2019 by Alexander Chernev Strategic Marketing Management Theory

Strategic Marketing Management | Theory and Practice ISBN: 978 -1 -936572 -58 -8 January 2019 Copyright © 2019 by Alexander Chernev Author website: Chernev. com Supplemental materials: Marketing. Toolbox. com Published by Cerebellum Press | Chicago, IL | USA © 2019 by Alexander Chernev

Chapter 1 Marketing as a Business Discipline

Figure 1. Making Decisions Using a Framework Typical problem Typical solution Abstraction Application Specific

Chapter 2 Marketing Strategy and Tactics

an mp Co Context © 2019 by Alexander Chernev s Competitors r to Customers

Figure 2. Defining the Value Exchange Company Value Customers Collaborators Value Competitors Context ©

Figure 3. The 3 -V Market Value Principle Company value The Optimal Value Proposition

Figure 4. Marketing Tactics: The Seven Attributes Defining the Market Offering Company value OVP Collaborator value Customer value Tactics Market Offering Product © 2019 by Alexander Chernev Service Strategy Brand Price Incentives Communication Distribution

Figure 5. Marketing Tactics as a Process of Designing, Communicating and Delivering Value Designing value © 2019 by Alexander Chernev Product Service Brand Price Value Incentives Communication Distribution Communicating value Delivering value

Figure 6. Marketing Tactics: Company Actions and Customer Impact © 2019 by Alexander Chernev Company actions Customer impact Designing value Attractiveness of the offering Communicating value Awareness of the offering Delivering value Availability of the offering

Figure 7. The Market Value Map Target Market Offering Customers What customer need does the company aim to fulfill? Who are the customers with this need? Product What are the key features of the company’s product? Collaborators What other entities will work with the company to fulfill the identified customer need? Company What are the company’s resources that will enable it to fulfill the identified customer need? Competition What other offerings aim to fulfill the same need of the same target customers? What are the key features of the company’s service? Brand What are the key features of the offering’s brand? Price Context What are the sociocultural, technological, regulatory, economic, and physical aspects of the environment? What is the offering’s price? Incentives Value Proposition Customer Value What value does the offering create for target customers? What incentives does the offering provide? Communication Collaborator Value How will target customers and collaborators become aware of the company’s offering? Company Value How will the offering be delivered to target customers and collaborators? What value does the offering create for the company’s collaborators? What value does the offering create for the company? © 2019 by Alexander Chernev Service Strategy Distribution Tactics

Figure 8. The 4 -P Framework Product Promotion Value Place © 2019 by Alexander

Figure 10. The Five Forces of Competition New entrants Suppliers Competitors Substitutes © 2019

Figure 11. Context Analysis y an mp Econ Co cal Re Context ry ato

Chapter 3 The Marketing Plan

Figure 1. The SWOT Framework for Assessing a Company’s Market Position © 2019 by Alexander Chernev Favorable factors Unfavorable factors Internal factors Strengths Weaknesses External factors Opportunities Threats Company analysis Market analysis

Figure 2. The G-STIC Framework for Marketing Management Goal Business model Strategy Tactics Implementation

Figure 3. The G-STIC Action-Planning Flowchart The ultimate criterion for success Goal Focus Benchmarks The value created in the target market Strategy Target market Value proposition Tactics Product Service Brand Price Incentives Communication Distribution Implementation Development © 2019 by Alexander Chernev The logistics of creating the offering Deployment Monitoring goal progress Control Performance The specifics of the market offering Environment

Figure 4. Market Goals and Objectives Customer objectives Collaborator objectives Company goal Company objectives

Executive Summary Figure 5. The Marketing Plan What are the key aspects of the company’s marketing plan? Situation Overview Company What are the company’s history, culture, resources, offerings, and ongoing activities? What are the key aspects of the markets in which the company competes? Market Goal What is the key performance metric the company aims to achieve with the offering? Focus What are the criteria (temporal and quantitative) for reaching the goal? Benchmarks G-STIC Action Plan Strategy Target market Who are the target customers, competitors, and collaborators? What are the company’s resources and context? Value proposition What value does the offering create for target customers, collaborators, and company stakeholders? Tactics What are the product, service, brand, price, incentives, communication, and distribution aspects of the offering? Market offering Implementation How is the company offering being developed? Development Deployment What processes will be used to bring the offering to market? Control How will the company evaluate the progress toward its goal? Performance Exhibits What are the details/evidence supporting the company’s action plan? © 2019 by Alexander Chernev Environment How will the company monitor the environment to identify new opportunities and threats?

