Quantitative Market Assessment
Competitive Analysis of Market Positioning Purpose of the QMA Businesses have long valued competitive intelligence. ...
Cecilia started a coffee bean mini-consortium three years ago, creating partnerships with coffee bean wholesalers specializing in custom roasting. After nearly two years of success, Cecilia added roasters specializing in premium Hawaiian Kona and Jamaican Blue Mountain. Now, one year later, accounting indicates a 15% YOY decrease in gross sales revenue. The new premium roasters of non-mainland coffee beans encountered numerous problems from the launch: distribution channels (now including importers) failed to match the experience she was used to (and needed for the products to succeed). Inconsistency was much greater than in other beans and roasters. Moreover, Cecilia suspected competition was taking the vast majority of the market (including premium sourcing), as the systemic problems with the expanded product line bled over into existing roaster operations simply because of the time required to deal with the new product headaches. Were the new offerings simply poor quality, or were there problems at the roaster? How did competitors handle these offerings? How can the business bounce back if they can’t quantify or explain the various fail points in the most recent initiative?
The vast majority of businesses do not operate with an initiative-specific marketing plan–an output of a formal strategic planning process. In a worst-case, management plans market entry using a combination of past business experiences, anecdotal market knowledge, and intuitive decision-making.
For many, marketing is a necessary but separate activity from the primary work of the business, a task added to the end of the business process to communicate the availability of products or services through advertising, maintaining a professional website, offering discounts. For many, in other words, marketing is a set of tactics that occur after everything else is complete.
The foregoing of a marketing strategy is not merely to lose some discrete planning advantage, such as using a less effective tactic in marketing a product or service. Instead, failure to develop a marketing strategy that informs all aspects of the business model, from targeting customers to defining distribution channels, is to move forward with a partial business model at best. Marketing includes all strategic and tactical activities that create value in a chosen market.
When a company identifies an unmet need, designs a product to meet that need, and brings the product to targeted customers, the company has, in fact, identified value, designed the value, and delivered that value. The defining characteristic of a company’s market is not a product or service, but the customer needs. Creating value for the target market is how the need is addressed. The function of marketing is to create, deliver, and sustain value.
The core of marketing strategic planning is the goal, strategy, and tactics, all fundamentally connected and working together for one purpose, to create value for customer targets with a specific unmet need.
The goal provides the ultimate measure for the initiative and includes the focus (e.g., reduce revenue) and the benchmarks (e.g., 20% in 12 months). The strategy defines the value created in a specific market. The tactics describe the offering to be designed and developed for the market.
Understanding the relationship between Goal, Strategy, and Tactics is a first step guiding the development and implementation of a marketing strategy. However, the numerous sub-components of these 3 elements, the exponential dimensions, combinations, and questions, can quickly become overwhelming.
. . . Identifying complex customer segments, creating messaging for channel partners, determining internal company incentives, comparing the product attributes of a key competitor with the proposed offering, measuring the price elasticity for a competitor’s product . . .
The interplay among the numerous components adds a level of complexity that would be cumbersome if the detailed list of questions, components, their characteristics, and how they influence each other in order to create value needed to be manually recreated for every marketing initiative. Instead, marketing frameworks are used as an organizational device that functions at a general level but is applied to the specifics of each instance of use. While frameworks are used to solve complex problems, significant value comes from the reduction in time and effort, trial and error, that would otherwise render many large scale endeavors time-prohibitive.
Conceptual frameworks are used for multiple purposes (research, analysis, decision making, description) and are found in most professional disciplines. They are often specific to their generating field of expertise, but some framework functions are common:
While a generalized marketing framework can be seen as a roadmap, it is the latter purpose in which marketing frameworks excel. Once a framework is standardized, tested, and widely used in a given field, practitioners can avoid building out solutions from the ground up. Instead, by starting with a framework, generalizing the problem, and applying it to a current situation, practitioners are able to solve problems efficiently, effectively, and at a variable scale.
Imagine a consultant requested to determine the best way of getting a new organic soft drink to market. To determine available options, she analyzes the industry and distribution dynamics. After a comprehensive review of the industry’s distribution functions, the consultant determined the key questions the new business must answer to choose a distribution model.
Since each channel has a structure that is direct, indirect or hybrid from manufacturer to customer, the new business must determine if the product needs to go direct from factory to customer or less directly.
Since each channel has a format that defines the coverage of outlets for offerings, the new business must determine their target area(s) in order to choose distribution.
