Prof. Mateo Aboy, PhD, SJD, FIP

Academic & Personal Site

The Experience Economy

Pine and Gilmore have argued that the "experience economy" represents the current state of economic development in advanced nations: from "extracting" commodities, to "manufacturing" goods, to "delivering" services, to "staging" performances.

The following table lists the characteristics of each stage of economic development:

-Offering: Commodities, Goods, Services, Experiences
-Economy: Agrarian, Industrial, Service, Experience
-Function: Extract, Manufacture, Deliver, Stage
-Nature: Fungible, Tangible, Intangible, Memorable
-Attribute: Natural, Standardized, Customized, Personal
-Supply Method: Bulk, Inventoried, On-Demand, Revealed over duration
-Seller: Trader, Manufacturer, Provider, Stager
-Buyer: Market, User, Client, Guest
-Demand: Characteristics, Features, Benefits, Sensations

References:
[1] Doyle, "Marketing Management & Strategy"
[2] Chong, "International Marketing Study Guide -- U.London (External)"
[3] Drucker, "Innovation and Entrepreneurship"
[4] Levitt, "The Industrialization of Service"
[5] Heskett, "The Service Management Wheel"
[6] Pine and Gilmore, "Economic Functions"

Service Marketing

In the Triad nations (Ohmae) services account to 60% to 70% of national output. Services are currently the fastest growing part of international trade. In affluent societies, services tend to provide higher marginal utility than goods.

It is sometimes difficult to differentiate products from services, since we typically encounter a product-service continuum. The following characteristics increase the service component of the continuum:

-1. Intangible: physical nature (tangibility) is less important
-2. Perishable: inventories cannot be kept
-3. Heterogeneous: services are "performances" and no two performances are identical.
-4. Inseparable: Production and consumption take place simultaneously.

Lovelock proposed a series of questions to help classify services and gain strategic marketing insight.

-1. What is the nature of the service?
-2. What type of relationship does the service organization have with its clients? (i.e. membership, no formal relationship, etc).
-3. How much room does the service organization has for client customization?
-4. What is the nature of the demand?
-5. How is the service delivered?

The delivery of services poses serious difficulties for managers. Of special importance is managing of personnel/employees, quality control, and productivity. Levitt proposed several solutions in his seminal paper "The Industrialization of Service" (HBR). In this line, Heskett proposed the "The Service Quality Wheel."

References:
[1] Doyle, "Marketing Management & Strategy"
[2] Chong, "International Marketing Study Guide -- U.London (External)"
[3] Drucker, "Innovation and Entrepreneurship"
[4] Levitt, "The Industrialization of Service"
[5] Heskett, "The Service Management Wheel"

Components of the Marketing Environment

The marketing environment can be divided into the micro-enviornment and the macro-environment. The competitive forces identified by Michael Porter in his seminal works "Competitive Strategy" (1980) and "Competitive Advantage" (1985) offer an instructive framework to study the components of the micro-envioronment and the factors that determine the competitive structure of the industry.

Porter five micro-enviornment forces include: 1) intensity of the industry competition, 2) bargaining power of suppliers, 3) bargaining power of buyers, 4) threat of new entrants, and 5) threat of substitute products.

Macro-enviornmental factors include PEST=Political, Economical, Societal, Technological, as well as legal and regulatory.

Both micro- and macro-environmental factors can change slowly or suddenly (disruptively) and have significant consequences for companies. The ability of companies to change fast or lead change (Kotter) is nowadays a significant competitive advantage.

References:
[1] Doyle, "Marketing Management & Strategy"
[2] Chong, "International Marketing Study Guide -- U.London (External)"
[3] Drucker, "Innovation and Entrepreneurship"
[4] Porter, "Competitive Strategy" (1980)
[5] Porter, "Competitive Advantage" (1985)
[6] Kottler, "Leading Change"

Segmentation and Targeting

Market segmentation is the process through which the total market is broken down to create distinctive groups. Kotler defines a market segment as "consumers that respond in a similar way to a given set of marketing stimuli."