Figure 6. The Critical Path Method D 4 5 7 A C 2 2

Figure 7. The Responsibility Assignment Matrix Activity A Activity B Activity C Activity D

Figure 8. Gantt Matrix Timeline (weeks) Activity 1 2 3 4 5 6 7

Chapter 4 Understanding Consumer Markets

Figure 1. The Customer Journey Map Evaluate Active need Search Choose Use © 2019

Figure 2. Customer Need States Customer need state Delight (fully met need) Customer value Experience enhancement Indifference (largely met need) Problem (unmet need) © 2019 by Alexander Chernev Solution to a problem

Figure 3. The Dynamics of Customer Needs Value Desired benefits Consumption Satisfaction Need activation

Figure 4. The Information Processing Funnel Received information Selective attention Selective memory Selective processing

Figure 5. The Value Function Value Offering performance © 2019 by Alexander Chernev

Figure 6. Reference-Point Dependence Value Gains Reference point Performance Losses © 2019 by Alexander

Figure 7. Loss Aversion Value of a gain Performance Value of a loss ©

Figure 8. Diminishing Marginal Value Performance © 2019 by Alexander Chernev

Figure 9. Maslow’s Hierarchy of Needs Self-fulfillment needs Selfactualization Esteem needs Belongingness and love needs Safety needs Physiological needs © 2019 by Alexander Chernev Psychological needs Basic needs

Chapter 5 Gathering Market Insights

Figure 1. The Problem-Driven Market Research Process Define the business problem Formulate the research question Manager Research team Define the research method Research team Gather and analyze the data Research team Interpret the results Research team Manager Solve the business problem © 2019 by Alexander Chernev Manager

Figure 2. Key Types of Business Problems Market analysis Market opportunity Market change Performance gap © 2019 by Alexander Chernev Action planning Designing a new offering Optimizing an existing offering

Figure 3. Experimentation as a Tool for Gathering Market Insights Company Actions Product Service Brand Offering Price attributes Incentives Communication Distribution Factors tested © 2019 by Alexander Chernev Customer Response Awareness Beliefs Customer Preference mindset Purchase intent Intent to promote Purchase Usage Advocacy Factors measured Customer behavior

Figure 4. Managing Decision Errors Data Reality © 2019 by Alexander Chernev True False

Figure 5. Evidence-Based Decision Making Business problem Research question Data analysis Data selection Real world © 2019 by Alexander Chernev Focus on creating market value Focus on gathering relevant market insights

Figure 6. Making Necessary Tradeoffs Pros Option A Decision Tradeoff Option B © 2019

Chapter 6 Identifying Target Customers

Figure 1. Segment-Based Targeting All potential customers (entire market) © 2019 by Alexander Chernev

Figure 2. Strategic Targeting: Key Principles Target Compatibility Company resources © 2019 by Alexander Chernev Customer value Customer needs Target Attractiveness Customer resources Company value Company goals

Figure 3. The Resource Advantage Principle Unutilized company resources The company’s ideal customers Unmet customer needs Company resources Customer needs Competitor resources Intense competition © 2019 by Alexander Chernev Competitive wasteland

Figure 5. Linking Customer Value and Profile Customer value Needs Resources Strategic targeting Target customers Customer identification Customer profile Demographics Psychographics Geolocation Behavior Tactical targeting © 2019 by Alexander Chernev

Figure 6. Tactical Targeting: Effectiveness Value-based segment Profile-based segment “Sniper” targeting (optimal) © 2019 by Alexander Chernev “Slice-of-the-pie” targeting (too narrow) “Shot-in-the-dark” targeting (off base)