Since each distribution channel has numerous entities both vertically and horizontally, entities with greater power are given preferential treatment within a channel with benefits such as convenient delivery schedules, better shelf space, and ultimately better margins. An offering with significant customer demand, with few alternatives, can exercise some power to ensure equitable treatment, The new business must determine if demand and scarce alternatives will ensure equitable treatment.
Marketing frameworks exist for various specific challenge types: Start-up frameworks, content marketing frameworks, pricing frameworks, import marketing frameworks. The purpose of this article is to introduce a generalized marketing framework designed to aid decision-making from goal setting to distribution and beyond.
The framework core of GST, Goal, Strategy, and Tactics provides the majority of the decisions required to guide marketing planning and actions. While implementation and analytics are often conceptually situated at the end of business actions, realistically decisions around deploying in the market and measuring performance begin early and throughout the GST framework.
While “selling more product efficiently” may be an immediate response to questions around goal setting, only a clearly defined and measurable goal can be used to develop a meaningful and aligned strategy and set of tactics. Any business goal requires a focus for the initiative and benchmarks that measure achievement. Goal focus can be financial, whether ROI, net income, margins; or strategic, impacting metrics such as brand awareness, or increased volume for a specific segment. The benchmarks, in turn, apply performance measures to the goal focus, both quantitative and temporal–how much and when. For example, a goal focus of increasing gross revenue for a specific product line could have benchmarks of 12% in six months.
Once a focused, measurable goal is identified and defined, the strategy articulates the target market and the value to be created in that market. Targeting a specific customer segment demands identifying customers the company will prioritize. Targeting can include multiple segments, as well as targeted product differentiation for each segment when cost-effective. In concert with targeting, a company must develop a value proposition for the customers targeted in a somewhat iterative process: while the identification of target customers determines the value proposition because of their defining need, the value proposition also determines the target customers as the group for whom the company is well-suited to create value. While the customer value proposition drives strategy, other value propositions are required to address the needs of collaborators, such as suppliers and distributors, retailers, external sales, etc. Finally, the company must also have a clearly defined value proposition for itself, whether purely profit-driven value, strategic value or a mixture.
Now that the focused measurable goal has an identified target and clear value proposition for customer, collaborator, and company, tactics are used to define the offering’s attributes: product, service, brand, price, incentives, communication, and distribution. The seven tactics describe the methods by which the company strategy will become an offering creating value in the market. While significant analysis is required to validate target markets, the majority of the effort for bringing an offering to reality occurs with tactics. Each of the seven tactics contains multiple levels of complexity, must address value creation for customer, collaborator, and company; and interconnect and influence one another.
Using the GST Framework to develop the Strategic Marketing Plan requires a deep dive into the general framework, asking key questions at each step, and applying the general guidance to the situational specifics of the company initiative considered.
The framework can be used for any business challenge of significance and complexity. While often considered a framework for launching a new product or service, the framework should be considered for any significant business offering that is operating without a marketing plan, and has never had key assumptions, decisions, and practices validated through a strategic planning process or framework.
The goal focus (e.g., increase profitability, increase market share, increase revenue) should have a quantitative financial or strategic benchmark with defined timelines for achievement. While most for-profit businesses will define a primary financial goal focus, many will accompany it with strategic goals they feel will provide tangible benefits. For example, an online coffee bean vendor will certainly have a clear financial goal and benchmark but may set supplier standards to encourage trade with governments and growers that ensure fair treatment of workers. While not a financial benefit, the social equality goal might influence customers who in turn increase the sales volume of the company.
While the goal (focus and benchmarks) drives all marketing activities, applying this overarching goal to a traditional 5-C Marketing Model will help a business analyze the subgoals contributing to the success of the main goal. These smaller goals define specific changes required of customers, collaborators, competitors, company, and context. For example, an overall goal of sales revenue from a new, adjacent customer segment requires behavior change moving them from prospects to first-time purchasers. Collaborator changes could include differently optimized support for the new customer segment, as well as a changed distribution to reach the segment where they shop. Changing the behavior of competitor businesses may seem like a difficult objective, but an objective to limit competitor access to the target segment through early and advanced SEO techniques can change competitor behavior as they de facto stop advertising to the segment. Similarly, creative cost-effective design and aggressive pricing models can block competitors from reaching the segment through popular online retailers such as Amazon which will “spotlight” the most popular/best value offerings for a given product type. For these objectives to work together, a company’s internal objective of reducing Cost of Goods Sold (COGS) is necessary to outreach the competitor and enable the competitor objectives of limiting their advertising to the new target segment. Finally, the 5th C is Context or Climate and designates a broad change objective not always feasible for a company. For example, an objective of tax-friendly regulatory changes aligned with manufacturing a more cost-effective product aligns with the other market objectives, which in turn make possible the ultimate goal of revenue from a new segment.