The concept of segmentation was first introduced by Wendell Smith ("Product Differentiation and Market Segmentation as Different Alternative Strategies"). Segmentation is disaggreative in its effects. It consists of viewing a heterogeneous market as a number of smaller homogeneous markets. Thus, the first step in the segmentation process is to "segment" the market so that we can target the segments we want to pursue (i.e. determine in what markets we want to compete). Bases for segmentation include:

-1. Demographics: age, sex, religion, marital status, socio-economic, etc.
-2. Geographics: location, climate, terrain, population density
-3. Psychographics: AIO=Activities, Interest, Opinions & VALS=values, attitudes and lifestyle (need-driven, outer-driven, inner-driven)
-4. Behavioral

Regardless of the base for segmentation used, a target segment should be: 1) identifiable (well-defined), 2) economically reachable, 3) large enough to be profitable, and 4) more homogenous than the original market.

Doyle points out reasons to segment. These include: 1) targeted communications, 2) enhanced customization and customer service, 3) better matching of the customer needs, 4) enhanced profits, 5) enhanced opportunities for growth, 6) stimulation of innovation, and 7) market segment share.

Following the identification of the segmentation variables, a firm must decide those segments it aims to target and the positioning strategy.


References:
[1] Doyle, "Marketing Management & Strategy"
[2] Chong, "International Marketing Study Guide -- U.London (External)"
[3] Drucker, "Innovation and Entrepreneurship"
[4] Smith, "Product Differentiation and Market Segmentation as Alternative Strategies"

Positioning

Positioning means different things to different people. Some marketers consider it to be a segmentation decision while others view it as an image decision. The term positioning differs from the older term "image" in that positioning implies a frame of reference (e.g. position), namely that of the competitors.

Positioning decisions are critical as they can be central to a consumer's perception and choice decision. Ries and Trout ("Positioning: The Battle for Your Mind") define positioning as what is created in the minds of the target customers. Positioning is about image of the product in the mind of the selected target group vis-a-vis competing firms. Thus, positioning relates to the personality of the product as well as to the image and brand.

Ogilvy defines positioning as "what the product does, and who it is for" ("Ogilvy on Marketing"). The objective is to evoke an emotional response.

The steps to an effective positioning strategy include:
-1. Identify the competitors: primary & secondary
-2. Determine how competitors are perceived by the target segment
-3. Determine the positioning of the competitors
-4. Analyze the customers, their needs, wants, and demands
-5. Select a unique and differentiated positioning
-6. Monitor the position

Positioning strategies include: 1) by attribute, 2) price/quality, 3) use or application, 4) product user, 5) product class, and 6) competitor.


References:
[1] Doyle, "Marketing Management & Strategy"
[2] Chong, "International Marketing Study Guide -- U.London (External)"
[3] Ries & Trout, " Positioning: The Battle for Your Mind" (1981)
[4] Ogilvy, "Ogilvy on Marketing"

New Product Development

An important point to keep in mind when considering issues related to new product development is the fact that most "new products" are in fact "not new." Firms typically consider 1) New product lines (which other companies may already have), 2) continuous improvement to existing products, and 3) additions to product lines as "new products."

Two important concepts related to new product development are the "adoption" and "diffusion" processes. The adoption process involves the following steps: 1) awareness, 2) interest, 3) evaluation, 4) trial, and 5) adoption. The diffusion process divides the adopters into 1) innovators, 2) early adopters, 3) early majority, 4) late majority, and 5) laggers.

References:
[1] Doyle, "Marketing Management & Strategy"
[2] Chong, "International Marketing Study Guide -- U.London (External)"
[3] Drucker, "Innovation and Entrepreneurship"

Product Life Cycle (PLC)

The concept of product life cycle (PLC) is very prominent in the field of marketing. Briefly, the PLC concept relates the unit sales of a product versus time as the product goes through the different stages: 1) introduction, 2) growth, 3) maturity, and 4) decline. The theoretical curve of the unit sales vs time is S-shaped due to the nature of the diffusion and adoption of innovations. While the PLC concept is widely used, some marketing scholars have pointed out important practical limitations of the PLC concept (Doyle). These are:

-1. Undefined concept.
-2. No common curve shape (different products have different shapes).
-3. Unpredictable turning points
-4. Unclear implications
-5. No Exogenous (the turning points are typically due to internal management decisions as opposed to external market forces).
-6. Product oriented as opposed to customer oriented.

It is also important to note that the PLC does not apply well to brands.