Figure 8. Targeting Multiple Segments Offering A © 2019 by Alexander Chernev Offering B

Figure 9. Market Segmentation and Targeting Defining market segments All potential customers (entire market) © 2019 by Alexander Chernev Identifying target customers Customers with similar needs (segmented market) Customers whose needs the company aims to fulfill (target market)

Figure 10. Segmentation, Mass Marketing, & One-to-One Marketing Offering Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Customer 6 Mass marketing © 2019 by Alexander Chernev Offering A Offering B Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Customer 6 Segment-based marketing Offering A Offering B Offering C Offering D Offering E Offering F Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Customer 6 One-to-one marketing

Figure 11. Strategic and Tactical Segmentation Facilitates the Process of Identifying Target Customers Strategic segmentation (value-based) All potential customers (entire market) © 2019 by Alexander Chernev Tactical segmentation (profile-based) Strategic targeting (value-based) Channel A Channel C Channel B Tactical targeting (profile-based)

Figure 12. Common Segmentation Errors A. Irrelevant © 2019 by Alexander Chernev B. Heterogeneous

Figure 13. The Long Tail Popularity Mass market © 2019 by Alexander Chernev The

Chapter 7 Developing a Customer Value Proposition

Figure 1. Value as a Function of Customer Needs and Offering Attributes Customer needs

Figure 2. Dimensions of Customer Value Functional value Customer value Psychological value Monetary value

Figure 3. The Customer Value Proposition Company offering Reason to choose Value Customer needs

Figure 4. Competitive Value Map Customer value Competitive parity Competitive advantage Attribute 1 © 2019 by Alexander Chernev Attribute 2 Attribute 3 Competitive disadvantage Attribute 4 Attribute 5 Company offering Competitive offering Attribute importance

Figure 5. Customer Value Proposition and Positioning Value proposition Primary benefit(s) Secondary benefit(s) Trivial

Figure 6. Single-Benefit Positioning Primary benefit Benefit 1 Benefit 2 Secondary benefits Benefit 3

Figure 7. Multi-Benefit Positioning Primary benefits Benefit 1 Benefit 2 Benefit 3 Secondary benefits

Figure 8. Holistic Positioning Benefit 1 Benefit 2 Benefit 3 Benefit 4 Benefit 5

Figure 9. Positioning Strategies Based on their Ability to Create a Sustainable Competitive Advantage Psychological benefits Positioning Functional benefits Monetary benefits © 2019 by Alexander Chernev Sustainable competitive advantage

Figure 10. Positioning Map Attribute 1 Offering A Offering B Offering C Attribute 2

Figure 11. Blue Ocean Strategy Red Ocean Strategy © 2019 by Alexander Chernev Blue Ocean Strategy Compete in existing markets Create uncontested markets Fulfill existing demand Create new demand Beat the competition Make the competition irrelevant Improve the value-cost tradeoff Redefine the value-cost tradeoff Focus on differentiation or low cost Achieve differentiation at low cost

Chapter 8 Creating Company Value

Figure 1. Dimensions of Company Value Monetary value Company value Strategic value © 2019

Figure 2. The Key Profit Drivers Sales volume Revenues Unit price Profit Variable costs

Figure 3. Strategies for Growing Sales Volume New customers Sales volume Current customers © 2019 by Alexander Chernev New to the category Competitors’ customers Market-penetration strategy Market-growth strategy Steal-share strategy

Figure 4. Managing Profits by Lowering Costs COGS R&D costs Costs Marketing costs Other

Figure 5. The Profit Impact of Strategic Offerings Company value Profit Offering A Offering

Figure 6. Economic Value Analysis Monetary value Monetizing strategic value Company value Strategic value

Figure 7. Analyzing the Total Cost of a Company’s Offering in a Competitive Context Difference in strategic value Durability Reliability Warranty Service Price Durability Reliability Warranty Service Strategic value Purchase price Price Difference in monetary value Company offering © 2019 by Alexander Chernev Competitive offering