The goal benchmarks begin at a high-level (e.g., 12% revenue increase in 12 months) and can be tracked with minimal detail from the accounting department on a monthly basis. However, ensuring market objectives change in anticipation of the overall goal requires specific controls for individual indicators. Serving a new customer segment might require moving them through the top of the sale funnel from no awareness to awareness, then to preference, etc. Depending on the source of the news segment, it could be possible to reach them where they currently are (e.g., using an adjacent market product) and be able to serve them information and receive feedback. Collaborators’ ability to optimize for a different customer segment can be measured, depending on the type of collaborator. For channel partners, demonstrating the ability to function in the new target customers’ market, or ability to make shelf space for new displays at different locations, or even a new transportation method for direct to customer shipment–all can be demonstrated and measured in advance. For other market objectives, tracking internal cost reduction is a straightforward control to enact. Unless specific changes are expected in the climate, it might be unwise for any goal to require it.
As noted above, identifying the target and creating the value proposition are intricately linked, as each helps define the other. However, at this point, a business would have completed a preliminary analysis identifying not only an unmet need but the potential value locked inside the market in question. Completing a Comprehensive Market Assessment (QMA) or similarly thorough competitive analysis establishes the landscape in which a company exists.
Competitive Analysis of Market Positioning Purpose of the QMA Businesses have long valued competitive intelligence. ...
In the targeting step, a business identifies an unmet or poorly met need, and identifies the target customers to whom it plans to provide a superior value solution. Typically, customer targets are composed of segments, customers combined into groups based on traits, whether intrinsic, logistical, or associative. The logic of segmentation follows the type of need being met and value defined for development and delivery. Companies obtain segment data from a variety of sources: the company CRM/CDP platforms, existing market research, custom analytics combining 1st party “direct” data from owned systems, 2nd party “direct” data from another business’s systems, and even resold 3rd party data; or finally, even specific research aimed at such a market analysis (see QMA). Below are some common segments used in targeting.
Singly, the above common segmentation types are useful but limited. Today, successful businesses use combinations of different segmented traits to identify (potential) customers most aligned with the value a business offers. For example, a decentralized chain of coffee houses can use demographic data (age, occupation most commonly coffee shop customers), behavioral data (frequent purchaser of gourmet coffee and similar commodities), and geographic (cities with chain locations; even advertising to mobile users within 1 mile of their coffee shop).
The company must validate that any new customer segment exists in size and affinity to support a particular marketing initiative. The company can measure the segment by consolidating data sources into one platform such as CDP/CRM, and verify changes if any new behavioral data is created.
Using a multifaceted SOV to Drive Brand, Sales, and Market Share From Brand Leaders to ...
Creating a value proposition requires knowledge of how the customer perceives value, for the offering value is assessed by the customer–does it meet my need? While the perspective of value is somewhat subjective, the offering’s attributes are not, and can be assessed functionally–how does the offering perform? The functional value is represented in common evaluative terms: ease-of-use, durability, compatibility, etc.
How does the product make customers feel?
However, in addition to functional value, offerings can also create psychological and monetary value. Some offerings are more functional by their very nature–hardware tools have a defined utilitarian value above all else; pet supplies are designed purposefully to function for containing, transporting, feeding. However, in both cases, a psychological value can be perceived by the customer. In the case of hardware, consumers may recognize DeWalt branded tools as high-performance or premium, and connote emotional benefits from the brand’s social status and satisfaction using hi-performing tools. Similarly, pet fanciers note similar benefits from using premium foods like Royal Canin or Orijen priced significantly higher than most, and known for pure and hi-quality ingredients. The psychological value of an offering is measured by how it makes customers feel.
Finally, a monetary value can be connected with an offering’s cost and rewards, notably in the form of rebates, cash-back programs, prizes, etc. Customers purchasing commodities like gasoline or salt are likely to base their decisions on monetary value alone, as little differentiation exists in the prior two value dimensions.
The realized value of an offering is defined not just by the responsiveness to customer needs, but also in the comparison to alternative offerings of competitors also seeking to meet customer needs. As a result, a business’s offering must provide superior value for the customer, and must identify key competitors when creating the customer value proposition.
