bad for the US and how do you compete against it.

1.

Why is Amazon so successful? What are their assets and competencies? What is the role of Jeff Bezos?

It all starts with Jeff Bezos, his vision and his ability to think only long term even at the expense of current profits and stock price.

Assets and competencies: • E-commerce only which avoids costs of storefronts.

• The wide product line. There is virtually nothing that you can’t get from any category. So a customer does not have to search the Internet to find things.

• Innovations like one-click that makes it easy and reliable to use.

• Prime which rewards loyalty with no shipping cost. Huge.

• The 50 fulfillment centers • The program to allow third party firms to sell on Amazon Can ask which is the most important and the answer is all have contributed.

2. What do you think Amazon will be like in 5 years? 10 years?

They are likely to be even larger and more powerful. Amazon plans to open its first brick-andmortar store in Seattle in 2017 and plans to open 100 pop-up stores by 2017 (it had 6 in 2015).

These stores are an opportunity for customers to experience devices and accessories similar to Apple Stores. Discuss the fit of the digital and brick-and-mortar experiences.

3. Is Amazon positive or negative for consumers? For the culture and economy of the countries in which it has become a dominate power?

It is so tempting to admire and respect the big Internet firms—Google, Facebook, and Amazon.

They are so successful globally. But there is a lot of pain both with employee treatment and the killing off of other retailers. They are now threatening grocery stores and delivery firms. How do these trends affect consumer welfare and free market forces? What should Amazon do to make sure it is a force for good in society?

4. What type of retailer will be most vulnerable to Amazon’s power? Least vulnerable?

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Those that have not been able to have a personalized, energies in store experience that Amazon cannot match. Those that do not have a local personality and connection.

5. Amazon opened some grocery stores in 2016 with no checkout. Your phone keeps track of what you buy? Will grocery chains have to also replace check out personnel with such an automation system?

The Amazon technology represents a huge threat to retail chains as they will have to invest just to catch up. Not just grocery stores. And this is just another time that automation will cost a lot of jobs.

6. Consider the Sephora case in Chapter 10. Describe how Sephora has thrived despite the shadow of Amazon? Why does the strategy work? Can Sephora maintain their success?

The Sephora case details how Sephora has created an in-store experience that has involvement, energy, and excitement. The store draws you in. Amazon is transactional in comparison.

Costco There are many retailers that are now thriving. Sephora and some independent bookstores are doing well with an in-store experience. Costco is another.

1. Why is Costco immune from the Amazon threat? Will that continue going forward?

What are the strengths and weaknesses?

Costco has some built-in assets that Amazon lacks: • The membership model which creates loyalty.

• The small selection is allows a cost advantage leading to very low prices—lower that Amazon can match. The bulk packaging is a reason that that the low cost and low price works.

• The high quality of its meat and produce.

• It sells to small businesses in addition to consumers.

• It has scale with some 700 stores leading to low prices and special offering packaging and pricing.

• The in-store experience is fun with a lot of tasting and special offerings.

It should be sustainable because others have not been able to duplicate or counter its core strategy elements.

2. How should Costco react to the Amazon threat? Besides getting more competitive website is there anything that Costco could do to leapfrog their competitors on the ecommerce side?

• •

The e-commerce lag is troubling and fixing it should be a priority. But with the “club” it should be turned into an advantage for its e-commerce operation.

Continue to deliver the service and quality.

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•

Find ways to communicate the family feeling among employees as opposed to the oppressive stressful life of the Amazon employees.

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INSTRUCTOR’S NOTE—DOVE The case has two elements. First the fact that Dove extended the brand into other categories building a 200-million-dollar brand into one over 5 million dollars, an incredible achievement.

Second, to describe a higher purpose “real beauty” campaign and its implications for the brand including some surprisingly negative ones.

1. What are the keys to the success that Dove achieved in building the brand into a $5 billion business? What was the roles of success momentum and branded differentiators?

There were a combination of factors.

• First, the breakthrough product that had patent protection and the endorsement of dermatologists were the basis of everything.

• Second the incredible positioning of the brand—moisturizing—that was developed through great advertising and packaging over many decades helped to create an asset able to be leveraged.

• Third, there is no question that momentum played a key role. Success creates a quality perception and new product credibility plus energy and visibility. It also creates a group of customers loyal to the brand that are much easier to attract to a new product than others. It also can create a buzz. This possibility could merit some class discussion.

• Fourth, the sub brands, Nutrium and Weightless Moisturizer, also helped to define the new advance, without which Dove could not breakthrough. This branded differentiator, Nutrium, was so strong it helped Dove soap.

2. What was the role of a vigorous competitor? Would they have done so without P&G pushing (or more accurately pulling) the brand?

The question as to why Dove woke up is provocative and could merit a discussion. A case could be made that without P&G nothing much would have happened to Dove. Then ask why that is.

How can organizations be so clueless? One possibility is that they are distracted by other priorities. Another is that problems tend to get more attention than opportunities and Dove was going very well as a mature brand in a mature category. The fact is that it is common to see great vitality in an industry with a vigorous competitor that is innovating. Ask the class to think of an industry with a lot of vitality and consider the source of that vitality. Think of the energy bar industry, for example.

The role of momentum is worth discussion. Success lead to more success. If the brand had faltered, future extensions would have been affected not only in the marketplace but internally as well. Success creates visibility, energy and credibility.

3. What is your opinion of the “Real Beauty” campaign? Why does it work? What are its biggest challenges?

On one hand it has created PR, interest, and a basis for a relationship with women who resonate with it. On the other, it has little to do with the product’s value proposition and creates such high

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expectation that the brand will find hard to meet. This is a good vehicle to discuss the nature of relationships with customers to brands. To what extent is it based on functional benefits? Are customers rational? Why not?

4. Does the existence of the Axe brand affect your views?

This will usually generate a heated discussion. The two views are clear. First, Unilever is hypocritical to put forth both brands. The real beauty is a statement of the Unilever organization.

Second, these are two different brands with two different sets of values and strategies. Any firm with a house of brands strategy should not be expect all brands to be consistent. Should P&G with over 100 major brands? Is that even feasible? Isn’t the whole purpose of different brands to support different positions? Is a higher purpose a special case? Look at General Motors or General Electric. Should they try to have a consistent brand across all their products? Why? You might ask why the emotion behind the two positions?

5. How should Unilever manage the Axe-Dove tension, if at all?

Not clear there are viable options. One option—to kill either the Real Beauty campaign or the Axe brand makes no sense for a for-profit company. It would go against shareholder interests.

Also assuming that Axe needs to live for economic reasons and because it serves a customer need, why would you kill a higher purpose campaign that is a total win-win. Consider also the fact that they are geared to very different segments.

Is it OK for the Always brand to do their “just like a girl” campaign whose 3 minute video got 85 million views and changed the minds of millions about how ‘girls” do things. Do all the P&G brands have to be consistent? Who will judge?

6. How should Unilever measure the success of the “Campaign for Real Beauty”?

• • •

Visibility and energy is so important to a brand. So the number of people exposed and remember the campaign is one measure coupled with those that associate it with Dove.

The image and loyalty toward the brand could be another. Is the brand getting some reflected respect and liking because of the campaign?

A really effective higher purpose campaign should be reflected in short term sales.

Hopefully some experiments can be conducted to show if this is happening.

7. Will the Campaign sell in China? If not, should the brand position be adapted and if so, how? Discuss the cost and benefits of doing so?

Do not assume that the campaign will or will not work in China where there is a very different culture. It may be that the basic idea will work with a different presentation but it may not. You always want to leverage success but don’t’ do it dogmatically. Testing will be needed.

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CHAPTER INSTRUCTOR NOTES Chapter 1 – Strategic Market Management – An Introduction and Overview CONTENT OF CHAPTER 1 1. Strategy development needs to reflect the fact that markets are dynamic. There are implications to this reality. You need to be good at strategic analysis, innovation, managing multiple businesses, creating SCAs (sustainable competitive advantages), and developing growth platforms in the context of dynamic markets.

2. A business strategy is defined by the product-market investment, a value proposition, assets/competencies, and functional strategies.

3. The book systematically covers external analysis and the development of strategies— Figure 1.3 summarizes the elements of external and internal analysis plus the outputs of strategic analysis.

4. Marketing’s role at the strategy table follows from the definition of a business strategy.

Dynamic markets Ask the class if it can think of any industries that are not dynamic. As industries come up, ask if anyone sees any dynamics. In all industries it will be easy to identify areas of dynamics— there will be emerging submarkets, opportunities, threats, new competitors, changing faces of existing competitors, global realities, etc.

Follow that up with questions about the implications for strategy of a dynamic market. This discussion should lead to the importance of the six tasks discussed on pages 2 and 3— strategic analysis, customer value, innovation, multiple business (to participate in emerging new markets and submarkets), SCAs (that work in dynamic times), and the need for growth platforms (that work in dynamic environments).

Business strategy definition Logically, if business managers are to develop strategy, they should know what it means. It turns out that it is not so simple. Ask the class the simple question— “What is Strategy?”

Students will come up with concepts like strategy is a plan, a vision, planning, setting objectives, matching resources with objectives, or matching the 4Ps to your target market.

You might then consider discussing one or more of the following definitions.

•

“Strategy is a framework which guides those choices that determine the nature and direction of an organization.”

- Benjamin B. Tregoe and John W. Zimmerman, “Top Management Strategy”

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•

“Strategy is the creation of a unique and valuable position, involving a different set of activities.”

-Michael Porter, “What is Strategy?,” Harvard Business Review

•

“In terms of the three key players (competitors, customers, company) strategy is defined as the way in which a corporation endeavors to differentiate itself positively from its competitors, using its relative corporate strengths to better satisfy customer needs.”

-Kenichi Ohmae, “The Mind of the Strategist”

The concept of strategy is precisely defined in this chapter. The discussion should motivate the class to want a definitive answer. This chapter provides one. A business strategy is defined by four dimensions—the product-market investment strategy, the customer value proposition, assets and competencies, and functional strategies and programs. The first specifies where to compete, and the remaining three indicate how to compete to win.

•

• • •

Product-market investment—it is important to emphasize that knowing which product markets your company does NOT serve is equally as important as knowing which product markets your company does serve. Otherwise your valuable resources may be used inefficiently.

Customer value proposition—this concept of a strategy is market-driven and the value proposition is a central part of it—it also serves as an umbrella concept that summarizes the strategy.

Assets and competencies—the key to a long-term investment perspective (vs. a shortterm fixation).

Functional strategies—needed to support and implement.

What differentiates a business strategy from a marketing strategy? A business strategy is more comprehensive and contains significant financial data. A marketing strategy has a narrow focus and is driven more by targeting a customer and developing a needs-satisfying marketing mix. This book, Strategic Market Management, has a point of view that is customer-driven.

The section entitled “The Foundation of Customer Value” ensures that students understand the criticality of customer value to marketing. It defines this concept and offers one way to measure it. The most important aspect of this discussion is that customer value is perceived by the customer.

It is useful to discuss at this point the acronym SCA. Ask students “What is a sustainable competitive advantage?” The discussion should get into the concepts of assets and competencies. Some examples could be discussed.

Marketing and strategy A discussion can occur around the role (if any) of marketing and strategy. Should marketing have a seat at the table? Why or why not? Does it matter what company or what strategy?

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This book makes clear that given the definition of a strategy, marketing has a natural and key role. The question could be revisited in the context of each dimension.

Discussion of opening quotes It may, in general, be interesting to discuss the opening quotes for each chapter with the class.

However, for the purpose of this initial chapter, it may be particularly helpful given the ideas are very broad. The quotes are repeated and a few thoughts offered.

•

“Plans are nothing, planning is everything”

- Dwight D. Eisenhower The process is more important than the plan. The fact is that plans will need to be adapted and the process of making a plan will provide the ability to adjust it when submarkets, opportunities, and threats emerge. Note that one theme of the book is how to respond to dynamic markets.

•

“Even if you are on the right track, you’ll get run over if you just sit there.”

- Will Rogers

You need to continuously adjust. Does this always work? No. Sometimes you might want to be persistent and committed to a plan and avoid change.

•

“If you don’t know where you are going, you might end up somewhere else.”

- Casey Stengel

As usual, Casey stumbles onto some truth. Goals and intentions drive behavior in critical ways and so it is important for companies to consider the business they are in and what they are trying to accomplish before moving forward with strategy.

FOR DISCUSSION 1. What is a business strategy? Do you agree with the definition proposed in this chapter?

Illustrate your answer with examples.

This a good question during the first class before students read the first chapter.

Definitions will be all over the map. Drive home the point that this should be easy for a business major or business executive, yet it is not. Getting to a solid answer provides a basis for strategy going forward, while having it vague is a recipe for drift. In the chapter, the business strategy is crisply defined to involve four dimensions: the product-market investment strategy, the customer value proposition, assets and competencies, and functional strategies and programs.

Consider one of the firms. Go to the firm’s website and annual report to gain an understanding of its business strategy. Look at elements such as the products and services offered, the history of the firm, and its values. What is the business strategy? What

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product markets does the firm serve? What are its value propositions? What assets and competencies are important to this strategy? What outstanding functional programs and strategies exist? a. b. c. d.

Dell Zappos Visa A firm of your choice

This discussion will make it clear that it is not easy to crystallize a business strategy. As the strategies are articulated, some students may want to expand the definition of a business strategy.

2. In question 1, identify any distinctive elements of each firm’s marketing strategy. a. Dell Computer (http://www.dell.com) Dell serves the worldwide market for customers to build their information-technology and Internet infrastructures. Dell’s value proposition is based on being standards-based (there is no proprietary software like Sun and Apple) which leads to lower prices and operating costs for customers and the advantages of the direct model. The direct model provides intense customer intimacy, customized systems, very competitive prices, and reliable and speedy delivery. Dell’s assets include a customer base, brand awareness, and operational ability to run the direct model. b. Zappos (http://www.zappos.com) Zappos serves the U.S. market for online retail with an emphasis on footwear. The value proposition is based around outstanding customer service, convenience, and painless returns. Zappos’ ecommerce format allows for wide selection and very competitive prices.

The service-focused model ensures that customers aren’t sacrificing key aspects of the instore experience (hands-on trial, friendly assistance) in the online context. Assets include a customer base, positive brand associations, and strong competencies in customer service and ecommerce. c. Visa (http://www.visa.com) Visa serves the global consumer credit and electronic payments markets. Visa’s value proposition is based on global availability, which enables consumers to rely on Visa as a primary payment method. The mass-market, no-fees consumer credit model with competitive pricing of transaction fees to retailers has allowed Visa to build massive networks of both cardholders and accepting businesses. These customer networks are among the company’s most substantial assets. Visa also has extremely high brand awareness and strong operational competencies.

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3. Considering Gallo wine, are there any current wine companies for whom this strategy would not have worked? Why? Gallo made the unusual move of entering the premium wine market using its existing brand name, which was extremely well-known and strongly associated with discount wines. This strategy succeeded due to Gallo’s key assets and competences, which include: access to vineyards in the respected wine region of Sonoma; a credible and charismatic third-generation winemaker heading the business; outstanding operational and distribution competencies; scale efficiencies; and clout with both suppliers and retailers. Gallo also undoubtedly benefited from the novelty of being the first lowbrow brand that wine experts could praise to make themselves seem open-minded and countercultural. This would not have likely worked for other companies given they lacked these assets and competencies 4. Apply Theodore Levitt’s marketing-myopia concept to print media, magazines, and newspapers. What are the implications?

The reader and advertising base is declining for newspapers and to a lesser extent for magazines. Expanding the vision of the business is one way to avoid sliding into oblivion.

If a newspaper could be defined as a producer of current in-depth unbiased reporting, it would naturally be directed toward the Internet and text messaging devices. Calling yourself a newspaper is extremely limiting and self-defeating.

5. Which criteria to pick a strategy would you consider most important? Why? Name one company that failed because it did not follow your priority. What should it have done instead?

The point of this question is to get the class into the criteria and, in doing so, better understand the definition of strategy. You can make the argument that all five criteria are equally important. You can also argue that the ROI criterion is less important because it is more short-term oriented. You can also argue that the fit criterion will be of less importance for some firms or situations.

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CHAPTER INSTRUCTOR NOTES Chapter 2 – External and Customer Analysis CONTENTS OF CHAPTER 2 1. External Analysis—Figure 2.1 highlights that external analysis is about the identification of trends, threats/opportunities, and strategic uncertainties and that this can lead to strategic decisions and to the analysis of information-need areas and scenarios. The concept of information-need areas is particularly important and powerful. It is worth talking through Figure 2.1.

2. Segmentation analysis—the definition of segmentation is worth emphasizing—it is the identification of customer groups that respond differently to competitive offerings.

3. Customer motivations—Figure 2.7 describes the four steps—identify, group & structure, assess importance, and assign roles to motivations. Asking students to work through a category such as athletic shoes or snack foods would likely create an interesting discussion of customer behavior in these categories.

4. Unmet needs—a powerful indicator of market opportunities. Ethnographic research is described as a way to uncover unmet needs that customers cannot express.

External Analysis Discuss strategic uncertainties and how they differ from strategic decisions. What are the strategic uncertainties facing Ford? What strategic decisions might be affected or precipitated by the strategic uncertainties? For example, the future of the hybrid or the hydrogen powered car would be an uncertainty.

•

Why is external analysis a creative exercise?

Segmentation Analysis Ask for examples of firms that have done segmentation well. That question could be asked in general and then more specifically—what firms have segmented by benefit (BMW), usage (University of Michigan), loyalty (airlines’ frequent flyer programs), and price/value (Walmart)?

Push the class to identify how the offering is different because of the target segment.

• • •

List the features and associated benefit for the product or service.

Identify the target market.

Evaluate each benefit on a 1 to 10 scale as to how compelling it is for the segment.

Customer Motivation

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Ask what toothpaste everyone uses and why? The answer is likely that many people use the same toothpaste as their parents. So what is the motivation? The discussion should make the point that what motivates people is not just product attributes, but things like emotional benefits caused by familiarity and links to family.

Ask “What is the motivation when you buy a car?” The point will be to see the variety of motivations that come out and, again, to see that customers overemphasize attributes and deemphasize emotional and self expressive benefits. Ask how you can determine the non-attribute benefits if asking customers does not work so well.

Unmet Needs Ask what unmet needs exist in the automobile market. Pick a few and see if you can come up with products or programs that would be responsive. Or try school lunches.

END OF CHAPTER DISCUSSION QUESTIONS 1. Why do a strategic analysis? What are the objectives? What, in your view, are the three keys to making a strategic analysis helpful and important? Is there a downside to conducting a fullblown strategic analysis?

By doing a strategic analysis, the company will ask rigorous questions that might not otherwise be asked because the company’s current situation may be taken for granted. The objectives of strategic analysis should be to suggest strategy alternatives, contribute to the investment decision, and to develop strategic options that include the value proposition, assets and competencies, and functional strategies and programs. The purpose here is to jump-start growth; help sustain market position; increase income and cash flow which goes back to shareholder value.

Possible answers include: 1) focus on outputs and not get bogged down in detail, 2) make sure that the right scope(s) are selected, 3) make sure that the necessary research to support the analysis is done.

A possible downside to conducting a full-blown strategic analysis is that the time taken to do the analysis is so long that the window of opportunity is passed. An interesting observation is that many companies do strategic planning when times are good (because they have the time and money) and not when times are bad (they don’t have the money or the people in place to do the strategic planning) – a time that could most benefit from identifying growth opportunities.

2. Consider the buyer “hot buttons” described in the insert on page 30. What are the implications for Betty Crocker? What new business areas might be considered, given each hot button?

Answer the same questions for a grocery store chain such as Safeway.

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Considering the “hot buttons” described in the insert (freshness, naturalness, ethnic eating, gourmet eating, meal solutions, low-carbohydrate foods, convenience), the implications for Betty Crocker are that the company should make sure they have, or have in development, products that respond to the current “hot buttons” or it will miss market opportunities and a possible loss of existing business.

The same is true for Safeway. Safeway’s product offerings must respond to the “hot buttons” because they are what cause customers to buy products. The absence of products that respond to the hot buttons means customers will seek alternative sources to satisfy their hot buttons.

3. Consider the segments in the male shopper insert on page 26. Describe each further. What cars would they drive? What kind of vacation would they take? What shirt brand would they buy?