Figure 8. Creating Market Value through Collaboration B 2 B Company Value B 2

Figure 10. Calculating Trade Margins Manufacturer Wholesaler Retailer Customer © 2019 by Alexander Chernev Manufacturer cost: $3 Selling price to the wholesaler: $10 Margin: $7 Margin (% of selling price): $7/$10 = 70% Purchase price from the manufacturer: $10 Selling price to the retailer: $15 Margin: $5 Margin (% of selling price): $5/$15 = 33% Purchase price from the wholesaler: $15 Selling price to the customer: $20 Margin: $5 Margin (% of selling price): $5/$20 = 25% Purchase price: $20

Figure 11. Break-Even of a Fixed Cost Investment Costs Revenues Break-even point Loss Revenues

Chapter 9 Managing Products

Figure 1. Product Management as a Value-Creation Process Company value OVP Customer value Collaborator value Market Offering Brand Product Service © 2019 by Alexander Chernev Price Incentives Communication Distribution

Figure 2. Product Attributes and Customer Benefits Attribute A Benefit A Attribute B Benefit B Attribute C Attribute D Benefit C Benefit D Attribute E Benefit E Attribute F Benefit F Product attributes © 2019 by Alexander Chernev Product Customer needs Functional benefits Psychological benefits Monetary benefits

Figure 3. Product Portfolio and Product Lines Product portfolio Product line X Product A

Figure 4. Product Platforms and Product Lines Customer benefits Product line Product A Product

Figure 5. Network Product Platforms Company product line Product A Product B Product platform X Product E Product F Product C Product platform Y Product G Competitor product line © 2019 by Alexander Chernev Product D Product H

Figure 6. Managing the Product Lifecycle Financial performance Revenues Profits Introduction © 2019 by

Figure 7. Extending Product Lifestyle through Innovation Sales Third generation Second generation First generation

Figure 8. Benefit Visibility in Product Design Search attributes Customer value Experience attributes Credence

Chapter 10 Managing Services

Figure 1. Service Management as a Value-Creation Process Company value OVP Customer value Collaborator value Market Offering Brand Product Service © 2019 by Alexander Chernev Price Incentives Communication Distribution

Figure 2. Creating Market Value Through Superior Customer Service © 2019 by Alexander Chernev Employee selection, training and motivation Employee competence and satisfaction Superior service delivery Company profits Customer loyalty Customer value

Figure 3. Managing Employee Performance Train Inform Service delivery Recruit Control Empower Company culture

Figure 4. Building a Service-Oriented Company Culture Management beliefs Company policies Employee selection Norms

Figure 5. Customer Reaction to Service Failures Delight Resolve Satisfaction Service failure Acquiescence Ignore Dissatisfaction Anger Company action © 2019 by Alexander Chernev Customer experience Stay loyal and endorse Stay loyal Stay less loyal Stay disloyal or leave quietly Stay and disparage or leave and disparage Customer behavior

Figure 6. The Gap Model of Service Quality Management beliefs Gap 2 Gap 1 Service design Gap 3 Communication Service delivery Gap 4 Company Customer Perceived service Gap 5 Expected service Word of mouth Needs © 2019 by Alexander Chernev Experience

Chapter 11 Managing Brands

Figure 1. Branding as a Value-Creation Process Company value OVP Customer value Collaborator value Market Offering Brand Product Service © 2019 by Alexander Chernev Price Incentives Communication Distribution

Figure 2. Brand Association Maps of Starbucks and Apple Creative Different Friendly Sleek design Innovative Easy to learn My drink i. Phone Connectivity © 2019 by Alexander Chernev i. Tunes i. Pod Tablet Music on the go Morning Starbucks Great taste Entertainment i. Pad Microsoft Great service Stylish Apple Mac Self-identity Coffee Fast Easy to use Energy Nearby My ritual My place Consistent experience Indulgence Convenient Home Workplace