Because the central differentiator is always the need being met, competition can be any means to fill the need, not necessarily product alternatives within an industry. For example, a local florist may find that competitors are not just other florists in the market area, but online sellers of custom candy bouquets, a popular local helium balloon shop that delivers, or online gourmet fruit baskets. Instead of a product focus (flower arrangements), the florist should think of the need met by the product–e.g., moderately-priced customizable gifts for special occasions delivered directly to the recipient. Key competitors are identified by determining what target customers are currently using to meet (or try to meet) the need.
When comparing a planned offering with that of a key competitor, a business must review all attributes of the product or service to identify opportunities for competitive advantage. Because offerings can be multi-dimensional, a new offering is unlikely to be superior in all attributes. An offering can be assessed for comfort, utilitarian performance, ease-of-use, versatility, etc. Instead, the competitive comparison should identify points of dominance, in which the proposed offering is superior to the competitor; points of parity, in which the two offerings are equal; and points of compromise, with offering dimensions inferior to a competitor’s in order to achieve some unique differentiating benefit. Remember, only attributes that contribute to meeting the customer need are meaningful. Irrelevant attributes do not create customer value.
A strong value proposition uses relevant attribute differentiation to demonstrate value above the competition–either through superior shared attributes, or creating a new attribute. Often, when a product or service has reached a point of maturity in performance, it is difficult to differentiate between different offerings since they all perform well and become pseudo-commodities. In these cases, companies often add new attributes to create competitive differentiation. For example, a local florist identifies that most attributes among competitors are at parity, and meet customers’ needs. Identifying multiple suppliers of unique and inexpensive vases, the florist uses the container differentiator to add an attribute (“exotic-ness”) to create superior value, if only psychological, much like the candy-colored iMacs introduced when all other computers were a rather plain off-white.
The primary goal of a company is to create value for stakeholders, developing market offerings that create value for customers (and collaborators) which in turn drive sales revenue. While the company most commonly creates monetary value for its stakeholders, an offering can create strategic value that, while not directly monetized, can be estimated in financial terms.
Because a company’s profit is a function of revenue and cost, creating monetary value for stakeholders requires changing one or both of these two components. Increasing sales revenue can be achieved through growing sales volume using three basic strategies:
Each of these sales volume growth techniques may be effective depending on the company’s position and goals. For example, growing the market is most effective in less mature markets, where adoption is relatively low and competition less impactful. Conversely, attracting competitor’s customers is more common in mature markets when adoption is universal for potential target customers, and increased volume requires acquiring current offering users. Market penetration is more appropriate for established and dominant companies dealing in consumables which can be reasonably purchased frequently, such as food products. Formulating a plan for increasing sales revenue benefits from the previous Quantitative Market Analysis for a company, which measures market share among other key competitive metrics.
Managing profits by addressing the other factor in profit, the costs, is less popular due to the already streamlined nature of contemporary businesses. In addition, there are obvious limitations to continuously reducing costs, and far fewer for continuously increasing revenues. However, multiple cost categories can be reviewed to determine the feasibility of cost reduction:
Offerings can create strategic value for the company in multiple ways, tying back to an organization’s strategic goals for the period: creating brand awareness, promoting a product line, even establishing value as a socially conscious entrepreneur. However, often strategic value creates synergies with other offerings that do create monetary value. A ubiquitous approach for software promotion is the strategic offering of a free version of a software product that can lead to the purchase of the fully-functional paid version. This strategy has a long-standing analog in the loss-leader approach of traditional retail stores.
In addition to these examples of obvious monetary return of strategic benefits, some organizations choose to directly evaluate the intrinsic monetary value of strategic offerings by conducting an economic value analysis, quantifying seemingly non-monetary attributes. For example, an organization may pursue a strategic goal of socially aware environmentalism–factory and office Leed certifications, sustainable raw materials, green packaging. Through economic value analysis, companies can quantify the monetary value of customers who purchase their products solely on that differentiator.
None of us is as smart as all of us. –Ken Blanchard
In the age of streamlined hyper-specialization, few businesses own and control every aspect of the marketing process from identifying a challenge to distribution, nor do they maintain the in-house expertise to deliver superior value at all points of the offering journey from goal to customer satisfaction. Hence, a compelling value-creation argument exists for collaborating with specialized entities, from suppliers and manufacturers to distributors and retailers, and provides opportunities for more efficacy and efficiency, creates value for the company, the collaborators, and most importantly, the target customers.