One point is that you want to describe in detail any target segment. So the exercise should provide more texture for each segment. Another point is that there are many variables that could be used to define segments. What is this one? Is it demographics or lifestyle or life stage? Probably not just one … it may be some combination of variables. What do you think of the labels? What firms could or should use this segmentation scheme?

4. What is a customer buying at Nordstrom? At Banana Republic? At Zara?

Since each of the above retailers are clothing stores, is seems rather obvious that the customer is buying more than clothes. In the case of Nordstrom, the customer is buying: the brand, the liberal return policy, the ambience of shopping in the store, enhanced customer service in selecting clothing. At Banana Republic, the customer is buying trendiness, urban, and hot new fashions. Critics say that Banana Republic has compromised this image with low price points and promotions. Zara customers want imitations of new designs at a low price. Quality is not valued as clothes are not expected to last more than a year.

5. Pick a company or brand or business on which to focus, such as cereals. What are the major segments? What are the customer motivations by segments? What are the unmet needs?

In the case of the cereal business, some of the major segments may be: natural, un-sweetened, fresh, sweetened, and healthy. Motivations for each may be: for natural cereal, the customer motivation might be to avoid perceived unhealthy ingredients; in the case of un-sweetened cereal, the customer motivation would be for a low calorie, low carbohydrate food. In the case of fresh cereal, the customer motivation may be for freshness and flavor and to avoid preservatives. In the case of sweetened cereal, the customer motivation might be for the extra taste provided by sugar. And for healthy cereal, the motivation may be for enhanced physical well-being. The unmet needs might be for a cereal in a bar form for those on the run or for cereals that are made for non-breakfast consumption, gluten-free, or for diabetic’s consumption.

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Additional Suggestion: To learn about trends and the importance of environmental scanning it is useful to review articles from The Futurist published by The World Future Society. In November each year the Society publishes Outlook which forecasts events and trends for upcoming years. There are very interesting projections which will provoke very lively classroom discussions.

BEST PRACTICE DISCUSSION QUESTIONS Glossier: Using Beauty to Talk Back to Consumers 1. What is Glossier’s key customer analysis tool?

Since its founding, Glossier has focused on exploring and satisfying its customers’ unmet needs. The company identified the lack of personalization in the makeup purchasing process as a major pain point among consumers, and introduced a brand that encourages women to share beauty tips and recommendations with each other. Today, Glossier continues this practice of uncovering and fulfilling perceived customer gaps in a number of ways, including mining user-generated content on its website for future product ideas.

2. What, if anything, should major cosmetic competitors such as L’Oreal or Estee Lauder do in response to Glossier’s success? What customer-based actions can Glossier take to protect itself against these moves?

Though Glossier is still at an early point in its growth trajectory, the success of its business model signals that it could pose a long-term threat to other industry players. As a next step, major cosmetic competitors such as L’Oreal or Estee Lauder could imitate some aspects of Glossier’s strategy while also identifying other unique unmet customer needs and adjusting their offerings to fit them. To do this, they could consider creating online communities where customers can converse, conducting qualitative research via focus groups, in-depth interviews or ethnographic analysis, and mapping out the ideal customer experience. In response to these moves, Glossier may want to leverage other customer analysis tools such as further segmenting its consumer base according to their needs, motivations, and characteristics.

Further, Glossier should focus on creating customer loyalty as a way to protect the business it has built.

P&G Customer Analysis Guides Marketing Communications in China 1. Do you think “Delight, don’t dilute” is a principle that P&G can easily apply to other emerging markets? Why or why not? What customer analysis tool would be most helpful in making this determination?

To determine whether the “Delight, don’t dilute” principle will be as impactful in other emerging markets, P&G should more deeply consider customer motivations. Prior to further expansion, it would be beneficial to assess what elements of the Pampers product customers

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value the most, what their purchasing objectives are, and whether those objectives differ by segment. Collectively, this data will help P&G optimally position Pampers within each new market it enters.

2. Why were the photos of sleeping babies more effective than just reporting P&G research reports?

Research had revealed that new parents in China were very concerned over the impact on a child’s development that low quality sleep could have. Utilizing photos of babies peacefully sleeping in Pampers diapers allowed P&G to frame the product as an aide to quality sleep, a message that may not have come across as explicitly in research reports. The company’s ability to tap into this core customer motivation with its marketing content was key to it successfully growing market share in China and increasing the size of the overall disposable diapers market.

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CHAPTER INSTRUCTOR NOTES Chapter 3– Competitor Analysis CONTENT OF CHAPTER 3 1. Identification of competitors is not trivial because there are multiple levels of competition based on how intensely and directly they compete. This hierarchy can be revealed in two ways. One approach is to identify competitors by customer choice (how they compete for buyers). A second approach is to cluster competitors into strategic groups (based on similarity of their strategies, assets, competencies, and other characteristics).

2. Competitors should be analyzed along several dimensions, including their size, growth and profitability, image, objectives, business strategies, organizational culture, cost structure, exit barriers, and strengths and weaknesses.

3. Potential strengths and weaknesses can be identified by considering the characteristics of successful and unsuccessful businesses, key customer motivations, and value-added components and assets and competencies that represents industry mobility barriers.

Identifying Competitors by Customer Choice Ask students to tell you their favorite drinks. Use a drink such as Diet Coke that several people name. Ask what drink they would chose if Diet Coke were not available. Ask if the second choice also was not available. And so on. A pattern should emerge whereby soft drinks will be the closest competitors chosen by student. However, within soft drinks, there should be a difference between colas and non-colas. Then other drinks should enter to form second and third tier competitors.

Do the same test, but focus on an application. It is a hot day after a tennis match or biking trip and you want a refreshing drink. What would it be? And again, if it were not available what would be the second, third, fourth, etc. choice. Does the pattern depend on the application? If so, what are the strategic implications? Could it be that a general model might be too simple?

One objective is to show the complexity involved. Another is to show the power of the levels of competition and the implications.

See discussion question 1 at the end of the chapter.

Identifying Competitors by Strategic Group Ask what the strategic groups are for the airline industry. The low-cost, point-to-point carriers and the hub-spoke long haul carriers will pop up. Some probing questions to follow with include: •

Why can’t long haul carriers compete with low-cost, point to point carriers? What are the barriers to entry? How have the hub/spoke carriers attempted to overcome those barriers?

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•

Should there be international carrier groups—British Air, Singapore—or are they in the hub and spoke category with United, Delta, etc.? If they are separate, what are the barriers to entry (government subsidies, control of landing gates)? Can a firm like United be in two strategic groups? If so, are mobility barriers reasonable?

Evaluating Competitors If the task were to evaluate the competitors in the airline industry, where would you go for data? If you wanted to evaluate a strategic group such as low-cost carriers, how many would you evaluate in order to be able to understand the group?

How would the data source change, if at all, if the industry were kitchen equipment for restaurants and institutions?

Relevant Assets and Competencies Consider the luxury automobile business. Create a list of competitor assets and competencies by answering the following questions: •

Which companies have been successful over time? What assets or competencies have contributed to their success? Which businesses have had chronically low performance?

Why? What assets or competencies do they lack?

•

What are the key customer motivations? What is really important to the customer?

•

What are the relevant assets and competencies? What are the entry barriers? Clearly the brand name is one. The percent value of the business allocated to the brand is 80% for BMW and 20% for the more utilitarian Toyota. VW came out with Phaeton attempting to overcome entry barriers. Why did that fail? Are there also exist barriers? Why did Ford sell Jaguar to Tata Motors in 2008?

•

Consider the components of the value chain. Do any provide the potential to generate a competitive advantage?

•

Given the above, what are the relevant assets and competences? Evaluate Lexus, Cadillac, and BMW on those dimensions. Compare with the grid in Figure 3.5 on page 53 in the book.

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END OF CHAPTER DISCUSSION QUESTIONS 1. Consider the news industry. Identify the competitors to CNN and organize them in terms of their intensity of competition.

CNN’s competitors are first the other cable news channels such as MSNBC and Fox News, and then the major networks such as PBS, ABC, FOX, and CBS. Another group could be local news operations. Then there are print media − newspapers and news magazines. The interesting competition comes from the Internet. Many people now spend more time getting news and entertainment from the Internet than from other sources. How should that be broken down? What Internet subgroups exist?

2. Evaluate Figure 3.5. What surprises are there in the figure? What are the implications for Cadillac? For Audi?

One of the major surprises is that Audi is not recognized in the United States as having any dimension that rates “above average.” This is probably the result of mechanical errors years ago that were alleged to have killed people. That memory is slow to fade. It is also interesting that BMW has the highest ranking of any car on the chart. (See The Wall Street Journal, Tuesday, March 9, 2004 pages D1 and D4 for a contemporary discussion on BMW and its rankings.)

One implication for Cadillac is that while it has commanding market share now, it should be looking over the horizon for what is coming and protect that market share by trying to move up in some other dimensions. Audi should also review its ratings and improve on several of dimensions or risk losing even more market share. Cadillac is in the process of repositioning the brand. It changed the branding language to ‘art and science’ in order to appeal to a younger consumer demographic.

3. Pick a company or brand/business on which to focus. What business is it in? Who are its direct and indirect competitors? Which in each category are the most relevant competitors?

Students will come up with various responses to this question. A good way to handle the class discussion is to ask students how they arrived at their conclusions and what the implications are as they relate to that company or industry.

4. Consider the automobile industry. Identify competitors to Ford SUVs and organize them in terms of their intensity of competition. Also organize them into strategic groups. What are the key success factors for the strategic groups? Do you think that will change in the next five years?

The SUV market is very intense in terms of competition. Customers are very valuable and automobile companies have made large investments to bring their cars to market. Hence, they often compete hard in terms of price and promotions to attract customers and close

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the sale. Companies also compete by introducing new models with an escalating array of features, including new technologies that make many SUVs rolling homes.

Organizing the competitors using the strategic group methodology produces three groups: Luxury Car Strategic Group: Mercedes-Benz, Acura, BMW, Lexus, Audi Mid-Price Car Strategic Group: Dodge, Nissan, Honda, Ford, Chevrolet, Toyota Value Price Car Strategic Group: Kia, Hyundai, Geo These groups may change in the next five years if some of the luxury group offer an upscale mid-priced option or if an entirely new products enter the market. A crossover utility vehicle (CUV) is a vehicle built on a car platform that combines features from a SUV and passenger vehicles such as a station wagon or hatchback. Entries such as CUVs may offer the opportunity for companies to cross into new strategic groups.

5. Consider the Nintendo case on page 47. Why was Nintendo the firm to come up with the DS and Wii products and not SONY or Microsoft? How did Nintendo do it? What assets and competences were required?

The Nintendo case is a dramatic example of brand and business success and is well worth reviewing. What Nintendo did should be easy to get out because the case described it well.

A fascinating question that requires speculating beyond the case is: “How did they do it?”

The new CEO and some good people were involved (actually, one key technical manager was the heart of it—just like Pixar in fact). But there needed to be an exceptional culture and customer sensitivity plus an ability to get the outside software world to write stuff for the two products. What did that require? How did Nintendo convince that community that these products would be hits? A second question is “Why didn’t Nintendo’s competitors come up with these innovations?” The curse of success? The perils of a commitment strategy? Think about this thoroughly.

BEST PRACTICE DISCUSSION QUESTIONS T-Mobile: The Un-Carrier 1. Perform a competitive analysis of the wireless telecommunications industry.

A competitive analysis of the telecommunications industry should address the following eight elements: •

Size, growth, profitability: T-Mobile’s growth is an indication that it has achieved a successful strategy. It may want to also understand where its additional 22.5 million subscribers came from. Were they mostly from particular carriers? This assessment might shed light on the weaknesses of the carriers from which T-Mobile stole those customers. Also, it can be inferred from the case that Verizon, AT&T, and Sprint all were larger in size than T-Mobile.

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•

• • •

•

• •

Image, positioning and strategy: Of the eight elements, this one should be emphasized since the case study focuses on positioning. T-Mobile was a smaller player in the telecommunications space and realized that it could not succeed simply by doing the same things as its competitors. T-Mobile identified pain points in the category, realized that the key competitors were not improving on them, and used the resolution of these pain points as the basis for its unique selling proposition. While other carriers’ position themselves on price, coverage, and plan types, T-Mobile has taken a different approach through its “uncarrier” positioning—being everything they are not.

Objectives and commitment: Competitor’s objectives were not addressed. Given TMobile’s growth, it could be deduced that the big carriers may attempt new strategies to respond.

Current and past strategies: AT&T, Verizon, and Sprint have all been communicating “best coverage” and employing competitor bashing in their communications. TMobile has not included that in its communication strategy and it has worked.

Organization and culture: Given the size of the other three competitors, it might be difficult for them to be disruptive in the same way T-Mobile has. The case doesn’t cover this, but it would help to understand what drives these other carriers (e.g., costdriven, consumer-driven, etc.).

Cost structure: Competitors put caps on data to maximize revenues. Additional data is an additional cost to the consumer. Getting out of a contract is another cost.

Telecommunication companies are notorious for the fees associated with small changes to a plan. T-Mobile no longer follows this trend. Discuss possible implications of T-Mobile’s different cost structure. For example, does it make forecasting revenue more difficult? Is T-Mobile capturing enough new customers to compensate for how easy it allows current customers to leave?

Exit barriers: An investigation into the companies’ investment in equipment, people, and fixed costs could elucidate how significant the exit barriers are.

Strength and weaknesses: The other carriers have strengths in customer base (size) and they might have an edge in industry knowledge and technology. T-Mobile’s strengths lie in its marketing abilities and innovation. It has proven to be agile in its ability to respond to consumer needs.

2. How can T-Mobile maintain its competitive advantage?

T-Mobile can maintain its competitive advantage by remaining consumer-focused, agile, and innovative in its communications and overall marketing strategy. The company was open to embracing a radical message and it worked. If other carriers follow T-Mobile’s lead in removing data limits and contracts, T-Mobile should look for other ways to differentiate based on consumer pain points that are aligned with its brand. If the company continues to focus on its target consumer and tries to satisfy meaningful consumer needs, it can continue to grow.

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Xiaomi-Less is More 1. What assets and competencies are central to Xiaomi’s success as a challenger?

Xiaomi identified and addressed white space and unmet needs in the mobile phone industry. Its key competencies are the ability to sell high-end smartphones at a good price, strong customer engagement activities (day-long festivals, gifts for VIP customers), and word-of-mouth promotions. These competencies are a result of its assets such as its directto-consumer distribution model, austere design, efficient manufacturing, and a willingness to accept low margins. These assets and competencies work together in a symbiotic way.

For example, Xiaomi can sell its phones at a low cost since it has eliminated costs in areas that its competitors invest significantly in, such as paid media and retail stores. Also, Xiaomi’s successful word-of-mouth promotion from its strong loyal consumer base is a result of its customer engagement activities.

2. What is Xiaomi’s greatest vulnerability that could be exploited by global incumbents or local niche players?

Xiaomi’s greatest vulnerability is its low price. Price can be easily imitated by competitors such as Apple, Samsung, or small niche players simply by designing cheaper phones, accepting low margins, and/or cutting costs. While Xiaomi has strong competencies and assets, it is mostly known for its low cost. The company should strive to add to its brand persona in ways that are more aligned with its unique competencies and assets and that are more difficult for competitors to imitate—such as connecting low-cost to customer benefits, such as Walmart’s “Save Money. Live Better.”

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CHAPTER INSTRUCTOR NOTES Chapter 4 – Market/Submarket Analysis CONTENT OF CHAPTER 4 1. All markets are dynamic is a theme of the book introduced in Chapter 1. The key to coping with dynamic markets is to detect (or drive) emerging submarkets. The relevance concept and the seven ways submarkets emerge are described on pages 61-62.

2. Markets and submarkets can be evaluated in terms of seven criteria shown in Figure 4.1.

The most important dimension to communicate to the class is the profitability dimension and the use of Porter’s five factor model. The average profitability of those participating in the market is based on the number of competitors, substitute products, potential entrants, power of suppliers, and power of customers.

3. A market or submarket needs to be forecasted. This involves identifying driving forces, forecasting inflection points (from growth to maturity), and distinguishing fads from trends.

4. Key success factors (KSF) are the assets and competences necessary to compete successfully. It is important to understand the current and emerging KSF in an industry.

5. There are risks in high growth markets. There is competitive risk (overcrowding, superior offering), market changes, and firm limitations.

Porter’s Five Factor Model Apply Porter’s five factor model to an industry context. Or you could apply it to two contexts to get a point of comparison. Possibilities are snack foods, consumer banking, golf equipment, laptops, etc. As you go through each dimension, it will become clear that the evaluation is not always so simple. A ski resort like Bear Valley (in the Central Sierra Mountains in California), for example, might be the only resort nearby. So in one sense there is no competition, but there are a dozen major alternatives within a two hour drive. In snack foods, there are many small competitors and the giant Frito-Lay that dominates the industry. How many small competitors must Frito-Lay analyze? The point is that the scope of the analysis is an important consideration.

Forecasting Demand What is the future of nutrient-dense foods? Is it a fad? What are the drivers of future growth? What are the uncertainties? Forecasting sounds simple but it gets messy; practice with the forecasting is helpful and humbling. The discussion could also get into questions

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such as “What is a fad?” and “How do you detect a fad from a trend?” What types of data would you use if you were trying to understand a new trend for how people, for example, prepare food at home?

High Growth Markets To provide background you could talk about bubbles. The dot-com was only the latest of a long string. There was the Holland tulip bubble, the railroad bubble, the airline bubble, etc. and most recently the real estate bubble. They all shared the same characteristics—there was a true innovation or idea that clearly was going to create a strong growth trajectory, there was excitement (greed) about getting in on the action, there were enormous early financial returns, and there was no connection to economic reality.

After this background, we ask why reasonable people would bid up the stock of such companies. Keep asking why. Ask what are the risks of a high-growth market (this should be a review of the eight risks examined in the chapter—see Figure 4.5). Ask the class to identity a high growth market. Ask what is trendy in retailing or fashion or cars (Scion was once trendy). Then ask the class to appraise that high growth market. What is the greatest risk? What is the next most significant risk?

Detecting Market Maturity Point out that “buyer sophistication” does not suggest that the buyers are more “sophisticated” than the early adopters, but rather there now is a wealth of available information about the products. Because the product has been available for a long time, the potential laggard customer has full information about the product.

END OF CHAPTER DISCUSSION QUESTIONS 1. What are the emerging submarkets in the fast food industry? What are the alternative responses available to McDonald’s, assuming that it wants to stay relevant to customers interested in healthier eating?

To set the stage, ask the class what comes to mind when you mention the name “McDonald’s.” Typical responses will be around fast food, quick service, non-healthy food, etc. The discussion about alternatives will need to keep the brand associations in mind. Healthy eating is a key trend as represented by Subway, Fresh Choice, and Sweet Tomato.

So McDonald’s could:

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• • • • •

Change the offering. For example, French fries with less “bad” fat. Taco Bell has done this with its “fresco” style—it has omitted or replaced additives that contain substantial amounts of fat. At best, this is a defensive strategy.

Create a branded offering like Wendy’s Sensational Salads. This needs to be a real 'home-run' to make a difference, which is especially difficult given the credibility problem.

Co-brand in order to get credibility. For example, create a McDonald’s salad with Newman’s Own salad dressing.

Start a new concept with a new name. For example, McDonald’s owns Baja Fresh.

Do nothing. There are enough people loyal to high fat, fried foods who will support the business.

2. Identify markets in which actual sales growth was less than expected. Why was that the case? What would you say was the most important reason why the bottom fell out of the dot-com boom? Why did all the B2B sites emerge and why did they collapse so suddenly?

Sales are often weaker than expected when companies fail to hit the customer’s sweet spot, charge a too high price, or fail to distribute the product or service effectively to reach customers. It may be interesting to look at products such as Google Glass or the Apple Watch and analyze what happened. A similar discussion could be about a political candidate or new attraction such as China’s Wanda theme parks which underperform relative to expectations.

Looking at the dot-com craze, many markets failed because customers did not benefit from the offering, companies overpromised, or there was too little consideration given to creating a business model that could support the business.