Figure 5. Single-Brand, Cobranding, and Multi-Brand Portfolio Strategies Single parent brand Single-brand strategy © 2019 by Alexander Chernev New sub-brand Endorsed new brand Cobranding Independent new brand Multi-brand strategy

Chapter 12 Managing Price

Figure 1. Pricing as a Value-Creation Process Company value OVP Customer value Collaborator value Market Offering Brand Product Service © 2019 by Alexander Chernev Price Incentives Communication Distribution

Figure 2. The Price Elasticity of Demand Price $15 $10 Inelastic demand 20 25

Figure 3. Price Segmentation as a Targeting Tool Price for Segment A Price for

Figure 4. The Relationship Between Variable and Fixed Costs Total costs Fixed costs Variable

Figure 5. Penetration, Skim, and Loss-Leader Pricing Skim pricing Customer willingness to pay Range of profitable prices Penetration pricing Range of unprofitable prices © 2019 by Alexander Chernev Loss-leader pricing

Figure 6. Competitive Price–Benefit Map Price Value-equivalence line Offering A Offering B Offering D

Chapter 13 Managing Incentives

Figure 1. Managing Incentives as a Value-Creation Process Company value OVP Customer value Collaborator value Market Offering Brand Product Service © 2019 by Alexander Chernev Price Incentives Communication Distribution

Figure 2. Incentive Types © 2019 by Alexander Chernev

Figure 3. Push and Pull Promotions Manufacturer Communication Incentives Demand Manufacturer Demand Retailer Communication Incentives Demand © 2019 by Alexander Chernev Retailer Demand Communication Incentives Customers Push promotions Pull promotions

Figure 4. The Prisoner’s Dilemma Prisoner B Prisoner A © 2019 by Alexander Chernev

Figure 5. The Prisoner’s Dilemma in Sales Promotion Company B Discount Not discount Discount

Chapter 14 Managing Communication

Figure 1. Communication as a Value-Creation Process Company value OVP Customer value Collaborator value Market Offering Brand Product Service © 2019 by Alexander Chernev Price Incentives Communication Distribution

Figure 2. The G-STIC Framework for Managing Communication Marketing Strategy Target market Value proposition Marketing plan Goal Focus Benchmarks Strategy Audience Message Tactics Media Creative Implementation Development Deployment Control Performance © 2019 by Alexander Chernev Environment Communication campaign

Figure 3. Communication Goals as a Function of the Customer Decision Journey Activate the need Active need Generate interest Evaluate Build preferences Create awareness Discover Choose Encourage repurchase Purchase Use Foster usage © 2019 by Alexander Chernev Nudge to buy

Figure 4. Programmatic Media Buying Advertiser © 2019 by Alexander Chernev Demand-side platform Advertising

Executive Summary Figure 5. The Communication Plan What are the key aspects of the company’s communication campaign? Marketing Strategy Market What are the key aspects of the target market in which the company aims to compete? Value What is the value proposition of the company’s offering? Goal What is the focus of the company’s communication? Focus What are the temporal and quantitative benchmarks for reaching the goal? Benchmarks G-STIC Action Plan Strategy Who is the company’s target audience? Audience Message What is the message the company aims to communicate? Tactics Media Where will the audience encounter the company’s communication? Creative How will the company’s message be expressed? Implementation Development What resources need to be developed/acquired to communicate the company’s message? What is the process of bringing the company’s message to the target audience? Deployment Control How will the company evaluate the effectiveness of the communication campaign? Performance Exhibits What are the details/evidence supporting the company’s communication plan? © 2019 by Alexander Chernev Environment How will the company monitor the environment to identify emerging opportunities and threats?