Businesses partnering with collaborators often mistake the relationship as a B2B process that enables a functionally simplistic contractual obligation: the business contracts with an agency to develop packaging, with an ad agency to publicize the offering, with a platform such as Amazon to provide a sales channel, with a 3rd party to handle the installation. The business contracts a vendor to perform a task. However, collaboration should always aim to create superior value for target customers–the key purpose of the offering–while at the same time creating value for the company and the collaborator.
For each value proposition, the company plans to create superior value through specific undertakings for customers, company, and collaborator. For each, the selected and defined attributes should be measured against a design control based on the targeted attribute design (e.g., the description of a product functionality) that can be evaluated at key points in the development life cycle. The creation of competitive value requires monitoring the competitor environment to ensure the target comparison does not change without the company responding with a design change to overcome the modified attribute.
Marketing tactics define the offering, giving shape to all the attributes the offering provides. Often called “the marketing mix,” tactics answer all the questions defining the deployed offering:
What are the key features of the product or service? What are the features of the brand? What is the price? What incentives are available? How will customers find out about the offering? How will it be delivered?
Unfortunately, it is at the tactics stage of strategic planning that many businesses begin marketing planning–bypassing a disciplined process of identifying the company challenge or goal with a clear focus and quantifiable benchmarks, prioritizing compatible segmented targets for which to optimize the offering, and value propositions that include all stakeholders, collaborators, and target customers.
Marketing tactics create value for the company, collaborators, and target customers by converting a company’s strategy into decisions around seven key attributes: product, service, brand, price, incentives, communication, and distribution.
Setting the optimal value proposition (OVP) is critical for each tactic to ensure that maximum value is created in a balance across customer, collaborator, and company. For each tactic, a consistent goal is always to define the OVP for that tactic.
As a key reason for customers to purchase a company’s offering, the product is optimized to provide value to target customers while also benefiting the company and collaborators. The product must create superior value for target customers compared with competitors’ products. Because the company assessed competitor offerings when creating the customer value proposition when developing the strategy, the product has a validated potential to create superior value. Similarly, creating the company and collaborator value propositions earlier ensures the likelihood that the product can create superior value to other collaborator opportunities and alternative offerings the company could otherwise pursue. In short, the strategic planning at each step prepares the company to be successful during the following step.
During the development of value propositions, the company compared attributes for dominance, parity, or compromise. At the tactics stage, product functional attributes are defined so that the final product maintains overall superior value to competitors identified during the earlier value assessment. Attributes such as performance, reliability, and ease of use are defined not so the product is superior on each one, but that the totality of product functionality design creates relative superior value for the customer need. Similarly, the product manager designs the appearance and physical attributes for a superior value for the customer, as well as value for collaborators like distributors (who are impacted by physical characteristics when shipping and storing) and retailers (who are impacted when displaying). Finally, packaging design can create value for stakeholders, customers, and collaborators: Packaging designed for visibility and differentiation stands out from other products crowding the shelf, getting the attention of customers who may be influenced favorably by a uniquely attractive design, moving product off the shelf (helping retailers move product and increase company revenue).
While the controls created at the value proposition stage began to ensure product attributes are designed and developed to create the value initially envisioned, the additional attribute definition occurring at this stage would be added as indicators to the measurement.
While services have always been a prominent part of customer value for specific industries (real estate companies, pool service, computer repair, moving companies, etc), recent shifts toward greater licensing of single-user software and more instances of broad, intranet, and internet platforms have expanded the service model. Shifting from a one-time purchase model for locally-installed software packages to long-term monthly licensing, companies gained greater control over the operating environment and software updates, capacity for more responsive support, and provided a more satisfying user experience. Additionally, for many software packages, the licensing-based pricing model became more attractive to new customers, such as beginning designers who found the $700 photoshop install more difficult than the software as a service (SaaS) price of $9.99 per month.
Just as in product design and development, the company must develop services so that they create the OVP. To achieve this, the company service must provide the benefits targeted customers need in the form of service features, and do so in a way that provides superior value to the company and collaborators.
Providing superior value through a service creates challenges less likely in traditional product sales. Products can be managed with traditional inventory further augmented with automated tracking of purchases and inventory reduction. An employee-dependent service must manage staffing and schedules to mirror demand trends. Product consistency depends on the design of manufacturing and quality control; service consistency depends on recruitment, training, and staffing levels and variability. While the dimensions of defined functionality mirror those of products, defining and delivering attributes in the domains of performance and reliability may be more difficult to maintain. Ultimately, delivering superior value through service is challenged by variability in multiple domains. As a result, simplifying processes most aligned to superior service delivery is a technique most likely to drive repeatable service excellence.