3. Why were some brands, such as Google, able to fight off competitors in high-growth markets and others were not?

Google had a single-minded focus on creating a great search engine that was presented in a simple, clean manner. Others viewed the search engine as a vehicle to provide a menu of items including access to media (e.g., Yahoo’s search engine). As a result, the Google search engine was simply a better fit to consumers’ needs. Google then created a host of advertising vehicles around the search engine all based on paying for clicks and competitors fell even further behind.

4. Pick a company or brand/business on which to focus. What are the emerging submarkets? What are the trends? What are the strategic implications of the submarkets and trends for the major players?

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An example could be healthy fast food. The trends are towards low fat, low carbohydrates, and fresh vegetables. The major players need to adapt or risk becoming irrelevant. Another example could be automobiles. There is a trend towards hybrids, four-wheel drive, and roadsters. General Motors needs to be a participant in hybrids and provide an alternative to Toyota’s line. General Motors needs to provide four-wheel drive cars and roadsters that have a point of differentiation.

5. What considerations go into forecasting when dark chocolate will peak?

Here are some ideas for this analysis: • Degree to which medical evidence continues to support health benefits of dark chocolate.

• Preference for bitter-tasting foods.

• Degree to which dark chocolate is used in snacks, drinks, and desserts—thereby furthering its acceptance and popularity.

• Number of chefs and popular cooking shoes that adopt dark chocolate as an ingredient in their dishes.

• Number of competing health food crazes that brought into the public imagination.

BEST PRACTICE DISCUSSION QUESTIONS BeMyGuest: Experience Economy in Asia 1. BeMyGuest is developing a two-sided market by facilitating the development of service providers and customers. What strategies have been most effective on each side of the market?

BeMyGuest has gained favor among service providers by offering a number of different platforms on which to advertise tours. Such variation is attractive to companies because it allows them to choose what type of outreach work best rather than being forced into a “one size fits all” marketing model. BeMyGuest also helps seamlessly manage multichannel content, which some providers—depending on their size—might not have enough budget or resources to do. With customers, BeMyGuest has focused on optimizing the user experience of searching for a travel experience online. By incorporating customer-centric features such as an option to browse based on personality type and a tool that compares service providers, BeMyGuest has been able to win travelers’ share of mind and wallet.

2. Are there any potential conflicts or additional sources of strategic opportunity between the two submarkets BeMyGuest targets? How should it manage these?

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BeMyGuest’s success has come from offering both tour providers and travelers a unique value proposition—as the two sides of the market make it function effectively.

Therefore, problems could arise if one submarket perceives that it is no longer benefiting. For instance, crowding the website with travel experiences in an effort to publicize a greater number of tour companies would likely alienate a customer base that prefers a clean, easy-to-use interface. BeMyGuest can prevent this conflict by ensuring it continues to balance the services and technology each submarket most desires, while focusing on those actions that both groups value. In terms of strategic opportunity, BeMyGuest should think about how to create stronger connections between tour providers and travelers. One example could be to offer customers discounts on their next travel experience in exchange for referring a peer to their favorite tour provider.

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Cholula: America’s Hottest Sauce 1. Based on the information in the case and any outside resources, perform a profitability analysis of the hot sauce industry. What is Cholula’s biggest challenge?

According to Porter’s approach, a market profitability analysis would consist of looking at five factors. In the context of the hot sauce industry it would be as follows: • •

• •

•

Competition Among Existing Firms: High o Cholula has 10% market share in the U.S. hot sauce category, but faces fierce competition from Tabasco, Thai Sriracha, and Korean Gochujang.

Threat of Potential Entrants: Medium o With the hot sauce industry’s explosive growth, the number of companies looking to enter the category is rapidly increasing. However, two major barriers to entry are distribution and production scalability.

Threat of Substitutes: Medium o Other condiments that could be substituted in for hot sauce could be brown sauces, mustard sauces, tomato ketchup and soy-based sauces.

Bargaining Power of Customers: Mixed o Consumers of hot sauce: Millennials, in particular, have shown an affinity for trying out different flavors of hot sauce both in the home and while eating out. This strong desire lowers consumer power. At the same time, these customers have many choices and can easily switch between brands thereby increasing their power. o Retailers carrying hot sauce: The market is not yet saturated means that Cholula and other brands have more latitude to charge a premium to distributors, who then pass those costs on to customers. Retailers do have some power given they have limited shelf space and therefore can charge companies trade allowance (slotting fees as they are called in the industry) for placement on the store shelf.

Bargaining Power of Suppliers: High o As many current brands rely on their product being imported into the United States, strong relationships with suppliers are crucial.

2. Using outside resources, offer an assessment of the size of the hot sauce market in the U.S. Be prepared to defend your method for market sizing.

• • •

Population in the United States is 320 million people.

Most prominent hot sauce users are assumed to be Millennials and Baby Boomers, who represent approximately 50% of the population, so 160 million people.

Of these customer segments, assume 25% are consumers of hot sauce, so 40 million people (check this against market shares for the category relative to all condiment users).

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• • •

Assume that each person consumes .5 of a bottle of hot sauce per month, so 6 bottles per year.

Assume that the average cost of a bottle of hot sauce is $5.

Multiply these numbers together to get a total market amount of $1.2B for hot sauce in the U.S.

References: https://www.fastcompany.com/3050328/hot-sauce-usa and http://www.cholula.com/

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CHAPTER INSTRUCTOR NOTES Chapter 5 – Environmental and Strategic Analyses CONTENT OF CHAPTER 5 1. Companies can detect relevant opportunities or threats through environmental analysis.

This analysis identifies technology, customer, political, and economic trends in the organization’s environment.

2. Impact analysis is the process of systematically assessing the impact and immediacy of strategic uncertainties in order to prioritize their responses. Impact is related to the extent that a trend or event will affect a business; the importance of the affected business to the overall firm; the number of involved businesses; and the likelihood of impact on the company. Immediacy is related to the probability that an expected trend or event will occur; the time frame of the trends or events; and the reaction time likely to be available compared to the reaction time the firm will require to implement the appropriate strategy.

3. Scenario analysis is a vehicle for exploring different assumptions about the future. This process involves creating plausible scenarios, developing appropriate strategies for each, assessing the probability of each scenario, and evaluating the resulting strategies across the scenarios. It is most effective to focus scenario analysis on two to three scenarios.

4. SWOT analysis combines an environmental assessment of opportunities and threats with an examination of the firm’s own strengths and weaknesses. This method helps to determine which opportunities the firm is well equipped to exploit, which threats it can manage, and which assets and competencies must be deployed or built to take such actions.

The Green Movement Consider the Walmart turns green insert. Ask the question—should companies be environmentally sensitive? Milton Friedman famously argued that the business of business is to be profitable and the business of government is to address society’s issues. To bring it home, ask whether Exxon should invest in money-losing efforts to build solar power. Should your neighborhood ice cream store use containers that customers dislike because they are better for the environment? This chapter suggests three motivations: First, there is practical value in organic foods, and insulation and energy conserving appliances. Second, there is a need to address global warming and everyone needs to chip in. Third, goodwill and customer relationships could be improved. Customers like to do business with firms they respect.

Another issue is how companies get credit for these environmental activities. 61% of Americans can’t even name one “green” firm. So how do you get traction? Branding products (Prius) or programs (GE’s Ecomagination) or repositioning the corporate brand (BP’s Beyond Petroleum) are possibilities. What else might work to ensure that companies get credit for their environmental investments?

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Handling Uncertainty Using Impact Analysis or Scenario Analysis Ask to identify points of uncertainty for an industry such as Whole Foods. Evaluate the immediacy and impact of these points. For those high on both dimensions, create a plan going forward for gaining information and reducing uncertainty. What actions would you take as the company’s marketing leader?

For one in that category create two or three scenarios. For each scenario, describe it in as much detail as possible and create the optimal strategy choice.

Strategic Planning with SWOT Analysis Lead students through a SWOT analysis applied to Netflix. Strengths may include a large user base, a library of exclusive and original content, a strong brand, and being independent of the traditional ad-based media model. Weaknesses may include dependence on subscription revenue, lack of channel control (i.e., over internet service or device hardware), or limited competencies in streaming and live events (e.g., sports). Opportunities may include growing global access to broadband internet, the increasing viability of HD video on mobile devices, or even the potential for autonomous vehicles to dramatically boost demand for entertainment media. Threats may include the political vulnerability of net neutrality, media piracy, or the growth of competing platforms.

Ask students to identify factors that might span more than one category. For example, Netflix’s well-established brand reputation might be seen as a strength (as a valuable brand asset) or as a possible weakness (as a set of established associations that limit future flexibility). Likewise, the rapid progress of virtual reality devices could be an opportunity for Netflix to become a leader in a new media category, or it could be a threat by supplanting traditional video.

After identifying a number of factors in each of the four categories, discuss strategic implications for Netflix. What assets can the company leverage or build to take advantage of likely opportunities or mitigate likely threats? Can Netflix eliminate any external threats by addressing its own weaknesses?

END OF CHAPTER DISCUSSION QUESTIONS 1. What did the tablet replace? What will replace (or has replaced) the tablet?

The tablet replaced portions of the laptop computer, desktop computer, e-reader and highend smart phone markets, as well as some traditional print media. More recently it has also replaced many cash registers in retail businesses and paper documents in healthcare settings. These different functions are likely to be replaced by different substitutes in the future, such as checkout-free solutions in retail, virtual reality for media, or any faster and

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cheaper technologies that serve the same customer needs. Tablets may not disappear entirely, but their uses are likely to evolve dramatically in the coming years.

2. Perform a SWOT analysis for The Coca-Cola Company in the soft drink category. What are the biggest threats and opportunities? What are Coca-Cola’s relevant strengths and weaknesses? What strategic actions are necessary for the company to thrive by 2025?

Students could be broken up into groups and each given a different part of the environment to generate opportunities and threats. These could be informally presented to the class and discussed relative to Coca-Cola’s strengths and weaknesses. A set of strategies could then be derived.

3. Develop a scenario based on the proposition that hydrogen-fueled cars will continue to improve and take 15 percent of the automotive market in a few years. Analyze it from the point of view of an energy company like Shell or a car company like Mercedes.

From the point of view of Shell, if 15% of the automobile market is going to be hydrogenfueled cars, Shell will need to discover IF and HOW they can be a player in that market.

Will new fueling infrastructure need to be developed? Can this market be profitable? Can Shell use existing stations that only need to be modified or will a whole new crop of hydrogen-specific stations need to be developed? Are service stations currently too far apart to service the target market and will more stations need to be built? The dimensions to be considered are: R&D, feasibility, profitability, competitive intensity, and opportunities for alliances. Also to be considered will be the effect on the existing oil business and the impact that it will have on their business overall and more specifically on R&D, drilling operations, marketing, processing, etc.

From the view point of Mercedes, they need to decide how much to invest in this direction. One important consideration will be the impact on its diesel business.

4. Pick a start-up you admire. What are the major trends emerging from an environmental analysis? What are the major areas of uncertainty? How would a major company in the industry handle these trends and uncertainties? How do you predict the start-up will respond?

Ask the class to select one start-up or break the class into small groups. The discussion should encompass customer trends (social, cultural, demographic, etc.) along with relevant technological, competitive, and policy or regulatory trends.

5. Focusing on the airline industry, develop a list of strategic uncertainties and possible strategic actions.

Strategic uncertainties may include the following ideas. Will the price of gasoline goes up significantly or significantly down what will the impact be on the demand for air travel?

Will terrorism or the availability of air traffic control or gasoline make air travel rationed?

What then? Will some alternative replace airline travel as we know it today

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(teleconferencing, telesales meetings, etc.)? If some unexpected tragic event should happen to dissuade customers from choosing air travel as a means of transportation, what will replace it? How will concerns about environmental footprint influence airline travel over time and across different generations?

6. Visible criticism has been leveled at the bottled water industry including the claim that their product is not better than tap water in many locals (some brands are even said to have an unpleasant aftertaste) and that the plastic bottles are carbon costly to make and are not biodegradable. What programs would you consider to combat these arguments if you were PepsiCo, the maker of Aquafina, or The Coca-Cola Company, the maker of Dasani?

Options include the following: (1) a bottle recycling program; (2) use of non-plastic bottle materials; (3) stronger distillation processes; (4) taste tests across different cities demonstrating the better taste of the water; (5) value analysis to show the customer the health benefits of water on the go; and (6) a water recovery program that might present the company in a better light.

BEST PRACTICE DISCUSSION QUESTIONS Kraft Mac and Cheese: A Stealth Marketing Approach 1. Develop a scenario in which Kraft’s strategy might have backfired. How might Kraft have prepared for this possibility?

One scenario in which Kraft’s strategy might have backfired is uncertainty around the cost of the ingredients. If the costs of the new more natural ingredients were higher, Kraft might have had to increase its price to the end consumer. If this happened, consumers might have noticed the price increase and complained to Kraft for changing the price for a product where consumers had specific expectations (product, quality, and price). The change in something that has been constant might consumers them to notice something different about the taste. This would have called attention to the change to natural ingredients and Kraft’s plan might have backfired.

Another scenario where its strategy might have backfired has to do with the root of the strategy itself. Consumers care increasingly about the ingredients in the foods they consume. Given this concern, consumers are more likely today than ever to look at ingredient and nutrition labels. If consumers noticed the reformulated ingredients, they might feel tricked or betrayed by a brand that they trust. They might sound off on social media, spreading the word of the new change which might negatively affect Kraft’s image. Kraft could have prepared for this possibility by having a claim or call out on the package saying “new ingredients, same great taste” so that consumers don’t feel completely blind-sided by the change. Making no mention at all of the change was a risky move that paid off for Kraft, but it could just as easily have backfired.

2. How should Kraft respond to the demographic trends examined in the chapter?

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Kraft could respond to the demographic trends examined in the chapter by addressing these groups and understanding their differences. It would be valuable for Kraft to understand how the attitudes and behaviors of Latinos or Baby Boomers, for example, are different and/or similar from its target consumer. Kraft should address these groups due to their growth potential and understand their behaviors and attitudes. If market research shows that Kraft Macaroni and Cheese appeals to at least a subgroup of this demographic group, it might consider marketing programs that speak specifically to this group in a way that resonate with them. Additionally, if it finds that when it comes to Kraft Macaroni and Cheese these groups have similar attitudes as its current target, it might not need to alter its communication to them as its current strategy will work.

How Airbnb Managed Uncertainty in the Sharing Economy 1. Should Airbnb replicate its Paris strategy in other major European markets? Why and why not?

Airbnb’s entry into Paris appears successful and serves as a good model for deeper expansion into other European markets. The basic approach of establishing good relationships with government regulators, emphasizing the positive economic impact Airbnb listings will bring to the city, listening to local concerns, and making sensible compromises should be replicated across markets.

However, Airbnb must recognize that other markets likely will have different government regulations and therefore expect variations in tactics and results. It should examine the demographics, culture, business climate, government policies, economic trends, as well as any other external forces before deciding to expand into a particular city.

2. How should Airbnb prepare to manage the emerging cultural trends listed in the chapter?

How should Brazil’s cultural values influence its strategy in this country?

Some of the emerging cultural trends that fit well with Airbnb’s mission are transparency and simplification. Airbnb should manage these trends by showing how its service aligns with these trends, perhaps highlighting the transparent nature of an Airbnb transaction or how booking an Airbnb is simpler than a hotel reservation.

Given that countries can vary on six dimensions, Airbnb should look at how Brazil varies in those dimensions from other countries where Airbnb already operates. For example, Brazil is high on power distance and uncertainty avoidance, but low on individualism.

Factors such as these must be taken into account when creating marketing communications. Given the country’s level of discomfort with ambiguity, the communication should be very informative so that consumers know exactly what they are getting, perhaps describing it as “the Uber for homes” or another product/service that most consumers are familiar with. Because Brazil is more of a collective than an individual society, Airbnb could show a group of friends enjoying a vacation together and emphasize testimonies since potential customers will trust the opinions of others in their cohort.

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CHAPTER INSTRUCTOR NOTES Chapter 6 – Creating Advantage: Customer Value Leadership CONTENT OF CHAPTER 6 1. Three main types of customer value are discussed. Performance value is having the best product or service offering. Price value is having the lowest price over the life cycle of the product. Relational value is being able to offer a customized offering or solution.

2. Strategies for specifying a value proposition are outlined. To achieve customer value leadership, companies should strive to excel at one type of value (performance, price, or relational) and at parity for the other two.

3. Companies should not try to be all things to all customers, and instead should focus on a clear and specific value proposition. The business model, or how the firm creates and captures value from the target segment, should be aligned to meet this value proposition.

4. A company can create synergies by leveraging its assets for multiple uses and by aligning its business model elements.

Types of Customer Value Ask students to identify some gyms or fitness companies (e.g., Crossfit, Planet Fitness, or Equinox). For each example, generate a list of positive and negative features. What are the strengths and weaknesses of these different brands?

Categorize the positive and negative features according to their alignment with the three types of customer value. Which ones provide (or undermine) performance value? Price value?

Relational value?

Specifying a Customer Value Proposition Choose a market leader from the fitness industry examples in your discussion of customer value. Overall, which type of customer value is this brand strongest in? Which is weakest?

Select one of the types of customer value that are not the main strength of the market leader you’re discussing. Is there another example in this industry that really excels on this dimension? How does this new example perform at the other two types of customer value?

Discuss the idea of companies achieving customer value leadership through different areas of focus. If examples of all three areas of focus haven’t come up, ask students to describe how a company could hypothetically target the missing area(s).

From the examples that have come up so far, does any excel in all three areas? The answer should be no—a company cannot be all things to all customers. Are there two examples that

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appear to offer the same customer value proposition? Discuss whether such overlap seems potentially limiting or problematic in this context.

Aligning the Business Model with a Customer Value Proposition Ask students what value proposition they would focus on if they were to enter the fitness market. Discuss how they would translate this value proposition to a business model. What would their business model look like, and what segment would they target? Discuss how business model elements can be designed to create and capture value for the target segment, and how those different elements align with one another.

END OF CHAPTER DISCUSSION QUESTIONS 1. Compare and contrast how your local grocery would position the pre-made meals area of its stores if it were trying to excel on performance, price, or relational value. What value proposition do you recommend as the path to sustainable competitive advantage?

Performance: emphasize quality, taste, convenience, nutrition, or other functional attributes. Aim for parity with competitors on customization and price.

Price: emphasize low price. Aim for parity with competitors on customization and on functional attributes (quality, taste, etc.).

Relational: emphasize personal touch, customization, and service. Aim for parity with competitors on functional attributes (quality, taste, etc.) and pricing.

2. Home Depot has decided that it wants to adopt a relational value proposition. What business model should Home Depot adopt to support this strategy? Include in your answer a discussion of whether a CRM or Comprehensive Solution Management System would be more appropriate.

Recommendations should reflect an emphasis on relational value, including customized offerings for different customers. Home Depot would probably need to focus on its homeowner customers rather than professional contractors, as the latter would be more strongly driven by performance and price. This value proposition might involve a greater emphasis on service-oriented offerings to help customers all the way through their projects, rather than acting primarily as a retailer for tools and supplies. A CRM system would be appropriate for this type of business model.

3. Discuss one company that you think is compromising its strategic success by focusing on too many different customers. What changes do you recommend?

Discussion should touch on the idea that a company cannot be all things to all customers.

Changes should center around aligning the company with one of the three value propositions and maintaining parity on the others.

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4. What are the value creation and value capture mechanisms that Amazon uses in its business model? How consistent are these with its value proposition?

Amazon creates value in its core business line by connecting customers with products, both as a retailer and as a two-sided platform. It captures this value through on-site advertisements, markups or fees on the products it carries, and yearly Amazon Prime subscriptions. These mechanisms are all consistent with its value proposition, which primarily focuses on price (although there is room for discussion on this point).

5. What synergies can LinkedIn exploit? Discuss several opportunities that exist for the company now and as it might grow. Consider how synergies with Microsoft, its parent, affect your choices.

The main source of synergies LinkedIn and Microsoft can exploit is the social network’s base of users (and their associated data). They can charge recruiters and firms for access to the user base and related premium services, charge advertisers and media companies to reach the user base, use data from the social network for developing other Microsoft offerings such as analytics and artificial intelligence, and sell Microsoft products and services to LinkedIn customers.

6. What company is threatened by morphing product boundaries? What strategies should it take to protect its value in the marketplace?