References:
[1] Doyle, "Marketing Management & Strategy"
[2] Chong, "International Marketing Study Guide -- U.London (External)"
[3] Drucker, "Innovation and Entrepreneurship"
[4] Robergs, "Diffusion of Innovations"

Innovation

Innovation is identifying consumer needs, and satisfying them with goods or services in a new, creative, and insightful way that generates a profit. The main sources of innovation are 1) customer needs, and 2) technological developments. Both are essential.

Peter Drucker points out that the secret of innovation is not to try to predict the future. The secret is to be able to react more quickly to market opportunities, based on a deep understanding of the present. In his seminal book "Innovation and Entrepreneurship" (1985) he stated this as predicting the future that has already happened.

It is also important to note that innovation is not invention. Innovation is a marketing concept while invention is an engineering concept.


References:
[1] Doyle, "Marketing Management & Strategy"
[2] Chong, "International Marketing Study Guide -- U.London (External)"
[3] Drucker, "Innovation and Entrepreneurship"

Brand Valuation

Brand valuation emphasizes that the most valuable assets a firm has are not tangible, rather intangible assets such as brands, trademarks, know-how, management expertise, etc. Brands are becoming increasingly respected as enduring assets. However, in most cases the full value of a brand is only realized when brand portfolios are sold or licensed (e.g. Gillette to P&G). Accounting standards typically do not recognize the market value of intangible assets (i.e. these are not noted in the balance sheet). This is because it is difficult to provide brand valuations that are objective and verifiable.

Aaken suggest a few possible approaches for brand equity valuation:

-1. Study the price premium generated by the brand (i.e. compare the price of the branded product against unbranded equivalent products).
-2. Use the market value of the firm (i.e. stock price) minus all the tangible assets the firm owns.
-3. Estimate the discounted present value of future earnings attributed to brand-equity.


References:
[1] Doyle, "Marketing Management & Strategy"
[2] Aaken, "Building Strong Brands"
[3] Aaken, "Brand Leadership"
[4] Chong, "International Marketing Study Guide -- U.London (External)"

Brand Development

Levitt and Doyle stress that building powerful brands starts with a strong/quality product (tangibles). When a quality product targets a well-defined segment, is well-positioned, and satisfies the needs of customers it is possible to take the next step and develop the "basic brand" -positive associations, design, benefits, etc. The basic brand can be further developed into an "augmented brand" by exceeding the customer expectations through service (enlarging the core product), and this into a "power/potential brand" that will provide additional emotional/psychological benefits.

Kapfferer provides a framework for "brand building:"

-Attributes: rational product features
-Functional Benefits: rational expectations as a result of using the brand
-Emotional Rewards: emotional benefits from using the brand
-Values of Users: what the users of the brand care about the most
-Personality: image of the brand expressed in human terms
-Essence: the "soul" of the brand. The single idea that fuses key emotional and functional benefits.


References:
[1] Doyle, "Marketing Management & Strategy"
[2] Aaken, "Building Strong Brands"
[3] Aaken, "Brand Leadership"
[4] Chong, "International Marketing Study Guide -- U.London (External)"
[5] Kapfferer, "Strategic Brand Management"
[6] Levitt, "Marketing Success Through Differentiation - or Anything" HRB

Package Design

The importance of a good package design has been noted by marketing scholars as an often overlooked aspects of product decisions. Good packaging is a critical element in the positioning of the product. Why? Because many customer decisions are made at the point of purchase (e.g. grocery store purchase). Good packaging design helps 1) differentiate the product and 2) it gives it self impact.

Coley Porter Bell stresses that "visual equity," like brand equity, translates into goodwill (i.e. intangible assets of economic value). Visual equity should:

-1. Be a trigger for recognition and purchase.
-2. Be Differentiated.

Package design involves considerations on 1) symbol, 2) signature, 3) color, 4) shape, 5) style, and 6) slogans. A good illustrative example of great packaging is Apple Inc.


References:
[1] Doyle, "Marketing Management & Strategy"
[2] Aaken, "Building Strong Brands"
[3] Aaken, "Brand Leadership"
[4] Chong, "International Marketing Study Guide -- U.London (External)"

Name Development

According to Aaker, it is wasteful to attempt to community brand attributes and benefits until a name is established in which to associate attributes. The name is central to the personality of a brand or business. Several name qualities are recommended. The name should:

-1. Suggest something about the "benefits"
-2. Suggest product qualities/features/attributes or associations
-3. Be easy to pronounce, recognize, and remember
-4. Be distinctive
-5. Should not carry poor meanings in other languages

The quality of a name is typically assessed using four tests: 1) the association test, 2) the learning test, 3) the memory test, and 4) the preference test.