The packaging of service delivery may be more challenging than for products, but service companies use the physical context of service delivery. While service cannot take advantage of packaging that attracts shelf attention, leading service companies control tangible elements contextually near the service to create value (both FedEx and UPS have quickly recognizable transportation carriers).
Creating superior value for service delivery has unique challenges due to variability, applying control on attribute drivers such as recruiting and training, as well as validating streamlined processes for service delivery, all will measure key indicators tied to excellent service delivery planned for creating value. Continued environmental scanning monitors for changes that could impact service status.
Branding is a marketing tactic with which a business connects a meaningful value to the company through its name, symbol, and design. Branding connotes specific positive meanings to a company and its products beyond their inherent functionality and creates a unique identity for the company distinguishing it from competitors. Like the other tactics used to transform strategy into value, strong branding creates value for the customer, company, and collaborator in multiple domains.
For customers, brands create functional value by providing a short-cut to identification; a customer doesn’t need to read every label on the shelf when he or she can quickly identify the needed product by distinctive packaging and logo. Brands also create psychological value when a product has gained emotional and expressive associations–Coca Cola creates an emotionally warm, comfortable (and nostalgic) summertime, while Levi’s expresses rough and simple independence for many wearers. Finally, brands can create monetary value for the customer, by either signaling price or generating financial value. For many Americans, the brand Hy-Top signifies low-cost grocery products, resulting from its singular purpose to provide “store-brand” foods to supermarkets that did not yet have their own brand. Conversely, high fashion depends on brands that generate financial value beyond any intrinsic functional value.
A company can monetize branding value directly (monetary) and indirectly (strategic), and illustrates the value impact of branding. Because brands can differentiate and connote positive meanings in the customer’s mind, brands generate additional revenue by pricing above competitors without the advantage. The company’s branded prestige drives better deals with collaborators such as distributors and retailers (e.g., premium store or shelf space) that increase sales volume. Collaborators, especially when co-branded, can receive “spillover” value by associating with a strong, positive brand. Because of the branding differentiator, brands create customer value beyond a similarly functional non-branded offering and increase customer demand, leading to increased company revenue. Strong brands enhance recruitment–most technology workers perceive Google as a premium employer without ever having visited a company location. Finally, branding can amplify other marketing tactics–whatever attribute a company is using to create value in a product becomes more effective with strong branding. A strong brand that is designing product attributes to be dependable and durable, will seem more dependable and durable than a non-branded entity.
Target customer and collaborator perceptions of company brand are key indicators for brand success at creating emotional images and connotations in the minds of participants. Survey verification of participants can help identify brand weaknesses and specific areas for “rebranding.”
While pricing can be one of the most direct drivers of value, companies often treat this marketing tactic as one dimensional: simply the means to reach a certain level of profit on specific products with COGS and competitor pricing the only significant determining factors.
As a result, cost-plus pricing, markup pricing, and competitive pricing are all popular price-setting approaches. Ironically, the impulse at simplification is in direct opposition to a complex tactic that challenges many businesses–how to create an optimal price in an area with many complexities both overt and psychological.
Nevertheless, pricing is an influential tactic that can shape value creation for all three primary stakeholders, creating the OVP by creating the optimal price. Pricing has a direct relationship to value, and price-setting is fundamental to value creation in a way that other tactics are not. In fact, customers often use the concrete observable nature of pricing to deduce the unobservable attributes such as durability (“If it’s priced higher, it is probably more durable”).
Reaching the optimal price (and OVP) is driven by the company’s offering strategy and accompanying tactics, takes into consideration price elasticity, and the psychological component of a customer’s price response. As the goal focus and benchmarks have set the target return, price setting must work within this constraint. Product and service decisions can drive pricing based on the uniqueness of attributes, and brand power can also command a premium.
Price elasticity–the degree to which a price change influences sales volume–also influences price-setting boundaries. Whether a product is perceived as a commodity or near-commodity, or whether a substitute is readily available, help create price elasticity. In some cases, increasing the price has a negligible impact on demand, and revenue actually increases. The company’s goal is often to create products and services that are relatively inelastic in pricing–the product is differentiated to such degree that customers will be largely unaffected by price changes. Unfortunately, elasticity is hard to measure until actual pricing is tested.