Many examples may come up, but they should all involve competition arising from unexpected places, reflecting the “fuzziness” of market boundaries today. As suggested in the chapter, examples are particularly numerous in the areas of computing, telecommunications, and entertainment. Other common examples are travel (as telecommunications competes for business travelers), restaurants (as services like Blue Apron compete for diners), and transportation (as ridesharing services decrease the need for car ownership).

BEST PRACTICE DISCUSSION QUESTIONS CVS: In the Healthcare Business 1. What type of value does CVS Health offer to the market? Was it necessary to ban tobacco from its stores to make this strategic move?

CVS Health has many core values such as concern for customers, good service, social responsibility, and innovation. It shows concern for customers through its mission of helping people live healthier lives. It has service-oriented offerings like its MinuteClinics and Telehealth Pilot programs.

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Removing tobacco products is a socially responsible move that aligns with CVS Health’s brand positioning and trends within the healthcare industry. CVS Health did not want its brand to be purely functional (a retail store), but rather to be a brand with psychographic associations (cares about me). By making the move, it was further clarifying the meaning of the brand and the associations. These strong associations can positively affect CVS Health’s performance and, in turn, long-term profit. In this sense, banning tobacco was necessary.

2. What strategic synergies should CVS Health exploit to improve its effectiveness in this market?

CVS Health should exploit synergies through its partnership with IBM, the tech giant known for cutting edge technological innovation. To maintain its competitive advantage, CVS Health should continue to improve its app and Telehealth Pilot as well as look for additional ways to use technology to make it easier for customers to use CVS Health as the supplier of their healthcare needs.

Additional strategic synergies should focus on ways for CVS Health to keep current with (or ahead of) its customers’ increasing interest in health and wellness. For example, a partnership with WebMD could lead to relevant health news and tips being sent to customers based upon their prescription histories. Alliances with supplement makers, organic food producers, and even high-end food preparation equipment makers (e.g., blenders, steamers, food storage) could use CVS Health’s nationwide stores as sites for education, demonstrations, and of course, sales. Individual stores could donate use of their parking lots to local groups for periodic demonstrations of various health techniques, including first aid strategies, etc. The goal is to further position CVS Health as more than a retail store and increase the ways consumers associate CVS Health with health and wellness.

Tetra Pak 1. Discuss how Tetra Pak aligned its value proposition and business model for competitive advantage.

Tetra Pak created competitive advantage by emphasizing its value proposition of food safety and adjusting its business model to fit the markets it serves. In the case mentioned in the chapter, Tetra Pak could have chosen not to enter the underdeveloped Bangladesh milk market. Instead, it chose to strengthen the entire milk industry value chain, study and overcome barriers to consumers’ adoption of sterilized milk, and to make changes to its product that fit the needs of the people of Bangladesh. The new business model increased the efficiency, quantity, and safety of milk production and distribution and educated the public about the benefits of Tetra Pak’s sterilized milk products.

2. If Tetra Pak were to become a relational value leader (like Redpath Sugar in the Chapter), how would its strategy change?

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Tetra Pak is already somewhat of a relational leader—it anticipates problems it can solve for customers. The scope of its business model is broad and it covers food preparation, distribution, packaging solutions. In order to become more of a relational value leader, Tetra Pak might solicit its customers for their input on the product and what they like and dislike about it. From that feedback, it might provide various offerings for different customers so the customer perceive a greater commitment to the relationship. Tetra Pak could also customize services that meet the needs of customers in different industries.

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CHAPTER INSTRUCTOR NOTES Chapter 7 – Building and Managing Customer Relationships CONTENT OF CHAPTER 7 1. The modified Customer Decision Journey is discussed. This model accounts for the complex, non-linear process that customers go through as they are triggered to make a purchase, gather information, form a consideration set, develop preferences, make a purchase, and evaluate their choice post-purchase.

2. Customer experience is discussed as a multi-dimensional concept that captures a customer’s experience with all aspects of the firm.

3. Long-term customer relationships and loyalty are discussed, including both behavioral loyalty and attitudinal loyalty.

4. Ways to build attitudinal loyalty and defend a customer relationship are discussed, including differentiating value, rebuffing competitor challenges, raising customer switching costs, increasing investments in customers, fostering customer co-creation, resolving the need for variety, refreshing the relationship, making multiple relationships, and granting exclusivity.

The Non-Linear Customer Decision Journey Ask students to think about the decision journey for going to a restaurant for dinner. It may be helpful to start with the first and last steps, then fill in between the two. You can limit the discussion to steps up until the bill is paid for now (setting aside post-purchase events). Make sure your list includes the initial trigger to make a purchase, information gathering, consideration set formation, preference development, and the purchase itself.

Looking at the steps you’ve outlined, ask students to identify some ways in which a customer might move backward during this journey. Examples might include new options entering the consideration set during one of the subsequent steps or any event that leads a customer that has already formed their preference to return to the consideration set rather than executing the purchase (e.g., new information, business closures, and other constraints).

Mapping the Post-Purchase Journey Building on your discussion of the restaurant customer decision journey, ask students to generate additional steps in the post-purchase phase of the journey. What can happen after a customer pays their bill that the restaurant might care about? Common examples might include aspects of the broader consumption experience (e.g., exiting the restaurant, driving home), advocacy behaviors (e.g., word-of-mouth, online reviews, social media posts, or complaining), or outside information (e.g., positive or negative comments from dining companions).

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How might a restaurant owner manage these latter steps in the journey? Discuss both the mitigation of post-purchase events that might harm the overall experience and the promotion of those that might enhance the overall experience.

Understanding and Managing Customer Loyalty Discuss the distinction between behavioral loyalty and attitudinal loyalty. Ask students to provide examples (in general or personally) of both types of loyalty. Can they identify any examples with one type of loyalty but not the other? Focus on examples of behavioral loyalty without attitudinal loyalty. Behavioral loyalty might be driven by habit, convenience, or promotional pricing, but not be linked to underlying attitudes.

Ask students to discuss the differential benefits of behavioral versus attitudinal loyalty. For example, behavioral loyalty is directly tied to revenues, churn, and customer lifetime value.

Attitudinal loyalty is more closely related to other outcomes like WOM and brand value.

Ask students to think about how tactics for building loyalty or defending customer relationships might differentially affect the two types of loyalty. Which approaches address short-term threats or focus on behavioral loyalty, and which ones provide long-term benefits or foster attitudinal loyalty?

END OF CHAPTER DISCUSSION QUESTIONS 1. Trace the Customer Decision Journey for a customer buying a new mobile phone.

Answers will vary, but should begin as early in the process as possible and extend past purchase into consumption. Be as thorough as possible in identifying touch points throughout the process, including those where the mobile phone company is not directly involved (e.g., seeing an advertisement, seeing a friend with the same phone, reading reviews online). The journey should be defined from the consumer’s standpoint, not the firm’s.

2. Analyze how social media could influence each stage of the Customer Decision Journey for a customer deciding where to go on vacation.

A post on social media could trigger the beginning of the journey. Information could be gathered (actively or incidentally) from social media in the information gathering stage or while refining the consideration set and making a purchase choice. In the post-purchase phase, the customer is likely to share aspects of the vacation on social media, and input from others on social media can also influence post-purchase evaluations.

3. Walgreens is trying to better understand its customer experience from the perspective of its elderly customers. What can it do in order to achieve this goal?

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Walgreens should map each touchpoint in the customer experience using a method like service blueprinting, taking particular care to recognize aspects of the customer experience that the company may not directly control. Technology-based approaches like RET are unlikely to work well with this customer population.

4. You have been tasked with assessing the current customer experience at a big-box store. Which tool(s) would you use to do this and why?

Responses will vary, but one option is to use the SERVQUAL tool.

5. Identify two ways a grocery store’s relationship with behaviorally loyal customers could be at risk. How could the store reduce this risk by strengthening attitudinal loyalty?

Behaviorally loyal grocery customers might be at risk if their loyalty is based solely on convenience (in which case they might leave for a new competitor store nearby) or on price (in which case they might leave when a price promotion ends or when a competitor has a price promotion instead). By strengthening attitudinal loyalty, the store could create a deeper trust and commitment that is less vulnerable to competitor switching.

6. Discuss three ways Netflix might defend its current customer relationships against new entrants.

Responses will vary, but examples could include differentiating value, raising customer switching costs, increasing investments in customers, fostering customer co-creation, resolving the need for variety, or making multiple relationships.

BEST PRACTICE DISCUSSION QUESTIONS Panera 2.0 1. How does Panera 2.0 influence the customer experience?

Introduced in 2014, Panera 2.0 brings together technologies in digital ordering and payment that improve the customer experience. Panera has created an integrated comprehensive, end to end solution for customers by removing or reducing pain points (long lines, wait time, inaccurate order taking) and improving service (letting customer order from their tables).

2. What part of the customer journey does Panera 2.0 influence and with what effect?

The customer journey can be thought of as pre purchase, purchase, and post purchase. The area that Panera 2.0 influences the most is the purchase phase. Panera basically separated the experience for eat-in guests and take-out orders. The Rapid Pick-Up lets customers place online orders up to five days in advance with pre-determined pick up times with no wait. In the

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restaurants, using Fast Lane order kiosks and allowing mobile orders from tables reduces wait times for all customers. The Wall Street Journal reported in June 2017 that Panera 2.0 restaurants have reduced average wait time from eight minutes to one. Digital sales now provide nearly one-quarter of total sales at Panera 2.0 restaurants.

Panera 2.0 also offers personalization of the entire Panera experience. At the kiosks, the web, or the app, guests can save customizations and favorites to make ordering even easier the next time. Credit card information can be stored for instant payment. The positive purchase experience results in increased loyalty. Stores with Panera 2.0 have reported significantly higher same-store sales.

3. Is Panera 2.0 defensible source of competitive advantage? Why and why not?

Panera 2.0 takes a holistic approach at improving the customer experience. If it monitors Panera 2.0 as a whole rather than the individual parts, it can be defensible. Panera has employed many common tactics to maintain a competitive advantage such as differentiating value (free Wi-Fi, healthy ingredients, welcoming atmosphere), raising switching costs (app and loyalty program), increased investments in its customers (improved service, kiosks, app), refreshing the relationship (new customer touch points), customer co-creation (ability to customize and save menu items), and exclusivity (loyalty program). Panera’s ability to cover multiple areas sets it up for success.

The reason this might not be a defensible source of competitive advantage is that any restaurant can make a loyalty program, install kiosks, and create an app to imitate what Panera is doing.

In order to improve its competitive advantage Panera should continue with tactical improvements, but also include more emotional improvements that are less imitable. Offering “secret, one of a kind recipes” that can only be found at Panera is one idea.

How Electricity Wizard Manages its Funnel 1. How will Electricity Wizard’s strategies affect its bottom-line?

Electricity Wizard successfully identified where it was losing prospects in the funnel.

Improving its digital ads attracted better prospects to its website. Diagnosing when customers’ preferred to call for more information led to better staffing decisions and fewer dropped calls.

By addressing these problems Electricity Wizard has maintained more customers through the funnel by converting them from consideration to preference and ultimately purchase.

2. Assume the next stage in the sales process is to perform a follow-up call to those customers that have made an initial inquiry. Describe one step that Electricity Wizard could take to use information from the customer inquiry call to manage this follow-up call.

One step Electricity Wizard can take is analyze the inquiry calls to determine how serious prospects are about purchasing, then segment customers based on that level. Part of that

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process involves collecting specific information during the inquiry call (budget, specific current problems to be solved, schedule, whether a home owner or renter, etc.). Knowing where a customer is in the information gathering process will impact the type of follow up call used by Electricity Wizard’s customer service agents. The agents should have scripts for different scenarios that match the type of prospect they are dealing with. Potential customers will receive a more personalized and efficient follow up call that is more likely to lead to purchase.

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CHAPTER INSTRUCTOR NOTES Chapter 8 – Creating Valuable Customers CONTENT OF CHAPTER 8 1. Customers are valuable assets that should be actively managed to enhance profitability. Star customers both bring high value to and derive high value from the firm.

2. The purchase funnel is introduced as a tool to help managers sort customers into different stages in the purchase process and monitor their success at moving customers through that process. This approach helps firms to see when in the process they are losing customers, which can be used to improve customer progress.

3. Tools for addressing common funnel management problems are discussed.

Coordination between marketing and sales is important to address problems stemming from poor quality leads. Aligning funnel steps with observable customer actions is important to address problems stemming from slow movement of fine grained data.

4. Customer Lifetime Value (CLV) is introduced as an approach for calculating the long-term value of individual customers or segments of customers. Skillful use of CLV can guide customer management, predict and mitigate churn, account for and facilitate customer transitions, and lower acquisition costs.

5. Prospect Lifetime Value (PLV) is introduced as an adaptation of CLV to identify the potential value of future customers. Firms can use PLV to determine how much to invest in acquiring new customers by segment, as well as which new customers to prioritize when allocating firm resources.

Focusing on Customers that Value the Company and Create Company Value Ask students to think about Starbucks’ customers according to the value they derive from Starbucks and the value they bring to the company. Frame this in a simple twoby-two matrix where you have high/low customer value and high/low company value.

Encourage students to generate an example or describe a hypothetical customer who would fall in each of the four quadrants of this matrix.

Discuss the characteristics of each of the four categories. What are the drawbacks of having customers that bring high value but derive relatively little value from Starbucks? What are some possible benefits of having customers that derive high value from Starbucks but (seemingly) bring relatively little value? Ask students to describe possible actions Starbucks might take that would move customers from one quadrant to another (for better or for worse).

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Managing the Funnel Ask students to lay out the purchase funnel for customers of Tesla Motors. Identify the key transitions in this funnel, and push students to define each stage in the funnel using observable customer actions or metrics that Tesla can plausibly track.

Using the funnel you’ve laid out, ask students to generate examples of how customers in each stage might stop, move backward, or be lost altogether.

The Lifetime Value of Customers and Prospects Discuss the concept of Customer Lifetime Value (CLV). Highlight how taking a lifetime approach to customer relationships suggests very different marketing tactics compared to a transactional approach. Ask students to identify common marketing or sales tactics that are ineffective from a lifetime value perspective. Likewise, are there some marketer behaviors that appear to lose money in the short term but could be worthwhile from a lifetime perspective? Discuss the role of churn in CLV and the impact of both extending average lifetimes and avoiding acquisition costs.

Ask students to list some categories where repeated, frequent purchases are common (e.g., groceries, restaurants, or clothing) and categories where they are uncommon (e.g., cars, houses, funerals). In which context will a CLV approach be most valuable (and a single-purchase mindset most limiting)? Where are marketers most likely to “get away” with ignoring CLV? Discuss implications for marketer incentives, relationships, and consumer wellbeing.

Ask students how they would go about evaluating a major advertising buy. Discuss the concept of Prospect Lifetime Value (PLV) and the impact of acquisition rates.

Building on this discussion, ask about segmenting and targeted advertising. Would a more targeted campaign be a better or worse investment? How would targeting a smaller segment likely affect the components of PLV? The discussion should touch on the ideas that more targeted investments are likely to correspond to higher acquisition rates, higher costs per prospect, and possible differences in churn or retention across segments.

END OF CHAPTER DISCUSSION QUESTIONS 1. Create a purchase funnel for an organic farm that wants to sell its produce to local restaurants. What metrics do you recommend it use?

Students should first identify who the customer is—whether the retailer or the end customer. Students should also consider whether the search and purchase process is occurring offline or online. Even if purchased offline, customers may search for information about the company and its products and services online. Following

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this, the funnel can be built with attention to capturing measurable actions that reflect different stages of the customer journey. It is important that the funnel stages build on one another and flow in a logical order, and that the funnel extends all the way from initial awareness to post-purchase and repurchase behavior. In this B2B context, it may also make sense to treat an initial purchase as a step toward a longer-term contract or a subsequent purchase of more of the farm’s products. Metrics should offer a valid indicator of what is happening at that stage of the purchase process. The chapter offers a number of metrics that might be useful at each stage of the funnel.

2. Perform a loyalty analysis of the automobile industry and the snack food industry.

Rate key firms on attitudinal and behavioral loyalty. Take one firm in each industry and offer one suggestion for improving customer loyalty.

Examples and ratings may differ. Responses should generally show that customers often have strong attitudinal loyalty regarding automobiles (a rare, deliberate, high-involvement purchase) but more visible behavioral loyalty to snack foods (a frequent, impulsive, low-involvement purchase).

Suggestions for improvement could emphasize attitudinal loyalty in the case of automobiles, since this would enhance goodwill and word-of-mouth even though a given customer is unlikely to purchase (or repurchase) in the near future.

Attitudes are also important to purchase behavior in this category because of the impact and identity relevance of the product. For snacks, suggestions could emphasize behavioral loyalty because WOM is less common and immediate changes in purchase behavior are more easily achieved.

3. Using the AudioReader data, estimate its CLV when customer retention increases from 60% to 70% and 80%. In each of these scenarios, assess the value of increasing margin by 10% to $110 or 20% to $121.

Retention 70%, Margin $100: CLV = 100 x (70% / (1 + 10% - 70%)) = $175 Retention 70%, Margin $110: CLV = 110 x (70% / (1 + 10% - 70%)) = $192.50 Retention 70%, Margin $121: CLV = 121 x (70% / (1 + 10% - 70%)) = $211.75 Retention 80%, Margin $100: CLV = 100 x (80% / (1 + 10% - 80%)) = $266.67 Retention 80%, Margin $110: CLV = 110 x (80% / (1 + 10% - 80%)) = $293.33 Retention 80%, Margin $121: CLV = 121 x (80% / (1 + 10% - 80%)) = $322.67 4. Considering AudioReader’s offering and target market, have a discussion about the company’s most effective use of customer lifetime value tools? What would you measure and how would you use it to improve the company’s performance over the long-run.

The most effective lever for AudioReader to enhance its CLV is through reducing churn (increasing retention). To do this, the company should examine whatever

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behavioral data it has available (frequency and recency of purchases, value of purchases, service calls, online engagement, referrals, etc.) to identify factors that strongly predict churn. The company can then intervene wherever is most effective to improve customer retention and thus CLV. 5. Imagine AudioReader’s retention rate increases from 60% to 80%. What is its new PLV? How much should AudioReader now be willing to spend to acquire a customer? If marketing analytics show that acquisition cost influences acquisition rate with an elasticity reflecting intercept 𝛼̂ = 0.001 and slope 𝛽̂ = 0.05), what is AudioReader’s adjusted PLV? PLV with 80% retention: PLV = (.05 x 266.67) - 2 = $11.33 Maximum acquisition cost: AC = AR x CLV = .05 x 266.67 = $13.33 BEST PRACTICE DISCUSSION QUESTIONS Netflix Customer Loyalty Machine 1. What actions to you recommend Netflix take to increase its Customer Lifetime Value?

Key to Netflix’s ability to increasing Customer Lifetime Value (CLV) is to focus on strengthening customer loyalty and advocacy. Strong loyalty translates to a customer continuously repurchasing the service. Netflix currently attracts repeat customers in a number of ways, including through its low monthly subscription rate, but could consider adding in a loyalty program that offers special offers or discounts at certain subscription milestones (e.g. after three months get one month free). Advocacy is the next step, in which customers provide positive word of mouth and referrals to new prospects. Netflix could think about offering referral rewards to its existing customers, which would incentivize them to become true champions for the brand. Most important to positive referrals is to continue to provide novel and interesting content that can be the basis for consumer word-ofmouth.

2. How can Netflix improve its Prospect Lifetime Value?

To improve Prospect Lifetime Value (PLV), which is the potential value of a future customer, Netflix will want to ensure its acquisition costs and the system by which it prioritizes customer engagement is optimized. As awareness and interest are key in obtaining new customers, Netflix could bolster its marketing efforts among potential subscriber segments, tailoring messaging for each demographic based on its viewing interest. Also, by activating word of mouth among current customers, Netflix reduces its acquisition cost and boosts its acquisition rate.

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3. What is Netflix’s biggest competitive vulnerability?

Other providers of streaming content are perhaps the biggest threat to Netflix.

Amazon, for example, not only offers customers access to many of the similar TV programs and movies that Netflix does but also provide a platform on which to access it. To remain competitive, Netflix must closely monitor the unique customer features each of these services offers.

How Starbucks Rewards Reward Starbucks 1. How might Starbucks use its rewards program to attract new customers to its stores?