Chapter 15 Personal Selling

Figure 1. Sales Productivity as a Function of Sales Force Size Salesforce productivity Optimal

Figure 2. Managing Sales Force Performance Train Recruit Support Salesforce Control Empower Company culture

Figure 3. Decision-Making Unit: Key Roles Decision-Making Unit Personal selling © 2019 by Alexander

Figure 4. The Customer Decision Journey Search Active need Define Choose Use © 2019

Figure 5. The Personal Selling Process Prospecting Customizing Presenting Negotiating Closing Servicing © 2019

Figure 6. The SPIN Model of Selling Situation questions Establish the context Problem questions Reveal implied needs SPIN questions Implication questions © 2019 by Alexander Chernev Define the problem faced by the buyer Need-payoff questions Underscore the importance of solving the problem Benefits of the offering Articulate the benefits of the proposed solution

Chapter 16 Managing Distribution

Figure 1. Distribution as a Value-Creation Process Company value OVP Customer value Collaborator value Market Offering Brand Product Service © 2019 by Alexander Chernev Price Incentives Communication Distribution

Figure 2. Distribution Channel Structure Company Wholesaler Customers Direct channel Retailer Customers Indirect channels

Chapter 17 Retail Management

Figure 1. Key Trends in Retail Management Speed Consolidation Convenience Retailer power Private labels Omnichannel New retail formats © 2019 by Alexander Chernev Retailing Mobile shopping Customer insight Improved logistics

Figure 2. Retailing as a Value-Creation Process Retailer value OVP Customer value Collaborator value Market Offering Brand Product Service © 2019 by Alexander Chernev Price Incentives Communication Distribution

Figure 3. Price Image Drivers and Market Outcomes Average price level Known value items Price evaluation Price range Sales promotions Communication Physical attributes Service level Price fairness Price image Store choice Choice deferral Purchase quantity Product choice Retailer policies Price image drivers © 2019 by Alexander Chernev Market outcomes

Chapter 18 Gaining and Defending Market Position

Figure 1. Steal-Share Strategy Current users New users © 2019 by Alexander Chernev

Figure 2. Market-Growth Strategy Current users New users © 2019 by Alexander Chernev

Figure 3. Market-Growth Strategy for a Superior Offering Current users New users © 2019

Figure 4. Market-Penetration Strategy Current users New users © 2019 by Alexander Chernev

Figure 5. Market-Creation Strategy New market Current market © 2019 by Alexander Chernev

Figure 6. Defensive Marketing Strategies Price Move upscale Stay the course Launch premium offering Increase benefits Move downscale Launch value offering Reduce price Benefits Source: Stephen Hoch (1996), “How Should National Brands Think about Private Labels? ” Sloan Management Review, 37 (2), 89– 102 © 2019 by Alexander Chernev

Figure 7. The Adoption Funnel Awareness Attractiveness Affordability Availability Purchase © 2019 by Alexander

Figure 8. Identifying Adoption Gaps Awareness gap Attractiveness gap Affordability gap Availability gap All target customers © 2019 by Alexander Chernev Aware of the offering’s existence Perceive the offering to be attractive Perceive the offering to be affordable Have access to the offering Purchase gap Purchase the offering

Figure 9. The Usage Funnel Satisfaction Usage frequency Usage quantity Repurchase © 2019 by

Figure 10. Identifying Usage Gaps Satisfaction gap Usage-frequency gap Usage-quantity gap Repurchase gap Purchased the offering © 2019 by Alexander Chernev Satisfied with the offering Use large frequently quantity per occasion Repurchase the offering

Figure 11. Vertical Product-Line Extensions Price Upscale offering Core offering Downscale offering Benefits ©

Figure 12. Horizontal Product-Line Extensions Price Offering A Core offering Offering B Benefits ©

Figure 13. Product-Line Cannibalization Current offering Cannibalized sales New offering Competitive offerings A. Single offering © 2019 by Alexander Chernev Competitive offerings B. Two offerings without cannibalization New offering Competitive offerings C. Two offerings with cannibalization

Figure 17. The Product-Market Growth Framework © 2019 by Alexander Chernev Current customers New customers Current products Market penetration Market development New products Product development Diversification

Figure 18. Break-Even Rate of Cannibalization Sales volume of the incumbent offering unaffected by the new offering Competitive offerings © 2019 by Alexander Chernev Sales volume of the incumbent offering cannibalized by the new offering Sales volume of the new offering gained from the competitive offerings