Because pricing is contextual (perceived differently by different customers in different situations), the price can be used as a targeting tactic. Just as a company reviews target segmentation during the strategic targeting process, companies can also use price segmentation, charging different prices for an identical product or service based on membership in company-defined segments with different pricing responsiveness. While price segments are ideally based on the desire to buy, the segments are actually built on more observable traits, such as demographics, location, and behavior. Demographics (income, education, occupation) might create a lower-tier price segment to increase the market growth. Location segments might drive more competitive pricing if segments included the physical presence of competitor outlets. Finally, the buying behavior of a segment might signify quantity, purchase time, or distribution channel–all potentially creating different price points. Because separability is necessary to keep different pricing segments separate, online retailers such as Amazon might find it difficult to price segment. However, some online companies are able to price segment just the same. Price segmentation in the technology B2B market often uses customer base size as a price segmentation point. Sellers of enterprise platforms sell large-scale installs on a cost per user model, which decreases per unit as the user base increases. Retailers of near-commodities (pet food) offer discounts for customers who subscribe to a monthly delivery.
Finally, because customers do not often objectively evaluate prices (or other attributes), price reception is often influenced by psychological pricing effects. Buyers often make reference price comparisons (regardless of validity) based on a remembered price or a competitor price. Because customers have little detailed and objective pricing data, companies use reference points to set expectations for the pricing frame of reference to make offerings more cost attractive. For example, many retailers have ongoing sales in which the “original price” is significantly higher than the current one, creating a perception of great pricing in comparison to the reference point. The common belief that quality is correlated to the price also drives customer perception of price–a low-priced item will be low quality and vice versa.
Evaluation of price must exist to ensure that the minimum requirement to achieve goal focus and benchmark are maintained. Additional price variations are probably best monitored to ensure price segments and psychological perceptions remain stable during offering design and development.
Incentives are temporary value enhancers meant to deal with a current situation such as a decline in demand, competitors’ similar incentives, short-term company revenue goals, or the needs of collaborators such as distribution partners. Incentives, like most marketing tactics, can directly involve customers, collaborators, and the company. Incentives are typically considered customer-focused, with rebates, coupons, and contests aimed at increased sales. However, collaborators such as distribution partners and different retailers may be incented to increase sales by discounting volume, temporary wholesale price cuts, and joint advertising. Finally, the company itself may motivate their employees through contests and performance-based bonuses for activities that add value to the product or help increase sales.
For customers, monetary incentives decrease cost (and company revenue) through the use of coupons, rebates, and discounts. Nonmonetary incentives such as bonus products or services, prizes, and contests increase the benefit without lowering the costs.
The company benefit of incentives includes attracting new customers and encouraging more frequent purchases. Because incentives are both quick and easy to implement, they allow companies to increase revenue at strategically important time periods, respond to competitors, and tailor offerings to different segments. Conversely, the time-limited nature of incentives means that most benefits are short-lived, and removes value that would have been realized as a result of customers who would have purchased at the regular price. After incentives expire, sales volume decreases, sometimes below pre-incentive levels.
Collaborator incentives include reducing costs associated with the tasks they undertake for the company in order to assist in value creation for the company. Offering allowances or paying a channel member to allocate shelf space, to carry extra inventory, to advertise, or to set up displays for an offering are all monetary incentives for collaborators. Similarly, nonmonetary incentives provide benefits that would otherwise cost the collaborator in supporting the offering. Guaranteeing to buy back merchandise not sold within a specific timeframe, and providing training to the sales team are both methods of creating value for the company, collaborator, and customer.
Because incentives are temporary, measurement should center on financial results before, during, and after incentives application. In this way, companies can determine which incentives have the superior performance for each target, and signal which should be applied in the future.
Ensuring that customers, collaborators, and company stakeholders all have relevant information about the offering is the task of communication. The ultimate goal is to inform all parties of the OVP of the offering and specifically how it will create value for them. However, if parties aren’t aware of the offering, the value created for them, and how to obtain–the offering will likely be unable to enable the goal to achieve targeted benchmarks.
A comprehensive communication plan mirrors the larger strategic process of the GST framework. Each step and decision point of the communication plan comes from the framework.
The communication goal may have a focus on generating awareness, building preferences by communicating the value and competitive superiority or inciting action (for a new offering). The focus is measured by benchmarks (e.g, 50% of site visitors will complete a request for more information in 30 days).