To attract new customers to stores, Starbucks could focus on structuring outreach efforts according to the purchase funnel. Leveraging its rewards program specifically, Starbucks could build awareness and interest for the program among targeted prospects through creative marketing initiatives. As these prospects consider Starbucks’ rewards program, Starbucks should emphasize the unique value proposition it delivers both as a whole and compared to its competitors, such as its Mobile Order and Pay feature. Once these prospects are converted to customers, Starbucks should shift its efforts to fostering long-term loyalty to and advocacy for the brand by offering special rewards-only member perks like free refills and drinks.

2. The Roasteries format carries some risks for Starbucks. Discuss these possible risks as well as the strategic benefits Starbucks expects from this move.

While the Roasteries format has been successful in Seattle, the company may not see the same level of customer interest or engagement when moving it to other cities. The Roasteries concept is designed to appeal to individuals seeking an ultra-premium coffee experience, which likely encompasses only a select portion of Starbucks’ customer base. Additionally, Starbucks may find it difficult to shift brand perception from it being a mass-market brewer to a boutique, specialized brewer. If Starbucks is thoughtful about how and where it implements the Roasteries format though, it could create an entirely new revenue stream for the company and help further diversify it within a saturated market. Investigating markets based on current consumption of high-end coffee products is a good place to start.

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CHAPTER INSTRUCTOR NOTES Chapter 9 – Building and Managing Brand Equity CONTENT OF CHAPTER 9 1. Brand equity is a key asset for any business and consists of brand awareness, brand loyalty, and brand associations.

2. Awareness provides a sense of familiarity, credibility, and relevance. Customers are more likely to consider brands that are top-of-mind.

3. A loyal customer base reduces the cost of marketing, provides an entry barrier to competitors, supports a positive image, and provides time to respond to competitor moves.

4. Brand associations can and should go beyond attributes and benefits to include dimensions such as brand personality, organizational intangibles, product category associations, etc.

5. Brand identity equals aspirational associations. The most important of these associations, the core identity, should be supported by proof points and/or strategic imperatives and should be the driver of strategic programs including product development.

6. While the brand identity represents long-term aspirational associations and is multi-dimensional, the position represents the short-term communication objectives and is more focused.

Brand Equity Ask “What are the strongest brands you can think of?” An interesting group will emerge. As each brand is identified, ask why they are strong. After about three or four brands have been discussed, a pattern will emerge. The sources of strength will cluster around awareness, loyalty, and associations. Further, the associations will cluster around attributes/benefits, organization associations (like innovative, customer concern etc.), and personality. If personality does not come up (energetic, warm, etc.) by the end of the discussion you might bring it up.

Give some examples of brands that deliver emotional benefits; self-expressive benefits; social benefits.

What are the misconceptions about brands? For example, brands simply represent the manufacturer (like the brand on a cow) or brands are the result from advertising.

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Brand Identity It will be worthwhile to drive home the key concepts of brand identity. Use questions such as: • •

“What is the difference between a core and extended identity?”

“What is the difference between a brand identity and brand position? . . . A brand essence and a tagline?”

For the five dimensions of the Virgin brand identity discussed in the book (service, quality, value, underdog, edgy personality), develop a brand essence. This will illustrate how hard it is to create such labels—something that seems so easy when a good one appears!

Why might the essence be omitted? If the core is very good the essence might get in the way. For example, an oil company had leadership, partnership, and trust as its core. This powerful core resonated throughout the organization—an essence would only add confusion.

Think of some taglines that would not be a suitable brand essence. “Just do it?”

How is a brand identity communicated?

Align Brand Identity Discussion The figures in the book show the process of creating a brand identity for a fictional company called Align. The branding object is a service company named Align that is described in the chapter as a conglomeration of about six acquired firms. Each firm continued to operate somewhat autonomously. Align was known for over-the-top service, creativity, and energy, but also arrogance, independence, and being anything but a team player. Going forward it was clear that the organization’s separate firms would have to work as a team to deliver systems solutions and would have to partner with clients to attack systems programs… a very aspirational change. The brand identity pointed the firm in the right direction, but strategic initiatives and programs would have to be developed to make it happen. So the position needed to wait until more credibility was present.

END OF CHAPTER DISCUSSION QUESTIONS 1. Explain how each of the three brand equity dimensions provide value to the firm.

Explain how they provide value to customers.

Both the value to the firm and the value to customer are covered in detail in Aaker’s book Managing Brand Equity.

Value is provided to customers by:

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• • •

Interpretation/processing of information is easier Confidence in the purchase decision Improving user satisfaction (by the emotional and self-expressive benefits)

Value to the firm is provided by: • Efficiency and effectiveness of marketing programs • Brand loyalty • Prices/margins • Brand extensions • Trade leverage • Competitive advantage More details on this topic can be found in Chapter 6 in the discussion of customer value leadership.

2. What is the difference between identity and position? Develop alternative positioning statements for Align. Include a tagline and the rationale for that tagline.

The identity is what the brand wants to stand for. The position is the aspect of the identity to be communicated in the short term. The position may change as the brand develops new associations, but the identity is more likely to stay constant.

The brand essence captures the heart of the brand and communicated internally. It can be aspirational. The tagline is to be communicated externally and should reflect the position. In generating a tagline, one point is that it is not so easy.

Another is that you have to choose between credibility and being aspirational.

Discuss when aspirational makes sense even without credibility. For one thing, it may motivate employees to make it happen.

3. Create a brand identity for Virgin Atlantic Airlines? Are their potential dimensions such as high quality and superior service that are inconsistent with its personality? If so, how is that handled? How has the identity been brought to life?

What are the proof points? Why don’t more brands emulate Virgin’s brandbuilding programs?

Virgin Atlantic Airlines is positioned as service quality, a good value for the money, being the underdog, and an edgy personality. The feisty/underdog personality supports an innovative culture that leads to over-the-top outrageous services (like massages in first class). So a personality can be spun in a way to support quality if quality is defined in the right way. The positioning is brought to life through the stunts of its chairman, Richard Branson, and by the very visible service innovations. Other brands simply do not have this DNA. They are focused on doing the ordinary better or at least at an acceptable level.

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This positioning is consistent with Virgin’s personality because its personality includes: rule breaker, fun-loving, feisty, and competent. Virgin has delivered on each facet of this personality.

The proof points for Virgin: Virgin delivers on the basics and often dazzles customers with “wow”-type experiences; Virgin’s Upper Class is priced at competitors’ business class level; Virgin presents itself as the underdog who cares (remember Avis “we try harder”), innovates (sleeper seats), and delivers an attractive, viable alternative airline experience to customers.

Most brands would have a difficult time emulating Virgin’s brand-building program, because its leader, Richard Branson, embraces all the personality traits of the airline.

Virgin Atlantic Airlines was positioned as travel can be fun and a value. It offers freebies, customer lounges, great customer service, limo service, and massages.

While these are nice amenities, it may not translate into all markets – especially those that value “cheap.”

4. Pick out three brands from a particular industry. How are they positioned? Which is the best in your view? Does that brand’s positioning provide any emotional or self-expressive benefits? How would you evaluate each brand’s positioning strategy? Hypothesize proof points and strategic imperatives for each brand.

Pick an industry like beer, hotels, or toothpaste in which the class has some familiarity. An extension to the discussion might be to ask the students to identity some very effective taglines. Discuss why they may or may not be effective.

5.

Consider the Joie de Vivre hotel concept discussed on page 168. Think of themes stimulated by magazines or movies, and discuss how you would design a hotel around each concept. For each theme, choose five words that reflect that theme.

For example, “boutique” may be reflected in the following concepts: home away from home, intimate, cozy, private, exclusive, and warmth.

Four hotel examples are discussed in the book: The Rolling Stone Hotel (Phoenix), The New Yorker (Rex) Hotel, The Commodore Hotel, and Hotel Bijou. Each has a personality/theme that can be carried through all aspects of the operation. It would be interesting to get class input on how this might influence room décor, food selection, lobby décor, and type of employee selected.

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BEST PRACTICE DISCUSSION QUESTIONS REI’s #OptOutside Brand Identity Notes: Brand identity provides the direction, purpose, and meaning for the brand. It is a set of brand associations the firm aspires to create or maintain that implies a promise to customers from the organization.

1. Why does #OptOutside improve REI’s performance over the long run?

The role of a brand identity is to drive and guide strategic initiatives throughout the organization, drive communication programs, and support the expression of the brand value and culture to employees and partners. It provides the soul to the brand that makes it unique. #OptOutside improves REI’s performance over the long run because it successfully fulfills the roles of a brand identity outlined above. Very briefly, #OptOutside shows that REI puts people ahead of profits, which is a powerful message to send to customers. As a recurring event, it reinforces and solidifies REI’s brand identity over time and allows the company to adjust and add to it.

REI can count on mentions and brand chatter to increase during every Black Friday and the surrounding days. It is broad enough to attract new and existing customers, but also targeted enough that it aligns with REI’s image. It also engages its employees so that they can embody the REI brand outside the stores.

This will make employees better in-store brand ambassadors because they are actually living and breathing what REI stands for.

2. What are the risks associated with developing the brand in this way?

Black Friday is one of the biggest shopping times of the year. By removing itself from this important shopping period, REI is making a statement, but sacrificing revenue. While many people “opted in” by participating in #OptOutside, REI should look at whether those people still shopped elsewhere on Black Friday (instore or online). #OptOutside and shopping are not necessarily mutually exclusive and REI could be missing out on an opportunity to make a positive statement and make sales.

This Girl Can: Building Awareness 1. Develop an ad campaign for “This Girl Can” that would motivate women who felt that engaging in sports was a sign that they were too selfish with their time.

The key is to overcome the judgement barrier. Potential campaigns that could communicate that women wouldn’t be viewed negatively for participating could include:

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• • • •

Show a woman playing sports with other images indicating that active and healthy women are more productive and engaging mothers.

Show women playing sports that include the whole family. This would position active mothers as positive role models.

Similarly, show women playing sports with kids, husband, siblings, boyfriend, etc. cheering on the sidelines. This indicates the playing sports can bring a family together in a fun activity.

A different angle is to target young girls early, before they think it is selfish and/or have other conflicting obligations. In this way, being active becomes ingrained into their behaviors and expectations.

2. What types of partnerships and sponsorships would reinforce this brand and further increase the number of women engaged in sports?

Partnerships and sponsorships are helpful to make a product or brand more relevant in a desired area. A brand can become more associated with certain attributes by aligning with a partner already associated with those desired attributes. This is an open-ended question and any brand that is relatable and active could be a good match.

A partnership with Dove could be effective since it has the well-known Real Beauty campaign that celebrates the natural physical beauty of women. Dove’s campaign is similar to “This Girl Can” in that it counters gender stereotypes.

Since the idea is to get new people involved with the brand and its association, it wouldn’t make sense to target sports leagues since those women are already involved with sports.

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CHAPTER INSTRUCTOR NOTES Chapter 10 – Toward a Strong Brand Relationship CONTENT OF CHAPTER 10 1. Build loyal customer groups based on a strong brand relationship in order to establish a sustainable competitive advantage. Such customer groups are relatively to retain over time and expensive for competitors to attack.

2. Examine and prioritize brand touchpoints in order to improve the brand relationship.

Manage touchpoints to achieve a simple, trustworthy relationship where each interaction is consistent and a minimum and exceptional wherever possible.

Achieving this will involve all employees and partners who play a role in the design or execution of the customer experience, so communicating the brand vision to these stakeholders is essential.

3. In developing a marketing program, look at the customer’s “sweet spot,” a topic that is related to what is important and involving to customers. A “sweet spot” program is more likely to stimulate a social network, create brand energy and interest, enhance brand liability and credibility, and form a relationship. To proceed, identify a “sweet spot” and then create or locate a program where the brand can be embedded.

4. Get beyond functional benefits by broadening the brand concept to include emotional benefits (When I buy this brand I feel ___), self-expressive benefits (When I buy or use this brand I am _____), or social benefits (When I buy or use this brand, the type of people I relate to are ____).

Creating or Finding a Customer Sweet Spot Ask students to generate a list of sweet spot programs they have experienced or observed.

Try to categorize these according to the different “on ramps” laid out in the chapter.

Which programs involve the brand’s offerings as an integral part? Which ones are built around a lifestyle, activity, national identity, or interest that is also connected to the brand’s offerings? Which ones are simply focused on engaging target market without any direct link to the product or service the brand offers? Which ones were already established programs that the brand linked itself to?

These categorizations are not set in stone, but offer a way of thinking about different approaches to sweet spot programs. Discuss the strengths and limitations of each “on ramp,” such as managing costs or making tradeoffs between catering to a sweet spot and aligning clearly with the brand’s offerings. Encourage students to identify a favorite program that is the most appealing to them personally or most successful in general. How would they categorize that program? What makes it work? Students may also want to critique certain programs that fell flat and to try to identify what went wrong.

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Getting Beyond Functional Benefits and Attributes Ask students to share examples of brands with which they have a strong relationship.

Discuss the emotional, self-expressive, or social benefits those brands offer. Highlight examples where functional benefits seem secondary, such as when competitors to a favorite brand have equal or better functionality, or when a highly functional brand fails to inspire strong relationships.

Draw on the examples of strong brand relationships students have listed to explore different “brand ideals.” Discuss how these examples align with the five types of brand ideals discussed in the chapter: Eliciting Joy, Enabling Connection, Inspiring Exploration, Evoking Pride, and Impacting Society. Try to identify at least one example of each type. Ask students to identify product categories, market segments, or cultural contexts where each brand ideal might be particularly appealing.

Brand Relationships as Personal Relationships Discuss the parallels between brand relationships and personal relationships. A valuable way of thinking about brand relationships is to identify similar or analogous personal relationships. Ask students to generate a list of relationship archetypes, which could include things like best friendships, arranged marriages, secret affairs, casual friendships, or one-night flings. See if students can identify a brand relationship corresponding to each of these archetypes.

END OF CHAPTER DISCUSSION QUESTIONS 1. Consider the bank you have a relationship with. List all the brand touchpoints.

Evaluate which are the most important to you and why.

Keep probing because students will always forget some.

2. What are your sweet spots? Pick an activity or interest. What brand connected programs touch that activity of interest? If you were Ford, how would you design a program that would be relevant to your sweet spot?

The challenge is to get students to take the next step to design a program that the brand can be part of or at least be connected to. Alternatives to Ford can be used.

3. Do you agree that marketing executions are subject to the attribute fixation trap? For what brands might that not be true? Why? Push the students to explain why they come up with their opinions.

4. What brands deliver emotional benefits for you? Self-expressive benefits? Social benefits? What is it about the brand that reinforces that ability to deliver benefits?

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You might start by asking whether such benefits even exist. In that context, name some brands that deliver benefits and tell what they are and how they are delivered.

You might list the emotional benefits that come from brands. And then selfexpressive and social benefits.

5. Think of some brands that have a relationship that you could describe as a fling, secret affair, or mentor relationships. Why? Very provocative ideas and Susan Fournier’s research published in the Journal of Consumer Research demonstrates that they exist and can provide insights into consumer behavior.

6. What brands, if any, do you have a love relationship with? Why? Again, this is a somewhat provocative topic to test the depth of the brand relationship concept. Was it love at first sight? Do any of the students have “exes”—brands they used to be in love with but aren’t anymore? This could be an interesting discussion of why the student “left” the relationship.

BEST PRACTICE DISCUSSION QUESTIONS How Sephora Creates Beauty Across Brand Touchpoints 1. Analyze how Sephora connects its brand to emotional, self-expressive, and social benefits for the customer.

Sephora successfully connects its brand to what customers’ value. It connects its brand to emotional benefits for the customer through its in-store experience. Its customers view beauty shopping as a “hunt” and its stores facilitate this through the InstaScent and Color IQ. It allows for a customized product search. When a customer finds the perfect color or scent, that experience will be all the more satisfying given her perspective of it being a “hunt.” Emotions such as pride, satisfaction, and joy become associated with Sephora.

Sephora also connects its brand to self-expressive benefits for the customer through the in-store experiential shopping experience mentioned above, but also online.

Online, customers can post photos to get other users’ opinions, engage with the Beauty Board, or participate in the Beauty Talk forum to discuss their beauty needs with experts. These touchpoints allow shoppers to express their opinions and beauty personality to others.

Lastly, Sephora connects its brand to social benefits for its customers through digital touchpoints as well as the in-store experience. It has transformed the beauty shopping experience from transactional to an active and fulfilling process. Sephora makes

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customers feel they are making the right decision in their purchases through social validation from its experts as well as interaction with other users on its online forum.

2. How can Sephora’s brand touchpoints be improved to reach non-Millennials?

Sephora’s touchpoints are very Millennial-focused by turning the beauty shopper experience from observation to co-creation. Being active co-creators of customized products is a unique quality to Millennials. The Baby Boomer generation, for example, places comparatively more trust in the company and its associates and value recommendations by the “experts.” Gen-Xers take some input from others, but their own opinions matter the most. Millennials like to try different things and are open to input from others.

The layout of the Sephora fosters sampling and testing which caters to Millennials.

This store layout can potentially overwhelm Boomers. If Sephora wanted to reach other generations, it might emphasize the expertise of its beauty experts and create sections of the store that highlight Sephora’s beauty experts’ beauty favorite products and tips.

Lifebuoy 1. Lifebuoy used several storytelling tactics to communicate its brand message, including real, interesting, and authentic characters as well as the use of statistics of global infant deaths—all of which were shocking. What other factors do you think contributed to the success of this approach?

Showcasing the ease of preventing these deaths through a small investment in soap certainly was one factor. Seeing young and vulnerable children likely touched viewers in a way that made them feel guilty for the problem and prompted changes in behavior. Unilever found a real issue that people care about and placed its brand at the center of the solution.

2. What steps should Unilever take to ensure Lifebuoy is the only soap brand connected to health?

To ensure that Lifebuoy is the only soap associated with health, Unilever should continue to tell stories and provide other customer touchpoints that provide an emotional, feel-good element to an otherwise commodity product. For example, it could: • • •

Run a promotion where, for a set period of time, a portion of sales goes to research connected to child mortality due to improper hand sanitation.

Have children “survivors” tell their stories and document their future successes.

Create a cheaper, more accessible product for low-income families to send the message that Unilever is concerned about the health of children instead of its bottom line.

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•

Create a website filled with mini movies about the stories of children around the globe as a continuation of its movie in India.

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CHAPTER INSTRUCTOR NOTES Chapter 11 – Energizing the Business CONTENT OF CHAPTER 11 1. There are four ways to grow a business: energize it, leverage it, create a new business, and go global.

2. One route to energize the business is to innovate the offering. In doing so, a branded differentiator can help own an innovation even if it is copied. A branded differentiator is an actively managed branded feature, ingredient or technology, service or program that creates a meaningful, impactful point of differentiation for a branded offering over an extended time period.

3. A second route is to energize the brand and marketing. When the offering is boring or out of date, a branded energizer can be employed. This is a branded product, promotion, sponsorship, symbol, program, or other entity that by association significantly enhances and energizes a target brand—the branded energizer and its association with the target brand is actively managed over an extended time period.

Branded social programs are particularly useful.

4. A third is to increase usage of existing customers. Increasing product usage can be based on motivating heavy users to use more, making usage easier with reduced undesirable consequences, providing usage incentives, providing reminder communications, positioning for frequent use, and by finding a new use.

Increasing Usage Ask the class to use creative thinking to increase the usage of a college football team (or other involving product or service). The ideas should sort out into the list offered in the chapter.

Branded Differentiators What branded differentiators come to mind? The question can be refined to focus on features, then ingredients or technologies, then service (the Geek Squad could be discussed), then programs. The discussion may go best if it focuses in depth on a few and looks at their impact and sustainability. What is needed to make them sustainable?

Westin’s Heavenly Bed is a great example.

Branded Energizers What internal branded energizers come to mind? Why are they effective? Will they have a long enough life to create a lasting impact on the brand (think of the Snoopy characters for Met Life)?

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What external energizers have really been effective? What is the difference between an external energizer and a celebrity endorser?

See Discussion Question 5 and the comments on the PowerPoint slides.

On Branded Energizers Most brands, especially leading, mature brands, need energy.

Examples: IBM ThinkPad: In a study of brand equity’s impact on stock returns for high tech brands, one of the few times a brand moved up or down occurred when the ThinkPad was established—the brand IBM moved up even though ThinkPad represented a small percent of IBM sales. Why did this happen?