Chapter 19 Managing New Products

Figure 1. The Stage-Gate Framework for Developing New Offerings Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Idea generation Concept development Business model design Offering development Commercial deployment Gate 1 Idea validation © 2019 by Alexander Chernev Gate 2 Concept validation Gate 3 Business model validation Gate 4 Offering validation

Figure 2. Top-Down (Market-Driven) Idea Generation Market opportunity Problem in search of an invention

Figure 3. Bottom-Up (Invention-Driven) Idea Generation Market opportunity Invention in search of a problem

Figure 4. Concept Storyboard 1 2 3 4 Customer Problem Alternative Options Company Offering Customer Value What customer problem does the company aim to solve? What are the alternative means to solve this problem? What are the key aspects of the company’s offering? How does the offering solve customers’ problem better than the alternative options? © 2019 by Alexander Chernev

Figure 5. The Validated-Learning Approach Observe the market Generate an idea Build a prototype

Figure 6. The Key Components of a Business Model of a New Offering Target market Market offering Customers Product Collaborators Company Competitors Brand Context Price Value proposition Incentives Customer Value Collaborator Value Company Value © 2019 by Alexander Chernev Service Communication Distribution

Figure 7. The Path of Least Resistance Customers who recognize the unmet need as a problem that needs solving Customers who actively seek a solution to the problem © 2019 by Alexander Chernev Path of least resistance Customers with an unmet need (all target customers)

Figure 7. The Path of Least Resistance Customers who can be informed about the offering in a cost-efficient manner Customers to whom the offering can be delivered in a cost-efficient manner © 2019 by Alexander Chernev Path of least resources Customers with an unmet need (all target customers)

Figure 9. The S-Curve of the Total Number of Adoptions of an Innovation Total

Figure 10. The Bell-Shaped Curve of the New Adoptions of an Innovation Individual adoptions

Figure 11. Alternative Patterns of Adoption of Innovation Individual adoptions Time © 2019 by

Figure 12. Rogers’ Categorization of Customer Based on the Time of Adoption of Innovation Number of adoptions Innovators © 2019 by Alexander Chernev Early adopters Early majority Late majority Laggards Time

Figure 13. Moore’s Application of the Rogers Model to Technology Markets Number of adoptions The chasm Early market Enthusiasts Pragmatists Visionaries © 2019 by Alexander Chernev Mainstream market Skeptics Conservatives Time

Figure 14. The Minimum Viable Offering as a Function of Offering’s Desirability, Feasibility, and Viability Technological complexity Customer value MVO Offering functionality Offering desirability (Diminishing marginal value) © 2019 by Alexander Chernev MVO Company costs Offering functionality Offering feasibility (Increasing marginal complexity) MVO Offering functionality Offering viability (Increasing marginal costs)

Chapter 20 Customer Relationship Management

Figure 1. Promotion-Driven Customer Acquisition © 2019 by Alexander Chernev Targeting Acquisition Retention Identify buyers likely to purchase the company’s offering Develop customer acquisition strategy Develop customer retention strategy

Figure 2. Loyalty-Driven Customer Acquisition © 2019 by Alexander Chernev Value Retention Targeting Acquisition Identify drivers of long-term customer value Develop customer retention strategy Identify customers with high lifetime value potential Develop customer acquisition strategy

Figure 3. The Customer Equity Framework Sales revenues Operational costs Marketing costs Customer equity

Figure 4. Aligning Customer Equity and Consumer Value Customer equity Vulnerable customers High-value customers High Low Wasted effort Low © 2019 by Alexander Chernev Free riders High Value received by customers

Figure 5. Key Customer Management Metrics 3 5 1 All target customers © 2019 by Alexander Chernev 4 2 Aware of the offering Purchased the offering Repurchased the offering 1 Awareness rate 2 Conversion rate 3 Penetration rate 4 Retention rate 5 Attrition rate