References:
[1] Doyle, "Marketing Management & Strategy"
[2] Aaken, "Building Strong Brands"
[3] Aaken, "Brand Leadership"
[4] Chong, "International Marketing Study Guide -- U.London (External)"

Brand Equity

Brands have immense value to firms. They are critical to differentiate the company's products and services and protect them against becoming a commodity. It is important to distinguish between name recognition and brand equity. McKinsey distinguishes between: 1) Names -name recognition, 2) Brands -names become brans when consumers associate a set of intangible and tangible benefits to the product/firm, and 3) Power Brands -brands that create strong emotional bonds, strong associations, customer loyalty, and yield price premiums. Power brands have personality, presence, and create strong emotional/psychological bonds.

Brand equity requires differentiation and a strong alignment between what the company communicates about the brand with what it actually delivers. Having a powerful brand is critical to protect the firm and customers against imitators.

Aaker notes that brands have assets and liabilities associated with them. These can be related to 1) customer loyalty, 2) name recognition, 3) perceived quality, 4) brand associations in addition to perceived quality, and 5) other proprietary brand assets. Important points to consider include the trade dress, design patents, trademarks, copyrights, and other IP protection.

References:
[1] Doyle, "Marketing Management & Strategy"
[2] Aaken, "Building Strong Brands"
[3] Aaken, "Brand Leadership"
[4] Chong, "International Marketing Study Guide -- U.London (External)"

Identity and Image

Brands are at the heart of business strategy. In fact, one of the main objectives of marketing is to decommoditize the company offer. If the offer (product or service) is perceived as being the same as those of the competitors, then the consumers will be indifferent and will choose the cheapest product. Companies that are forced to compete on price alone (i.e. the product is a commodity) rarely make satisfactory profits.

The purpose of marketing is to create a preference for the company's brand. This intangible asset is critical to adding value to the firm because identity and image are central to the positioning of products in various markets. Identity must have two facets: 1) purpose and 2) sense of belonging. A clear identity becomes a yardstick against products and company actions are measured.

It is important to realize that identity is more than a slogan. It must be visible, tangible, and all embracing. The company's identity, standards, culture and values are reflected by the products, services, buildings, communications, etc.

References:
[1] Doyle, "Marketing Management & Strategy"
[2] Aaken, "Building Strong Brands"
[3] Aaken, "Brand Leadership"
[4] Chong, "International Marketing Study Guide -- U.London (External)"

Globalization and Marketing

Globalization -the fact that our economic systems and culture are networked as part of a global system- has significance in marketing. For instance, Theodore Levitt made the case that since the world is becoming standardized and homogenous companies must adapt (The Globalization of Markets, Harvard Business Review). According to Levitt, companies have the opportunity to offer the same products everywhere and run global marketing campaigns (i.e. standardized campaigns). He attributes the main force driving this trend to technology and the fact that human beings desire similar things.

Critics to Levitt, such as Douglas and Wind, point out that standardization is only one of the options available to enter foreign markets. Levitt's thesis applies particularly well to upscale markets and especially to certain groups such as young people interested in global brands, business executives, and wealthy individuals (e.g. items such as Rolex, BMWs, Jaguars, Upscale personal items, etc). Additionally, mass appeal brands such as Coca-Cola, Levis, Nike, Apple, etc have unique opportunities for global campaigns and standardization. Nevertheless, Douglas and Wind, consider these examples exceptions rather than the rule.

Despite the fact that globalization plays a significant role on companies some authors such as Yao-Su Hu caution that the sources of competitive advantage of firms still typically lie in the home nation, and foreign sources often can only supplement national sources but are not sufficient as a substitute. According to Hu, global or stateless corporations are national firms with international operations.

References:
[1] T. Levitt. "The Globalization of Markets." HBR 1960
[2] T. Levitt. "The Pluralization of Culture." HRB 1988
[3] S. Douglas and Y. Wind. " The Myth of Globalization." Columbia Journal of World Business 1987
[4] Y. Hu. "Global or Stateless Corporations Are National Firms with International Operations" California Management Review 1992