Avon Breast Cancer Crusade: The Avon Breast Cancer Crusade provides energy for Avon. This program connects with an important dimension of every woman’s life as all have seen it within her own family and circle of friends. Part of the program is the Avon Walk for breast cancer. Millions participate, which provides involving experience. This is not just short term PR—since 1992 it has raised $400M for breast cancer research. Note that Avon branded it and actively managed the brand.

Adidas Streetball Challenge: This weekend 3-man basketball tournament held in locations around the world, added event marketing to Adidas’ marketing mix. Music, slam dunk contests, graffiti contests connect with customers—over 500K participated and millions of other people were exposed.

What is the difference between a branded differentiator and a branded energizer?

A differentiator is part of the offering. When you buy a Westin hotel room, you get the Heavenly bed. When you buy a Ford Explorer SUV, you get the Eddie Bauer look and feel. A branded energizer could be part of the offering, but doesn’t have to be and sometimes cannot be. When you buy Avon products, you don’t get the Avon Breast Cancer Crusade … you get perfumed skin care.

END OF CHAPTER DISCUSSION QUESTIONS 1. Why are Google, Apple, Tesla, Fitbit, Dyson, and Intel considered innovative? Did branding play a role? For which brands? What other brands would you nominate?

Why? What role did branding play in your judgment for those brands?

In each case, the company developed a strong product or service that offered new and valued benefits to the marketplace. However, in each case, the company offered a consistent, clear, and novel way of communicating those benefits to the marketplace.

Students might find it interesting to look up early stage strategic actions that each company took to communicate the value to the marketplace. Apple’s 1984

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advertisement focusing on creativity and individualism, Intel’s use of the music “bong” for its “Intel Inside” campaign, and Dyson’s dramatic product demonstrations involving his quirky owner all conveyed a very distinctive image of these offerings that went beyond the product or service itself.

2. Think of some highly differentiated brands. Do they have branded differentiators? If not, how did they achieve differentiation? Will it be lasting?

See suggested classroom discussion above. There are other routes to differentiation.

Personality, organizational associations, and symbols such as the Snoopy characters are suggestions.

3. Think of some branded differentiators. How differentiated are they? Do the customers care? Are they impactful? Have they been managed well over time? Do they have legs? Evaluate Best Buy’s Geek Squad.

Again this is reflected in the suggested classroom discussion. The point is to get involved in the concept.

4.

Think of some brands that have high energy. What gives them that energy? Will that continue into the future?

This is leads into the next question. The interesting point is that there are few brands with high energy and these brands have a variety of energy sources.

5. Think of some brands that have branded energizers that made a difference. Evaluate them in terms of whether they are “on-brand,” energetic, and linked to the master brand.

Again this is reflected in the suggested classroom discussion. The point is to get involved in the concept. The concept of being “on-brand” is worth pursuing with the right example. Also consider the question of whether the association is on-brand for the energizer.

6. Using the creative thinking guidelines, think about how you would increase the usage of products if you were the manager of: a. Doritos b. Charles Schwab c. Gap This is a good exercise for break-out sessions. The key is to practice the art of withholding evaluation, and engage in improving ideas before you evaluate and to provide multiple options to evaluate going forward.

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BEST PRACTICE DISCUSSION QUESTIONS Chiquita Banana 1. Develop an additional tactic for Chiquita’s campaign that further penetrates its key mother segment.

The two tactics described involved using bananas as a recipe ingredient and a partnership with Paramount to get kids excited through the Minion movie. Another tactic could grow consumption occasions by encouraging moms to include bananas in their kid’s lunches. The tactic could be done through social media in conjunction with the ingredient campaign. Communication can include the health benefits of bananas (especially compared to “junk” foods) and how kids like eating them.

2. Develop a completely new campaign to increase product usage among athletes—a key secondary market. What would you emphasize and what digital strategies and partnerships would you use?

A completely different campaign would be needed to reach athletes. Athletes are likely consuming bananas for health benefits, particularly potassium. Messaging should emphasize bananas’ benefits to muscles, health benefits (low calorie, low fat, high fiber), and their great taste alone and in nutritional smoothies. Partnerships could be with professional influential athletes, perhaps NBA or NFL players who are widely idolized by amateur athletes. Digital strategies might include athletes saying “Why I Chiquita,” in short, online blurbs.

Maersk 1. What are the risks of using social media campaigns for big industrial companies such as Maersk?

The biggest risk for big industrial companies using social media campaigns is that the efforts can come off looking inauthentic and forced. Large, industrial B2B companies do not typically have direct interaction with individual consumers, so it may be difficult to find meaningful content to share on social media. Maersk chose to feature narratives about its ships’ journeys and the people involved, not specifics about tonnage moved.

Social media content must be carefully curated so that the right content is in the right channels for the target consumer. What works on LinkedIn is not appropriate for Facebook or Twitter or Instagram. But all channels must be aligned to communicate the brand proposition in a consistent manner.

Another risk is that it may be hard for a large industrial B2B company to measure the campaign’s success. Consumer packaged goods, for example, have fast-moving products that can be manipulated far easier in marketing campaigns, so the effect of

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social media campaigns on sales is easier to monitor. Linking multi-year ocean freight contracts to a social media campaign is a more difficult task.

2. Why did this digital strategy work?

Maersk’s digital strategy worked because it went beyond its product/service; it added emotional content to a mostly dull category. Additionally Maersk was intentional in the content it shared on various channels. For example, it shared stories on Facebook and industry updates on LinkedIn, truly understanding why users visit the various social media channels and what they expect from them. It also worked because it engaged employees who are the front-line service and sales agents of the company. It created a sense of pride in the company that motivated them to work harder. Finally, Maersk realized that industrial customers are people too—people that use social media to learn about companies and engage with them in a meaningful way.

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CHAPTER INSTRUCTOR NOTES Chapter 12 – Leveraging the Business CONTENT OF CHAPTER 12 1. Growth options are based on leveraging assets and competencies.

2. Brand extensions leverage brand equity. The brand needs to fit the new context, add value, and be enhanced in a way that customer values.

3. Two other options are to expand the product scope or to take existing products into new markets.

4. Synergy, the logic of many growth initiatives, can be a mirage and difficult to achieve for many reasons as discussed in the book Which Assets and Competencies Can Be Leveraged?

Discuss examples of companies that have leveraged their assets and competencies. For example, when Gillette bought Duracell, what assets and competencies were leveraged? The answer is primarily distribution, because both products were generally sold in the same venues and channels. Ask the students to come up with examples of other companies that have leveraged their assets and competencies using any of the following competencies: • • • • •

Marketing Skills Capacity in Sales or Distribution Manufacturing Skills R&D Skills Achieving Economies of Scale

Brand Extensions An interesting and challenging discussion could be developed by asking students to come up with brand extensions for well-known companies such as Citicorp, Starbucks, H&R Block, Gatorade, or others. Also ask what would be the worst examples of extensions—what about extending Starbucks into photo copying or sparkling water?

Another discussion could be about companies where brand extensions did not work because the company didn’t know what they stood for or the extension was out of context and not meaningful to the target customer. The issues at GAP (Old Navy, babyGap, etc.) come to mind, but challenge the students to come up with their own examples.

See discussion question 2.

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Expanding the Scope of the Offering As Starbucks expands, it is not only pursuing more locations but also extending the scope of its offerings; e.g., Starbucks music, Starbucks food, Starbucks liquored drinks, etc. Challenge the students to come up with examples of how some well-known companies could expand the scope of their offerings. You might consider selecting a company that one of the students works for. Look at the customer use experience to identity possible new businesses.

New Markets Entering new markets is definitely enticing, but the business must already be operating successfully in its existing markets.

Select a company one of the students works for and discuss examples of how that company could expand.

Ask the students if they think there are any possibilities for companies like Harley-Davidson, Castrol Motor Oil, Toms of Maine, and others to expand their markets? What do you think of Harley-Davidson cake trimming kit? (It was actually tried!)

Evaluating Business Leveraging Options The five criteria described on pages 223-225 are convincing, if not obvious. Probe the questions—why then are there so many business failures? Go through each of the five criteria and discuss the biases that encourage people to get the analysis wrong. You might relate it to some government public policy mistakes that were based on faulty assumptions. It is easy to make the future appear to be the way you want it to be.

Ask the students if they can think of any product-markets that seem attractive; i.e., MP3 players, video games, video players, etc. If the market is attractive, what components make up the attraction; if not, why not?

Synergy Ask students what they think of one-stop financial shopping. Is it going to work this time around?

Can any examples be found in which synergy really worked? These could be examples of mergers, acquisitions, or product or market expansions—proposed or actual. Can examples be found where synergy did not work? The Walmart case illustrates that the obvious synergy of using the same business model in Germany did not work.

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END OF CHAPTER DISCUSSION QUESTIONS 1. Pick an industry and a product or service. Engage in a creative thinking process as outlined in the insert on pages 200-201 to generate an improved offering. Do the same to create an entirely new offering that uses one or more firm assets and competencies.

The idea here is to practice separating evaluation from ideation. One of the leaders in innovation, Tom Kelly of IDEO (The Ten Faces of Innovation), says that the words “Let me play the devil’s advocate” have stifled a lot of innovation efforts. This happens frequently in companies as managers think is it best to criticize ideas. However, innovation is very challenging for most companies and so a “Yes and” approach like that used in improvisation is often a more effective approach during the early stages of innovation.

2. Evaluate the following extension proposals: •

Bank of America into home safes.

This is not a good extension proposal. The only commonality for a safe and Bank of America is, and this is a stretch – security. Otherwise, there does not appear to be anything that would inspire the customer to want a Bank of America safe. They are two different markets that require completely different sets of expertise.

•

Crest into a chain of dentist offices.

On the surface, this seems like a good extension, but as in the Bank of America case above, there is no commonality except that both the product and the service are related to teeth. And similar to the Bank of America example, these two items require completely different firm assets and competencies.

•

Caterpillar into automobiles.

This extension could have potential. The Caterpillar name connotes strength and is loosely involved in the transportation business. This is less of a stretch than the Bank of America or Crest case above. However, the manufacturing requirements are quite different and would present huge entry barriers for Caterpillar to say nothing of establishing a channel of distribution and service network. So while this has potential, it is unfeasible.

•

Google into flight reservations.

This extension has been widely successful in part because it is well-designed but also because Google is synonymous with “search” and this is what customers are doing in the area of flight reservations. Google brings vast information to customers’ fingertips, in general, and they have done this across many different information—making their entry into airline reservations credible. Add

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3. Pick a branded offering such as Southwest Airlines. Come up with 20 products or services that are alternative extension options. Include some that would be a stretch. Then evaluate each using the three criteria provided in the chapter.

1. Freight carrier 2. Air animal transfer 3. Flight attendant training school 4. School to train service providers 5. Southwest cab service 6. Southwest cruise line 7. Source of outsourcing for other airlines for pilots 8. Source of outsourcing for flight attendants 9. Source of outsourcing for gate attendants 10. Southwest campgrounds 11. Southwest youth hostels 12. Southwest tour guides 13. Southwest scenic tours 14. Southwest vacations 15. Southwest resorts 16. Southwest amusement parks 17. Southwest Motorcycle tours 18. Southwest balloon rides 19. Southwest bus lines (to compete with Greyhound) 20. Southwest freight expediters 4. Consider the following mergers and acquisitions. What synergy was or would be logically possible? What would inhibit synergy? Consider operations, culture, and brand equities.

•

Citicorp acquired Providian, a credit card company serving low income segments.

The synergy that would be possible is the use of the same computer processing systems, ATMs, financial analysts, credit raters, etc. What would inhibit synergy would be if the systems were so incompatible and so difficult to convert to the better of the two systems that the system did not serve either organization well.

This would be a difficult merger. Operationally, it would probably not be as difficult as the other two elements. Culturally, there are probably completely different mindsets between the way each of the companies thinks and deals with their individual customer bases. In addition, the Providian brand equity would pull down the Citicorp brand equity; it is likely that many Citicorp customers would leave because of the cache that the Providian association would bring to them. On the surface, both companies are in the credit card business, but what sets them apart is their individual target customers.

Customers sometimes provide the “association” when people mention either company’s name. While Providian would benefit from the upscale “association” of Citicorp, it is unlikely that Citicorp would enjoy the same benefit.

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•

Pepsi (the owners of Frito-Lay) acquired Quaker Oats.

For Pepsi, the most attractive element of Quaker Oats was its brand Gatorade. Pepsi and Coke both tried the “sports-replenishment drink” market with little success. Gatorade had held the leading market share for decades. The other products that Quaker Oats brought to the table were primarily food items sold in grocery stores. There was some interest in these products since the Pepsi salespeople were calling on the same buyers. This was probably a good acquisition for Pepsi.

•

Toyota acquiring Jeep.

Recall the problems when Daimler bought Chrysler. A foreign-made high end company and a U.S. mid-level company just did not match up. A similar culture problem might occur here.

5. Evaluate Starbucks’ extension decisions: to put Starbucks on United Airlines, to open Starbucks in bookstores and supermarkets, to license Starbucks ice cream to Dreyer’s, to offer oatmeal in Starbucks stores, to sell the soluble coffee VIA in supermarkets, and to sell Frappuccino as a package drink. What were the risks both as individual decisions and cumulatively?

For Starbucks to be served on United Airlines was risky if only because there would be no guarantee on the freshness of the coffee being served. On the other hand, serving Starbucks coffee to United Airlines customers was probably a plus; the previous coffee could best be described as colored water. The coffee was not served in Starbucks cups, so Starbucks missed an opportunity to further their brand.

6. Identify and evaluate a combination of businesses that have achieved synergy and another that has failed to do so.

Failures: •

• •

When Pillsbury (the packaged-goods manufacturer) bought Burger Chef, a chain of 700 fast food restaurants, the fact that both entities were technically in the food business was of little consequence. Because the packaged-goods firm never could master the skills needed to run restaurants, there was considerable negative organizational synergy. eBay bought Skype thinking that it might be another way to connect buyers and sellers, but the connection did not work in e-commerce, and the Skype had to be divested.

The effort to combine United Airlines, Westin Hotels and Resorts and Hertz into one organization was a classic case in which the operational problems coupled with presenting a confused brand face to customers doomed the idea.

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Successes: • •

•

Skype was bought by Microsoft, which is a better fit for its current business and customers.

Twitch, a video streaming platform used to watch and chat about video games, was bought by Amazon to was a critical opportunity to access the coveted market of young adults that Amazon has previously targeted with offerings like free student Amazon Prime memberships. To penetrate the market, Amazon promptly offered Twitch subscribers discounts on Amazon-purchased video games and hardware and even rolled Twitch’s $8.99/month Turbo subscription into Amazon’s $10.99/month Prime subscription at no extra charge. This might seem generous on Amazon’s part, but it’s an investment intended to transfer Twitch’s customers into Amazon’s other product lines. Amazon knows that Prime subscribers spend more than four times as much on Amazon purchases as non-subscribers do.

Microsoft acquired LinkedIn for $26.2 billion, one of the technology industry’s biggest acquisitions ever. This price was a 49.5 percent premium over the trading price of LinkedIn’s stock at the announcement of the deal. Microsoft was largely paying for marketing assets, particularly so that Microsoft could leverage LinkedIn’s extensive customer base and strong brand.

Students might find it interesting to have a discussion about Amazon’s acquisition of Whole Foods and what steps Amazon needs to take to increase positive synergies. What assets and competencies does Whole Foods own that can be leveraged in Amazon’s businesses and what assets and competences does Amazon own that can be leveraged by Whole Foods’ business operations?

BEST PRACTICE DISCUSSION QUESTIONS Growing the Audience for Hamilton 1. How can Broadway leverage its success with Hamilton to increase its convert the younger demographic to be become habitual playgoers?

Many of the marketing and distribution tactics Hamilton utilized could be leveraged by Broadway to gain better traction among a younger demographic. For example, much like the “Ham4Ham” series, other productions could create video vignettes from rehearsals or even live performances that Broadway could organize on a central platform for easy access. Additionally, to make this demographic feel truly engaged, Broadway could offer a “Meet the Star Behind the Show” series that allows individuals to live chat with leading actors and actresses from musicals and plays.

2. Using the criteria to evaluate business leveraging options, what other growth options exist as revenue-generating for Hamilton?

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The criteria Hamilton should utilize to evaluate business leveraging options includes: • • •

Is the core business successful?

Can the core business be leveraged to enter a new market?

Is the leverage strategy repeatable?

Hamilton has already recognized the inherent value of its offering and potential for entry into new markets based on its decision to begin a tour of the production in select cities across the United States. Other growth options could be selling the rights to the play in order to make it into a film and books about the making of the show.

Tanita 1. Describe which assets and competencies were effectively leveraged by Tanita for growth.

Tanita’s core competency is a focus on healthy living, and it successfully leveraged this asset to extend its product offering beyond bathroom scales. Additionally, its opportunistic attitude helped Tanita identify and capitalize on new growth opportunities outside of company walls, most notably via the cookbook and the restaurant in Central Tokyo.

2. Evaluate the quality of its brand extensions using the criteria in the case. Using these criteria, what health products would not make sense for Tanita to introduce?

The quality of Tanita’s brand extensions can be evaluated by asking the following: • • •

Does the brand fit the context of the new products Tanita has introduced?

Does the brand add value to the offering in the new product class?

Will the extension enhance the brand name and image?

Each of Tanita’s extensions to date—the canteen, cookbook, and restaurant—fit within these criteria. Examples of health products that would not make sense for Tanita to introduce are items like first aid kits or oral care. While these certainly fall into the category of “healthy living”, it would be difficult for Tanita to add unique value to these product classes and it might even confuse customers as to Tanita’s brand image.

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CHAPTER INSTRUCTOR NOTES Chapter 13 – Creating New Businesses CONTENT OF CHAPTER 13 1. The previous chapter was about leveraging the company’s assets and competencies. This chapter looks instead to customers and the market and asks “where is the white space?”

Creating successful new businesses has been demonstrated to result in superior returns because it is tough to be extremely profitable in markets with established competitors.

2. The innovator’s advantage explains much of the success of new offerings.

3. It is important to manage the perceptions of the new category created.

4. Routes to new businesses include creating a dramatically lower price point (like Toyota did with automobiles in the 1960s), thinking in terms of alternative industries (mutual funds as alternative to banks), going from components to systems, leveraging customer insights, collaborative processes, and exploiting market trends.

5. Six biases inhibit existing firms from this transformational innovation.

6. The challenge is to make transformational innovation survive in established firms.

The New Business What is the definition of a truly new business? A new business by definition bypasses established business arenas and for which there are not competitors, at least initially.

The chapter examines six different directions for new businesses—developing technological innovation, going from components to systems, serving unmet needs, targeting niche submarkets, following a customer trend, and creating a dramatically lower price point.

The Innovator’s Advantage A good discussion could involve those companies that the class sees as innovative and those that the class does not see as innovative. Why does 3M typically come to mind? Ask students for specific products that they use from 3M (e.g., Scotch tape, Post-It note pads; Post-It note flip charts, and Post-It note glue). Then ask them to brainstorm other products that could meet unmet consumer needs.

Managing Category Perceptions A class discussion could be around the invention of “sports replenishment” drinks; the new age beverage category; MP3 players, and the evolution of video: from the theatre to television, to Blockbuster rental to Netflix by mail and now Netflix by streaming and

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downloading. What could be next? Ask them to think outside the box to come up with futuristic ideas about the next steps in the evolution of video.

Routes to a New Business What are some examples of new businesses that were based on transformational innovation?

Rate each on how new it is. You could select an industry to focus on like automobiles or snack food or financial services. Organize the above or address the question around these dimensions: • • • • • •

Technological innovation From components to systems Unmet needs Niche markets Customer trends Creating a lower price point

From Ideas to Market An interesting class discussion would be “why do incumbent companies have such a hard time developing new businesses?” The chapter identifies six “curses” that reflect biases inhibiting new business creation. Asking students to identify companies that have fallen prey to these curses could be interesting.

Part of the discussion will lead to the mindset of the employees. When new employees start with a company, they usually have a broad viewpoint of the company’s business. But as time goes on, their viewpoint gets finely focused on the company’s existing product/service and ignores the rest of the world. Is there a way to get around this? Skunk works? What does the “new business company” have that the incumbent doesn’t? Or better yet, what is inhibiting the creative juices within the incumbent company?