Appendix A Segmentation and Targeting Workbook

Figure 1. Identifying Target Customers Define the key value drivers Segment the market Strategic targeting Assess segment attractiveness Assess segment compatibility Select strategically viable segment(s) Tactical targeting Define the segment profile Assess tactical viability of segment(s) Select target segment(s) © 2019 by Alexander Chernev

Figure 2. The Targeting Matrix © 2019 by Alexander Chernev

Figure 3. Customer Value Analysis Workbook (Two Segments) © 2019 by Alexander Chernev

Figure 4. Customer Value Analysis Workbook (Three Segments) © 2019 by Alexander Chernev

Figure 5. Compatibility Analysis Workbook (Tradesman Segment) © 2019 by Alexander Chernev

Figure 6. The Targeting Matrix: Black & Decker © 2019 by Alexander Chernev

Appendix B The Business Model Workbook

Figure 1. The Market Value Map Target Market Offering Customers What customer need does the company aim to fulfill? Who are the customers with this need? Collaborators What other entities will work with the company to fulfill the identified customer need? Company What are the company’s resources that will enable it to fulfill the identified customer need? What other offerings aim to fulfill the same need of the same target customers? Competition What are the key features of the company’s product? Service What are the key features of the company’s service? Brand What are the key features of the offering’s brand? Price Context What are the sociocultural, technological, regulatory, economic, and physical aspects of the environment? What is the offering’s price? Incentives Value Proposition Customer Value What value does the offering create for target customers? Collaborator Value What value does the offering create for the company’s collaborators? Company Value What value does the offering create for the company? © 2019 by Alexander Chernev Product What incentives does the offering provide? Communication How will target customers and collaborators become aware of the company’s offering? Distribution How will the offering be delivered to target customers and collaborators?

Figure 2. The Customer Value Map Target Customers Customer Offering Customer need What customer need does the company aim to fulfill? Customer profile Who are the customers with this need? Product What are the features of the product that the company offers to target customers? Service What are the features of the service that the company offers to target customers? Brand Competition Key competitors What other offerings aim to fulfill the same customer need? Value proposition What value do these offerings create for target customers? Offering attributes What are the key aspects of the competitive offerings? Customer Value Reason to choose What value does the offering create for target customers? Why would they choose this offering? © 2019 by Alexander Chernev What are the features of the offering’s brand? What is the offering’s price for target customers? What incentives does the offering provide to target customers? How will target customers become aware of the company’s offering? How will the offering be delivered to target customers? Price Incentives Communication Distribution

Figure 3. The Collaborator Value Map Collaborators Collaborator Offering Collaborator profile Which entities will partner with the company to create value for target customers? What are the features of the product that the company offers to collaborators? Collaborator goals What goals do collaborators pursue by partnering with the company? What are the features of the service that the company offers to collaborators? Service Brand Competition Key competitors What other offerings aim to fulfill the same collaborator goals? Value proposition What value do these offerings create for collaborators? Offering attributes What are the key aspects of the competitive offerings? Collaborator Value Reason to choose What value does the offering create for collaborators? Why would they partner with the company? © 2019 by Alexander Chernev Product What are the features of the offering’s brand? What is the offering’s price for collaborators? What incentives does the offering provide to collaborators? How will collaborators become aware of the company’s offering? How will the offering be delivered to collaborators? Price Incentives Communication Distribution

Figure 4. The Company Value Map Company Offering What entity is managing the offering? What are its key resources? What goal does the company aim to fulfill with this offering? Company profile Company goals Product What are the features of the product that the company offers to target customers and collaborators? Service What are the features of the service that the company offers to target customers and collaborators? Brand Alternative Options What alternative options can fulfill the same company goal? Key alternatives Value proposition What value do these options create for the company? Option attributes What are the key aspects of the alternative options? Company Value Reason to choose What value does the offering create for target customers? Why would customers choose this offering? © 2019 by Alexander Chernev What are the features of the offering’s brand? What is the offering’s price for target customers and collaborators ? Price Incentives What incentives does the offering provide to target customers and collaborators? Communication How will target customers and collaborators become aware of the company’s offering? Distribution How will the offering be delivered to target customers and collaborators?