The communication strategy follows the same logic, identifying the target audience for the communication, and methods to reach the target. The budget is likely split between creative talent and channels in the amount needed to achieve communication goals (i.e., reach xx% of site visitors in the next xx days). The actual communication message is the expression of value created by the tactics: attributes of product and service, the connotative power of the brand, the price to target customers, any available or upcoming incentives, and distribution information regarding the offering availability and method to obtain it. The choice of benefit to convey in the message must align with the strategy. If the communication goal is to inform customers of the superior competitive value of the offering, the message would focus on products and services attributes that are points of dominance and the source of the competitive advantage.
Finally, the complexity of the message should match the audience’s level of interest and ability to process the message. For example, a complex message detailing all of the features and comparison points of a near-commodity such as a standard computer monitor will likely remain unprocessed unless the audience works in the AV industry. However, a message with detailed specifications of a prosumer level oven–sent to restaurant chefs across the country would be processed by at least a significant percentage of the target audience.
Using trackable media as part of the communication design allows the measurement of multiple goals of communication. For example, awareness can be measured by the number of site visits or the percentage of site visitors who request additional information. Increased preference for an offering can be verified with a site survey, and call to action (to visit a specific webpage or retail store) can be captured into the CRM/CDP and processed.
As with other tactics, the distribution channels necessary to bring an offering to target customers must do so by creating value for customers, company, and collaborators. The OVP should be clear to the manager of the tactic, and part of the guidance when designing it. With the contemporary focus on exclusive online distribution channels, it is easy to forget that merchants (retailers, wholesalers, dealers) agents (brokers and sales reps who connect buyer and seller), and facilitators (transportation, banks) are all part of distribution channels and potential collaborators. All of these functions connect products to customers.
Because of the complex mix of distribution collaborators, channel structure can be designed across a seeming continuum of direct to indirect distribution, in which the offering flows directly to target customer from manufacturer or must first find its way through value-add mid-points before reaching either the target customer or retailer that functions as an additional stop in an indirect chain. However, the degree to which a product or service needs an indirect structure to provide additional value creation (for example, a breakfast cereal needs to go through a retailer to reach target customers), or whether it benefits from the speed of a direct structure (coffee beans going from the roaster directly to the target customer’s home and kitchen. The optimal mix of design characteristics is determined by every tactic attribute involved in value creation, including the coverage area of a distributor to ensure the capacity to reach the target effectively.
Because of the distribution collaborator roles, the company often gives up control in the process. In addition, power in distribution relationships lies with those actors who provide superior value in the relationship, and thus are afforded valuable perks–premium shelf space, When designing a distribution approach for an initiative, the overriding goal is OVP so that all targets receive optimal value. The complex combinations require a manager with an experienced understanding of distribution channels to balance these competing attributes.
While the main goal of distribution channels is to deliver the offering to the target customer, channels perform other functions, each of which plays some part in creating value aligned with the offering to the customer.
Product delivery is the physical transfer of products from the manufacturer to wholesalers or retailers and end-users. Similarly, service delivery is the actual delivery of a service offering such as computer repair, custom audio-visual equipment installs, etc. Many distribution channels deliver brands to customers. Amazon brands all packaging so that only the target customer receives their trademark swish and name, so to anyone who might see carriers delivering Amazon packages, or see the Amazon-branded packages stacked against doors in their neighborhood. Channel also provides payment collection functions, whether through an online checkout system, or a standing account with a recurring service or product offering. Incentive delivery is also a channel function, whether delivered directly to the target customer, or to a retailer who creates promotions targeting customers in-store. Finally, channels deliver information about the company, its offerings, and support.
While the overriding concern with distribution is solution design, service agreements can function as controls. However, depending on company power (maybe more limited with a new offering), there may be relatively little a company can do to enforce timely shipping or priority shelf space. These de facto constraints should factor into channel design.
If Cecilia had identified the goal focus and benchmark 3 years ago for the original initiatives, the consortium would have measurable goals and benchmarks, and the product and service attributes would have been competitively assessed for points of dominance, parity, and compromise. In other words, a baseline would have been established, against which ongoing measurements could be validated. Any change would be indicated before months of poor performance had damaged the business.
As part of the Marketing Plan generated by the GST for the new premium beans initiative, potential issues would be surfaced so that the service design, pricing model, and most importantly, the distribution channels would have been tailored to create value instead of diminishing it. If the value proposition could not reach superior value for the target audience through available tactics, the company would have canceled as soon as the value created was below alternative undertakings for the company and collaborators.