Ask the class “What steps can management take to avoid the fatal biases inhibiting new business creation?” Will it take a reward/punishment system; a system of goals for innovation, etc.? Several prominent writers have opined that organizations in the future must develop a capability of both incremental and transformational innovation so it is not an empty question.

A discussion could also take place around the business environment from which were created eBay, Blockbuster, Netflix, Napster, and TiVo among others.

END OF CHAPTER DISCUSSION QUESTIONS 1. Why didn’t Hertz or Avis start an off-airport business directed at insurance companies and vacationers? What advantages would they have had over Enterprise? Why didn’t Steinway

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come up with the electronic organ? Why didn’t Barnum and Bailey create the Cirque de Soleil?

The business traveler was the target customer for Hertz and Avis– someone whose company pays for the car rental. That was clearly the most profitable market (although a competitive market due to the profitability). They did not see themselves in the “offairport” market and it probably was not on their radar screen. After all, the “off-airport” customer base was different as was the business model.

The one big advantage that Hertz and Avis had was brand recognition. Although both were known to be airport-related car rental agencies, it is not a big leap for the customer to see them as a car rental agency both at the airport and “off-airport.” The disadvantage was that they would need to change their business models to fully serve the “off-airport” customers.

Steinway did not come up with the electronic organ because: a) it was in the business of making perfect sounds for a grand piano; and b) it was not in the electronics business.

Steinway probably rejected music electronics as the step-child (at best) of the musical instrument business. In addition, Steinway was not in the non-electronic organ business either, so creating an electronic organ would have been a big stretch given its expertise and mindset.

Barnum and Bailey did not create Cirque de Soleil it did not view its offering broadly enough as “entertain under a tent” and instead, saw the circus as a business that involved live animals, three rings, clowns, popcorn and peanuts, and primarily geared to families with children. Cirque de Soleil was more geared to adults (not that children were ignored) and charged higher fees than a typical circus. Cirque de Soleil’s only real connection to a circus is that it is performed in a circus tent—no animals are used, music is a critical component of the show, there is a storyline, and most of the show involves acrobatics.

2. In order to revitalize its brand with women, Reebok, the company that rode the aerobics

craze two decades ago, introduced Jukari Fit to Fly, an exercise program designed with Cirque du Soleil. A piece of equipment termed the Fly Set allows a person to fly through the air hanging on to a low trapeze. The goal is to invent a new fitness fad in exercise establishments supported by a line of Reebok clothing. a. Is this a transformational or substantial innovation that defines a new category or subcategory? b. Evaluate its pros and cons for Reebok.

3. Think of some transformational new businesses such as Starbucks, Blue Apron, or Amazon.

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a. How was each different from what came before? What was similar? Scale them in terms of “newness” from truly transformational to substantial (some elements common to what came before, but enough new to create a subcategory).

Starbucks was different in that the coffee shops offered an inviting ambiance and specialty coffees/preparation were superior to what most customers were accustomed.

At this time, people were open to a premium coffee experience and were willing to pay a higher price for a better cup of coffee and what Starbucks calls the “third place”—not home or work but another place here people could gather that was not a bar or pub. This fact was also furthered by the use of laptops, freelance workers, and telecommuting workers. These customers were encouraged to use the free Wi-Fi and enjoy the comfy ambiance for informal business meetings.

Starbucks did not offer food when it first opened. Hence, it was not competing for breakfast. However, over time, Starbucks has added food, music, and other coffeerelated equipment that fit well with its mission and its customers.

TiVo greatly improved upon previous ways to record video. VHS tapes had a recording limit of 2 to 6 hours, whereas TiVo recorded to a hard drive that could store hundreds of hours of recorded video. Unlike VHS machines that required users to manually change tapes, TiVo was always ready to record and once the hard drive was full, the oldest programs were automatically deleted to make space for new recordings (and the user could designate old shows not to be deleted). TiVo allowed customer to automatically record all episodes of a TV series, allowed recording more than one show at a time, and the ability to record one show and playback another at the same time. In addition, TiVo electronically monitors the cable system and updates the customer on any changes in the channel line up. TiVo’s fast forward lets the customer bypass commercials.

What was similar to the existing offerings (VHS) was the ability to record from a television cable service and pre-program recording of a show.

Amazon was the first e-commerce operation that heavily invested in infrastructure so it could scale. Amazon has routinely been criticized because of the long time in took (and continues to take) to generate substantial profits. However, its innovations from allowing third-party sellers, the elastic cloud computing network, the Kindle, Amazon Prime, and so much more indicate the company is a clear innovator. b. Was there an innovator advantage? How long did it last and why?

Starbucks did not really have an innovator advantage. Peet’s already had limited exposure on the West Coast and had a similar offering.

TiVo’s advantage was short-lived because other television providers offered similar services with their own DVR boxes – Comcast, DirectTV, etc. However, TiVo’s

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patent assets may allow it to survive or even win because without access to TiVo’s patents, competitors have inferior performance.

Amazon was able to scale and that provided a decisive advantage. Amazon was not the first company to sell books online, but they were the first to do it on a big scale. c. Did the business originate from an established business? If not, why not?

For Starbucks, Howard Schultz bought an existing business and expanded it.

TiVo was a new offering. The company essentially created the technology to use a DVR to coordinate television recordings with cable/satellite providers and make the service so easy to use that the target customers would not be intimidated. Ease of setup and use of the product was foolproof.

Amazon did not originate from an established business. Jeff Bezos was a hedge fund manager when he developed the idea. d. Where did the idea for the business come from? If you don’t know, try to speculate.

Howard Schultz came up with the idea for Starbucks when he was traveling in Italy and he thought it would be a good idea to transplant the coffee experience from Europe. And the rest is history.

Jeff Bezos had the concept for Amazon, much like the founder of FedEx and others.

4. Consider some new businesses that have managed category perceptions well. Consider others that have not.

5. Pick a firm such as Bank of America, Patagonia, or L.L. Bean. Develop some potential innovations that would create a “must have.” How would you evaluate them?

Students could be asked to form small groups to come up with ideas. After 15 minutes of searching and thinking, the teams could present an idea from these or any companies that you might select for the class.

BEST PRACTICE DISCUSSION QUESTIONS Adobe’s Subscription Model 1. Why is Adobe’s subscription model a win-win for the customer and the company?

It is a win for the company because it brings in new customer segments that Adobe could not reach before due to the expense of the old model of delivering physical software packages with two year licenses. Now small business owners can be Adobe customers on

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a much less expensive monthly subscription. Additionally, the cloud-based delivery model allows Adobe to update its software much faster, responding to consumers’ needs for the latest technology. From a company perspective, Adobe remained a leader in the fast moving and highly competitive tech industry.

It is a win for customers because they now receive the latest technology automatically, at a more affordable rate, and in a flexible plan.

2. Which part of the market is unlikely to prefer this approach? Should Adobe compete for this market?

At least two types of customers might not prefer the cloud-based approach. One type is hyper-sensitive about security and does not trust downloading from and uploading to the cloud. These customers prefer physical disks. The other type is comfortable using a certain edition of software and does not want to spend the time and expense to constantly learn new updates.

Whether Adobe should compete for these markets depends upon its size, trends, and cost of serving it. This risk of not serving this market is that it allows an opening for another software company to serve these customers, play upon a security theme, and erode Adobe’s dominance.

Wanglaoji Tea 1. Why did Wanglaoji succeed as a healthy refreshing tea? What asset was central to its success?

The asset critical to Wanglaoji’s success what that it had “herbal” and a 200-year-old Chinese lineage in its equity to build upon. Pairing the tea with popular Chinese hot-pot dishes was an understandable association for consumers.

2. Who are Wanglaoji’s competitors? What factors are critical to the brand’s long-term competitive advantage?

In a broad sense, Wanglaoji’s competitors are all types of beverage companies, but more specifically beverages trying to be the beverage for certain meals. Factors critical to Wanglaoji’s success include understanding its consumers, the use occasions, and the competitors. Occasion-based marketing can work, but it can backfire if the occasion loses popularity. Wanglaoji must keep a close eye on the hot-pot market and develop additional associations with the tea, or consider new formulations of herbal tea for different occasions. When Wanglaoji expands to other countries, it needs to identify white space in those countries’ beverage markets and research meaningful associations. What works in China may not necessarily work elsewhere.

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CHAPTER INSTRUCTOR NOTES Chapter 14 – Global Strategies CONTENT OF CHAPTER 14 1. There are at least eight motivations for global strategies.

2. A key issue is what should be standardized (looking for economies and exploiting brilliance) and what should be customized.

3. Research has shown that the success of a global strategy involves a strong core, a repeatable formula, customer differentiation that travels, and being in sync with industry economics.

4. Six dimensions affect the decision as to what country to enter.

5. Strategic alliances in a global context, their motivations and success keys, are discussed.

Motivations Underlying Global Strategies What McDonald’s motivation to invest in other counties such as China? What about P&G? What firms can and should ignore the market potential of China and India?

Some of the eight reasons for going global may not come up. Ask why? The Walmart case discussed in the chapter alludes to the fact that they failed in Germany and are not doing well in other countries. This story reflects some misconceptions about, for example, how able the firm is to transplant its business model.

Ask the class to identify indicators that a strategy should be global. Compare the answers that come up to those offered in the text.

Standardization vs. Customization For what products does globalization not make sense because the strategy needs to be local (many food products fall into this category)?

What products have points of differentiation that span countries? Pampers? Nike? It might be interesting to look back at Chapter 5 at the discussion of different values across the BRIC counties compared to the U.S. for insights.

What is the implication that Honda has a youthful, racing image in Japan and a middle class, family image in the U.S.?

Expanding the Global Footprint Why did Marks & Spencer have trouble implementing its strategy in Europe?

How would you evaluate India as a market for Budweiser? For Ford?

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Strategic Alliances What are the motivations for a strategic alliance? What are the attributes of a successful alliance?

END OF CHAPTER DISCUSSION QUESTIONS 1. Assess the motivations for going global. What would be the most important for a bank?

Motivations would likely center on: (1) access strategic markets; (2) obtain scale economies; (3) create global associations (think HSBC or Visa); and potential dodge trade barriers (regulations or taxes in one country).

2. What products are likely to be more standardized across countries? Why? What products are least likely?

Consider the list of ten contexts identifying when a standardized global brand would make the most sense (pages 255-256). Here are a few ideas. Food products are usually thought to be the most “local.” They have taste and culture aspects.

High-priced products will not be successful by all countries. P&G has created new lines for rural China, for example. Products that have functional benefits that are visible are more likely to be global.

3. Pick a product like Applegate Deli Meats or a service such as Nationwide Insurance. Assess the advantages of expanding to a more global presence.

The biggest advantage would be to access major markets. Another would be the innovation sources that are created in the process of reaching these markets that might be used back in the U.S. For example, certain flavors or packaging meats might be used in Brazil that might have value to U.S. customers.

4. For a particular product or service, such as Crest toothpaste or the Toyota Scion, how would you evaluate the countries that would represent the best prospects?

Be specific. What information would you need, and how would you obtain it?

Prioritize the criteria that would be useful in deciding which countries to enter.

Countries that are more similar to the home country are often the best markets to enter early in the globalization effort. In addition, the criteria related to “market selection” in the section “What Country to Enter?” could be listed as columns with different countries or regions as the rows in a table to create analysis for this topic.

5. For a brand such as Bank of America, Pantene, or Ford, how would you go about creating blockbuster global brand-building programs—for example, sponsorships,

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promotions, or advertising? How would you leverage those programs?

It is critical to generate many ideas and then test them among consumers. The P&G approach is to let the silos be allowed to generate and test options and then run with the best. Even if the ideas are created centrally it is important to test them and get buy-in in all countries.

6. Select a company. How would you advise it to find an alliance partner to gain distribution into China? What advice would you give regarding the management of that alliance?

The material in the chapter offers strong direction in addressing this question.

7. What is the advantage of a global brand team? What are the problems of using a team to devise and run the global strategy?

Global brand teams can produce compromise options that do not serve any market very effectively. The operations are not run close to the customer and therefore may not offer benefits that are valued by these markets. On the other hand, a siloed organization that has different teams running the business in different countries can also suffer from inefficiencies. Chapter 16 contains a discussion of the problems of silos and strategies for finding a happy medium between a global team and siloed global organization.

BEST PRACTICE DISCUSSION QUESTIONS Mars + Alibaba 1. Strategic partners often seek exclusive deals—in this case Alibaba would only sell Mars products and/or Mars will only sell its product on Alibaba ecommerce sites (other brick and mortar stores would not be included in the deal). Why would these partners strike such a deal?

Advantages of a strategic alliances for a partner include: • • • •

Obtaining economies of scale when it comes to development, sales and marketing, manufacturing and distribution; Access to a new customer base or geographic market that opens up additional revenue streams; Filling gaps in capabilities, ranging from resources to technology to knowledge of the local market; and Creating a barrier to entry for competitors seeking to create similar alliances.

However, partners should be wary of entering into alliances under two key circumstances. First, if partners are not both gaining reasonable value from the alliance, it is not clear that it will continue over time. Second, if the systems,

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people, structure, and culture between the two companies are too disparate to reconcile, the partnership is unlikely to be successful over time.

2. Chocolate consumption decreased in China during the recent recessionary period in a country that is starting to opt for healthier treats and with lower chocolate consumption compared to Western Europe, U.S., and Brazil to begin with.

Develop one other strategy for improving adoption in the Chinese market?

One example of a strategy could be to formulate localized marketing campaigns emphasizing the benefits of chocolate that consumers from each geographic segment most value. Tying marketing strategies to these focused benefits will likely increase adoption, despite recent health trends. Creating campaigns that emphasize the health benefits of chocolate may also spur more interest in it relative to other confectionary treats.

Gillette India 1. What is the downside to customizing Gillette’s products and marketing in India?

The main disadvantage of customizing Gillette efforts in India are cost and time.

Crafting market-specific products and outreach requires significant capital and would be time-consuming, as Gillette would have to do tremendous due diligence to ensure it is effectively connecting with local customers. Additionally, if these efforts are intended for India only, lessons learned and best practices may not necessarily be leveraged in other countries.

2. Perform a brief analysis of the Brazilian market. Do you think Gillette’s approach will work there?

• •

Demand: Sales of men’s cosmetics, including shaving products, has continuously increased in recent years. The market grew from $2.3B to $4.6B from 2008-14.

Cultural Norms: Brazilian men believe physical appearance impacts one’s personal life and career opportunities. It is not uncommon for men and boys to visit their local barbershop every day.

Given Brazil’s cultural norms about shaving, Gillette’s customization approach will likely work. However, marketing messaging and distribution channels would need to vary in Brazil. In India, Gillette was trying to instill a new behavior in men; in Brazil, Gillette would simply be encouraging the continuation of an already established behavior.

References: http://www.brazilbeautynews.com/brazil-set-to-take-the-lead-onmen-s-grooming-by,915

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CHAPTER INSTRUCTOR NOTES Chapter 15 – Setting Priorities for Businesses and Brands CONTENT OF CHAPTER 15 1. It is as important to trim businesses as it is to start them—otherwise the new ventures will be starved for resources. The business portfolio models of BCG and GE provide a structure to manage the business portfolio.

2. The exit decision involves evaluating a business with respect to the business position, marketing attractiveness, and strategic fit. There are exit barriers and biases inhibiting the exit decision.

3. The milking strategy provides a source of resources when the marketing conditions will support it.

4. The brand portfolio decision can be a good way to attack the business portfolio problem because a brand will often represent a business.

The Business Portfolio What are the assumptions behind the BCG growth-share portfolio model? What might they not hold? Review the perils of high growth in Chapter 4 (page 71).

Consider how a high share might be obtained—if it is by short term promotions, then the share ratio will mean less.

What are the assumptions of the business position-market attractiveness model? Take a specific example like Ford or Ford vehicles like Jaguar, Volvo, Lincoln, Mercury or Ford models like Fusion or Mustang (see Discussion question 1). Make some assumptions and ask if the model recommendations should be followed. What if the growth is great, but the profitability is weak (again see page 72)? Consider the consumer electronics industry. Is Samsung wise to invest there?

Exit—Divestment or Liquidation Why would you go out of business instead of divesting? Any examples?

What are the biases inhibiting divestment? Why do such biases exist when information and analysis are available? Why didn’t these biases inhibit GE’s Jack Welch (he was obviously able to remove emotion from decisions to get rid of businesses or people—some say that is what made him great but you could argue that one).

GE exited the small appliance business by selling it to Black & Decker. What were some of the exit barriers for GE to overcome? (Impact on the GE brand—B&D got

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use of the GE brand for three years, commitments to the retail trade, employees and community, etc.).

How can the exit decision be made objectively? Why don’t more executives do that?

Why did it take Grove a long time to implement the decision to get out of the memory business? What biases may have been responsible?

Milk Strategy What examples of a milking strategy can you think of? Consider a variety of firms like Schwab, Ford, IBM, Macy’s etc.

What are the problems of implementing a milking strategy?

The Brand Portfolio What firms have too many brands? See Discussion Questions 4 & 5. How would you go about deciding which to delete? Does the model make sense? What is the critical step?

Doers GM fall into that category? They deleted Oldsmobile? Should Buick be next?

Which one? What are the risks and costs of deleting a brand like that?

What about P&G with some 100 major brands? Why don’t they chop them to 50?

What are the shampoo brands for example? They include Pert, Pantene, Head & Shoulders, Herbal Essence, Infusion and more. What not go down to two? (Because each has a niche in the market and deleting the brand would delete a profitable business).

What was the key to the new brand portfolio of Centurion? (It was taking one of the brands, Larson, and using it as an umbrella over four other brands). What was the risk in that strategy? What was the risk in dialing up the corporate brand?

END OF CHAPTER DISCUSSION QUESTIONS 1. In 2008, Ford sold Jaguar to Tata Motors for $2.3 billion, about half of what it cost Ford in 1989. Based on chapter tools, what analyses should have been conducted to determine whether Jaguar should be sold?

Jaguar needs to be evaluated around the three dimensions.

Business position. Huge investments have solved some quality problems. Ford now has the assets and competencies needed to compete. However, Ford seems unable to turn the sales momentum around even with new models. The fact is that their niche is crowded with tough competitors such as BMW and Lexus. The key

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value proposition of styling may have been tarnished by the new products. The business is definitely losing a lot of money. With quality fixed and a complete line out, the question is how to turn it around.

Market attractiveness. The market looks strong with sales increasing and margins healthy.

Strategic fit. Ford could use an entry in this category—that is why Ford bought Jaguar in the first place. It is absorbing precious resources—a problem. The answer, as usual, is not so obvious.

2. Why is it hard to divest a business? Jack Welch divested hundreds of businesses during his tenure. What are some of the motivations that led to these divestures?

It is hard because of the biases noted on page 271. Can-do managers find it hard to close or milk a business—it is not their nature. And the confirmation bias affects the ability to make objective judgments. Jack Welch demanded that all business units be one or two in their market—so that is one reason. Another was to leave industries with weak prospects and enter those with better ones. Was the decision to buy NBC a good one?

3. Identify brands that are employing a milking strategy. What are the risks?

It is not so easy to identify such brands because even such brands seem to have ambitions. Miller and Bud have been milked while resources have gone into Miller Lite and Bud Light. Kodak for a long time has milked its film business.

4. How would you determine if a firm has too many brands?

You need to determine if every brand has a role that merits investment. Brands that are basically taking on a descriptive role but are absorbing resources are candidates for downsizing or eliminating.

The brand consolidation process will provide an objective way to evaluate brands.

5. What, in your judgment, are the key problems or issues in the brand consolidation process?

There are problems in assessing all the brands. Each dimension involves subjectivity—e.g. differentiation, relevance, growth prospects, extendibility and business fit all involve judgment calls.

The determination of the roles involves not only strategic judgment but also organizational sensitivities and either a high level of persuasion or power.

Developing the final portfolio and implementing it can be formidable problems.

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BEST PRACTICE DISCUSSION QUESTIONS Microsoft Acquires Skype 1. Make an argument for Microsoft to retain both Skype and Lync.

Typically, an exit or divesture should be considered under three circumstances: • • •

Business Position: Existing assets and competencies are inadequate Market Attractiveness: Category demand is declining at an accelerating rate Strategic Fit: The role of a particular part of the business has become superfluous

In Microsoft’s case, removing Lync from its portfolio was motivated by the third circumstance—strategic fit. However, one key consideration for retaining both Skype and Lync could be if Microsoft was not confident about the potential to seamlessly integrate the two platforms. In this case, it would have been more logical for Microsoft to position Skype as a tool for personal communication and Lync as the premier business communication tool.

2. Consider how Microsoft’s decision might have been affected if they had owned Skype and acquired Lync.

If Microsoft had owned Skype and sought to acquire Lync, they would have potentially chosen to add it into the portfolio as a sub-brand. Given Skype’s existing strong brand equity and easy to use interface, it would have been risky for Microsoft to begin integrating features of Lync for which customers might not have an explicit.

Target Canada 1. Evaluate the three criteria for divestment for Target Canada.

Given the terrible decisions that Target made in securing retail locations and managing its inventory, it is clear that market demand was going to be weak. The competitive intensity of Walmart’s attack added fuel to the fire by forcing Target to act (temporarily) like a low-price competitor, which further tarnished its reputation. The strategic thrust of the company was not problematic. However, the fact that the problems identified in the case arose so easily, suggests several fundamental management and planning problems that need to be resolved.

2. Imagine you were assigned President of Target-Canada at the time when Walmart started the price war. How would you respond?

It is unlikely that Target will be able to win a price war with Walmart. Target’s advantage lies in its more trendy and fashionable merchandise. Hence, ensuring

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that assortment fits this position is a first essential. After this, Target could selectively offer sales on top fashion items to drive customers into its stores.

These sales should focus on products that are valued by customers and that could create greater customer value. Once the situation has stabilized, Target’s prices should be returned to more normal levels.

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CHAPTER INSTRUCTOR NOTES Chapter 16 - Harnessing the Organization CONTENT OF CHAPTER 16 1. A customer-centric firm is one in which the customer is at the forefront of all the firm’s decisions and actions. This attitude creates value for customers and grows long-term profits.

2. Customer-centricity is a function of five key elements: culture, competencies, structure, metrics and incentives, and human capital.

3. Firms can become customer-centric by creating an organizational culture that has shared values, beliefs, norms, behaviors, and artifacts that reflect a focus on the customer. There are well-known traits of customer-centric cultures and companies can build and sustain a customer-centric culture.

4. Building customer-centric competencies ensure that the firm has the sustained ability to perform a range of activities to create value for the customer and for the company. A firm’s market orientation is a competency that ensures it can generate, disseminate, and respond to market information.

5. Creating an organizational structure that limits silos and breaks down barriers between divisions of the company is essential to customer centricity. Cross-silo communication and cooperation and other structural devices can improve the value a company delivers to customers.

6. Metrics and incentives need to be aligned for customer centricity. Customerfocused performance rewards and metrics (e.g., customer satisfaction, net promoter score) ensure the company is measuring the customer’s experience and satisfaction and not firm outcomes (which should follow from satisfied customers).

7. Customer-centricity requires marketing leaders who understand the strategic role of marketing, have an investment mindset, are innovators, can integrate different parts of the company to serve customers, are good listeners, and are good implementers. It is important to hire employees who are customer oriented and feel responsible and empowered to fulfill this role.

Applying the Five Elements of Customer-Centricity Ask students to generate some examples of customer-centric firms. Discuss how the five key elements (culture, competencies, structure, metrics and incentives, and human capital) contribute to the customer-centricity of these companies.

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It may also be valuable to discuss examples of companies that are notoriously noncustomer-centric. How is this manifested in the five key elements?

Focus on customer-centric culture in particular. Ask students to identify some particular shared beliefs, norms, behaviors, or artifacts that shape these organizational cultures.

Market Orientation as a Key Competency for Customer-Centricity Draw on one of the examples from above or discuss Amazon, which is famously customer-centric. Ask students to identify the competencies that enable this company to be so customer-centric. Is the company able to do certain things that competitors or other firms cannot?

Focus on market orientation in particular as a key competency for customer-centric companies. Does Amazon (or the any of examples discussed) excel at generating or capturing market information? At disseminating that information? At responding to that information? Ask students to generate other examples that stand out in these aspects of market orientation.

Using Metrics and Incentives to Achieve Customer-Centricity Ask students to list some different performance metrics they have encountered, either in their own careers or in general. Examples might include billable hours, total sales, customer contacts or calls, customer satisfaction ratings, customer retention, Net Promoter Score, or others. For online businesses, metrics might include clickthrough-rates, time on site, or monthly active users. It may be useful to organize this list by which level of the organization uses each metric (e.g., salespeople, managers, top executives).

Once the list of metric has been generated, ask students to identify which ones encourage customer-centricity and which ones might undermine it. Encourage students to share their own experiences (as an employee or as a customer) where metrics or incentives may have undermined a customer focus. What metrics would have worked better to promote customer-centricity?

In this discussion, encourage students to think about possible drawbacks associated with implementing metrics or incentives that promote customer-centricity. Why do many companies fall short in this respect? Answers might include availability of data, difficulties in measuring, or misalignment with the incentives of higher-level decision makers.

Applying the Concepts to Specific Organizations: Consider several organizations: (1) a professional sports team such as the Dallas Cowboys; (2) a university such as Stanford; (3) a manufacturing company such as

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GE; or (4) a service company such as Bank of America. For each organization, address questions such as: •

What are these organizations key competencies?

•

What is the culture of the organization; what are the shared values? What is unique?

•

What type of people are needed to make the organization run effectively? In addition to functional skills, what leadership or skill characteristics are most critical? What distinguishes a great organization (sports team, university, product company, or service company) from a weak one?

•

What type of structure is optimal? What processes would you expect to be used? What are the silos? What should be done to reduce their impact?

•

What leaders have influenced these organizations in either positive or negative ways? What did they do or not do to help the organization become or remain customer centric?

END OF CHAPTER DISCUSSION QUESTIONS 1. Subscription-based delivery companies, such as Blue Apron and Birchbox, are growing rapidly, but competition in the area is growing as well. Using the ideas from this chapter, how should they respond to these competitive threats?

These companies should take a customer-centric approach to understanding competitors by seeking to deeply understand the customer’s perspective— including how customers perceive and interact with the competitors. Once Blue Apron and Birchbox have this information, they can decide what they should imitate, ignore, or exceed in order to stay ahead of competitors. Some competitor strategies may be necessary to imitate to meet parity while others should be ignored because they are not part of the firm’s value proposition. Finally, some strategies should exceeded if important to the firm’s business—they should try to stay ahead. Price promotions and other short-term grabs at market share should be avoided except as customer acquisition strategies.

2. Identify the different groups within a major U.S. airline that could be operating in silos, then design one approach for how the company could be structured to cut across silos and stay close to the customer.

Customer service, marketing, flight crew, aircraft acquisition and design, and baggage handling are all examples of functions that are likely to be in silos and thus prevented from efficiently collaborating or sharing customer insights.

Approaches for cutting across these silos could include organizing cross-

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functional teams, building a matrix organization, or structuring around customer segments (e.g., elite business travelers) rather than functions.

3. Design a customer-centric incentive program for retail employees at a sporting goods store.

A customer-centric incentive program should reward behaviors that create customer value. When incentives are based on outcomes like short-term sales, they encourage negative outcomes like gaming the system, high-pressure sales, or underinvestment in customer relationships. Instead, the store should use an incentive program that measures performance with metrics like customer satisfaction, customer loyalty, or Net Promoter Score, which align better with long-term outcomes and customer-centricity.

4.

Imagine you are the new marketing manager for a chain of hospitals that views its clients as patients rather than customers. How, if at all, would you lead your team and persuade your bosses to encourage a more customer-centric perspective?

It is essential that employees at all levels have direct experience with customers, including all aspect of the hospital experience, from check in through every aspect of the stay (including emergency room services, doctor services, nursing services, technician, food services, cleaning services), and check out. Many companies have found it useful to have their employees act as patients to get first-hand experience. Others will have employees observe different aspects of patient care.

This is important for all levels of the company because higher-level managers can easily lose touch with the patient experience. Given the sensitive nature of medical care, hospitals need to ensure that actions are taken to protect the patient privacy. Many hospitals have completely transformed their organizations to be more customer centric. Books such as Management Lessons from Mayo Clinic and Service Fanatics: How to Build Superior Patient Experience the Cleveland Clinic Way chronicle those transformations. Research Len Berry on this topic may be useful to read as well.

5. A hotel is implementing a new training program for employees to increase customer satisfaction rates. How would you design the training program to be as effective as possible?

The training program should inform employees about customer needs and priorities; educate them on how to deliver the qualities customers value; encourage a “systems level” view of the company and how every facet of it impacts the customer; empower employees so that they take initiative to solve customers’ problems instead of passing the buck; and build an internal brand and culture that align with the company’s external brand.

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BEST PRACTICE DISCUSSION QUESTIONS Itaú Unibanco 1. What organizational factors were important to Itaú’ Unibanco’s digital transformation?

The biggest factor that resulted in the digital transformation was the organizational shift to being customer-centric from product-focused. That shift prompted the bank to define new areas of emphasis (technology, user experience, innovation, communication, CRM, and business financial performance), new methods (design thinking, customer-centric design, and agile development), and shared goals between IT and banking to ensure a more collaborative environment.

New employees, including anthropologists and sociologists, were hired to generate customer insights and identify customer needs as well as designers and technology experts to build the solutions.

2. What growth opportunities do you envision for Itaú Unibanco and what is the best organizational approach to develop and implement these growth strategies?

Itaú Unibanco should continue its customer-centric focus when thinking about growth opportunities. The bank needs to continue to ask itself “Why do certain customer segments not use banks and how can we make it easier for them?” Itaú Unibanco’s digital and mobile improvements are big steps to make its services more available when and where customers need them.

What other barriers do potential customers face to using banks? Lack of trust in banks? Lack of financial literacy about the true costs of using alternative financial services such as payday lenders? Lack of time to visit a branch office? No internet connection to be able to use digital services? Feelings that the bank does not offer personal solutions or care about individuals?

What financial needs do customers have, but the bank does not serve? For example, can the bank offer its own check cashing service that will provide a foothold to transition customers to more inclusive banking services? Can the bank provide lessons showing customers how they spend their money and how to build wealth through the bank?

An organizational approach to achieve growth opportunities is to maintain a marketing and/or market research department whose purpose is to understand the needs of consumers and recommend targeted campaigns or product offerings that the customer wants.

3. Is Amazon or Alibaba a threat to Itaú Unibanco?

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Both Amazon and Alibaba are not currently direct threats to Itaú Unibanco, but are peripheral threats. Amazon has become a tech behemoth and can very likely get into the banking space if and when it chooses. Amazon is also a threat to creating high customer expectations. Both firms are pioneers in the tech space, creating mobile apps that are extremely user friendly. With those high standards in place, Itaú Unibanco must perform at least as well to deliver on customer expectations.

The Philips Journey to Customer Centricity 1. How did the new brand positioning guide the firm’s customer centricity?

Philips’ new brand positioning—dubbed “Sense and Simplicity”—helped reorient the company in several fundamental ways. It became the internal brand of the company that put the focus on the customer’s experience instead of the technology itself. All new products had to be put through these criteria to ensure they were creating customer value. The hiring and firing of employees was driven, in part, by whether they were willing to support this new brand positioning. The metric used by the company—the Net Promoter Score—was focused on customers’ first, not firm sales or market share. Regarding competencies, Phillips identified gaps within their marketing organization that were key contributors to customer value, and sought to fill them through a governance board.

2. Why was the Net Promoter Score an effective metric for Philips to adopt during its journey to customer centricity?

The Net Promoter Score was significant for Philips because it helped the company measure long-term drivers of value, such as customer experience and satisfaction and shift away from short-term outcomes, such as sales and profits. By putting an emphasis on creating products that provide value to customers, Philips put itself in a position to receive customer loyalty, positive word of mouth, and more share of wallet over time. Also, because many different parts of the company came to rely on the net promoter score approach, it helped ensure that the voice of the customer played a critical role in driving investments and decisions across the company.

LinkedIn’s Greatest Assets 1. What are the three key aspects of LinkedIn’s customer management approach?

• •

A self-reinforcing cycle that makes recruiters and job seekers equally attractive to one another.

The ability to quickly roll out new offering due to its existing customer relationships and brand equity.

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•

An active user base that provide ongoing insights for future product development.

2. What new customers might Microsoft target with the data it has acquired and will continue to acquire from the LinkedIn acquisition? What types of companies would be most interested in this data?

Microsoft might consider taking the data it is acquiring from LinkedIn and feeding it into its existing Customer Relationship Management (CRM) software.

This would be particularly attractive to account managers and others sales leaders at major B2C and B2B companies, as it would enable them to tie outreach efforts to key relationships in their teams’ networks.

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CHAPTER INSTRUCTOR NOTES Chapter 17 – How Marketing Creates Value for the Company CONTENT OF CHAPTER 17 1. Marketing-related expenditures create intangible assets that provide substantial value to firms, even though these expenditures are often treated as costs rather than as investments. Marketing assets are similar to traditional, tangible assets in that they can increase product value, reduce costs, create barriers to entry, enable future growth, and increase the value of other firm resources.

2. Customer relationships are one type of marketing asset. Strong relationships make market share less vulnerable, increase customer retention, increase share of wallet, allow for cross-selling of new offerings, and lead to word-of-mouth endorsements. The sum of the value of the firm’s customer lifetime value is the firm’s customer equity.

3. Brands are another type of marketing asset. A strong brand can demand a price premium, increase brand consideration, facilitate customer acquisition, provide better options for growth, protect against switching and new entry, attract better human capital at a lower cost, and even lower the cost of debt.

4. Marketing assets not only enable higher cash flows (increased revenue, decreased costs), but they also enhance firm value through other financial levers: faster cash flows, less volatile cash flows, and less vulnerable cash flows.

The Value of Marketing Assets Discuss the value of marketing expenditures as investments in intangible marketing assets as opposed to the traditional treatment of these expenditures as single-period costs. Generate a short list of common marketing expenditures (e.g., advertisements, promotions) and ask students to identify how each might contribute to marketing assets. For example, advertisements enhance the value of brand assets and price promotions can build customer relationships by attracting new buyers.

Ask students to provide some examples of high-profile company acquisitions or IPOs in the tech or social media industries. Examples might include Microsoft’s acquisition of LinkedIn, Amazon’s acquisition of Twitch, Facebook’s acquisition of Instagram or Whatsapp, or the IPO of Facebook or Snapchat. Ask students to estimate what percentage of the value in each case was attributable to physical assets, to intellectual property, to human capital, and to intangible marketing assets, respectively. Note how, particularly for social networks, the brand asset and user relationships are responsible for a tremendous amount of firm value.

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Brand Assets and Value Creation Discuss the brand value of Apple. What role does the Apple brand play in the overall value of the company and the value of its individual products? What do customers automatically infer from the Apple name, and how difficult would it be to build those same associations for a new brand?

Ask students about their Apple products. Is anyone a devout Apple fan? How reliably and quickly will they buy new Apple products, how closely do they follow Applerelated news, and how much more are they willing to pay for a Macbook than for a competing product with the same general specifications? How quickly would they abandon Apple in the event of a public scandal? This discussion should highlight Apple as a great example of the many ways that a brand asset can create value: by accelerating product adoption, by decreasing the volatility of cash flows, by increasing willingness to pay, by facilitating earned media coverage, and by creating barriers to competition, among others. It may also be interesting to ask students how willing they would be to work for Apple and whether they would accept a slightly lower salary for doing so. Such behavior would reflect the idea that strong brands can lower the costs of recruiting and labor.

Building on this discussion, emphasize that this asset not only increases and accelerates future cash flows, but also decreases the riskiness and volatility of those cash flows, thus lowering the firm’s discount rate.

Relationship Assets and Value Creation Ask students about the brands they have a strong or long-standing relationship with.

Do they consistently buy from the same brand? Do they buy the company’s other products, spread positive word-of-mouth, provide helpful feedback to the company, or instinctively have a negative reaction to competing brands? Does the relationship they’ve built with the company create switching costs that would make it unpleasant to change brands? This discussion should highlight the many way that customer relationships can create value—by encouraging repurchase, by increasing sales of new offerings, by providing free advertising and customer insights, and by defending against competitive threats, among others.

Again, emphasize the role of customer relationships in improving both the company’s cash flows and its discount rate, thereby doubly enhancing firm value. Also discuss the value of relationships with suppliers, retailers, or other partners. These relationships can make the firm’s operations faster, more efficient, and more flexible.

CAPSTONE EXERCISE The objective of this exercise is to give you an opportunity to link concepts discussed during this course with an actual business.

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Instructions: • • • • •

Form groups of 2-4 people.

Select a company represented by someone in your group or a company in which the group has an interest.

Discuss and respond to the questions below.

Be prepared to share your observations with the class.

Note that parts of this exercise could be added to the class project listed in the sample syllabus in the “Syllabus and Case Selection Guide.” Instructors could also pluck off a subset of these questions for the final class.

Questions: 1.

2.

3.

4.

Give a brief description of the company your group selected.

Describe the industry this company is classified.

What are the Key Success Factors for this industry (basis for competition)?

Who are your company’s direct and indirect competitors? Sources of substitute products? Potential competitive entrants?

5. What assets and competences are required for your company to maintain a Sustainable Competitive Advantage?

6. Identify your company’s strengths and weaknesses.

7. What opportunities exist for your company?

8. What are some potential threats that could impact your company?

9. What type of customer value does your company offer? Why is it or is it not a customer value leader? What would it take to become one?

10. Map the customer journey and the corresponding purchase funnel for the company. What are the biggest threats and opportunities?

11. Map the associations linked to the company’s brand. What its strengths and weaknesses?

12. How is your company currently growing? How should it leverage its current marketing assets for growth? Energize the business for growth? W 13. What marketing assets does your company have? How do they create value for the company?

14. What could your company do to enhance or leverage its marketing assets for growth and long-term performance?

FOR DISCUSSION 1. You work for a big-box retailer that is on track to miss its financial targets this year and your CEO wants to cut costs by reducing the marketing budget next quarter. How would you argue against this?

Cuts to marketing are often used as a short-term budget fix, in large part because marketing investments are treated as expenses. The CEO should be persuaded that

© 2018 John Wiley & Sons

Chapter Instructor Notes

Chapter 17 – page 3

the marketing budget is not simply a driver of short-term sales but a generator of immensely valuable intangible assets including customer relationships and strong brands.

2. Look at the strong and weak recruiters coming to your university to hire. How do these firms’ marketing assets affect their success in recruiting you and your peers?

Firms’ brands and customer relationships strongly influence their ability to compete for talent. Employees prefer to work for well-known and trusted brands; they will often accept lower compensation or work harder for a brand they identify with, particularly at upper management levels; and firms that are top-ofmind through customer relationships or brand reputation are more likely to be considered by job seekers.

3. Take your favorite Internet start-up and rate its marketing assets as might be observed by potential acquirers. What needs to be improved and what has value?

Discussion should include brand recognition and associations, breadth and depth of customer relationships, and channel relationships where applicable. Areas to improve might include broader brand recognition, stronger brand associations, deeper customer relationships, or moving beyond an initial niche offering.

4. Consider the placement of Starbucks into grocery stores. Pick two different local grocery store chains in your area and rate how well each performs on brand and customer relationships. How do these assets affect Starbucks’ entry and the terms of the deal?

Discussion should highlight the ability of strong market assets to add value for new offerings, initiatives, and alliances. Marketing assets can give the firm a stronger negotiating position with partners, accelerate customers’ adoption of new offerings, and make partnerships more efficient and productive by improving trust between partners.

5. Two large manufacturers make similar products but have different branding strategies: one houses all of its products under the parent brand, but the other has a collection of different brands that are unconnected in the minds of consumers.

Which of these companies would you expect to have a higher discount rate, and why?

Although the firm with a single parent brand takes certain risks in linking all offerings to its main brand, a history of using this strategy properly can build a very strong brand asset. This asset accelerates adoption of new offerings, decreases vulnerability to competitors or market shocks, and decreases volatility of cash flows. All of these are likely to result in a lower discount rate compared to the competitor that uses a collection of disconnected brands.

© 2018 John Wiley & Sons

Chapter Instructor Notes

Chapter 17 – page 4