Strategic Marketing Management The Framework ISBN 978 1

Strategic Marketing Management | The Framework ISBN: 978 -1 -936572 -59 -5 January 2019 Copyright © 2019 by Alexander Chernev Author website: Chernev. com Supplemental materials: Marketing. Toolbox. com Published by Cerebellum Press | Chicago, IL | USA

Chapter 1 Marketing as a Business Discipline

Figure 1. Making Decisions Using a Framework Typical problem Typical solution Abstraction Application Specific problem Specific solution Trial and error © 2019 by Alexander Chernev

Chapter 2 Marketing Strategy and Tactics

an mp Co Context © 2019 by Alexander Chernev s Competitors r to Customers ra bo lla Co y Figure 1. Identifying the Target Market: The 5 -C Framework

Figure 2. Defining the Value Exchange Company Value Customers Collaborators Value Competitors Context © 2019 by Alexander Chernev

Figure 3. The 3 -V Market Value Principle Company value The Optimal Value Proposition OVP Customer value © 2019 by Alexander Chernev Collaborator value

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 Chernev Price

Figure 9. The Four Ps and the Marketing Mix Product Service Brand Incentives Value Price Distribution Place Promotion Communication © 2019 by Alexander Chernev

Figure 10. The Five Forces of Competition New entrants Suppliers Competitors Substitutes © 2019 by Alexander Chernev Buyers

Chapter 3 The Marketing Plan

Figure 1. The G-STIC Framework for Marketing Management Goal Business model Strategy Tactics Implementation Control © 2019 by Alexander Chernev

Figure 2. 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 3. Market Goals and Objectives Customer objectives Collaborator objectives Company goal Company objectives Competitor objectives Context objectives © 2019 by Alexander Chernev

Executive Summary Figure 4. 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 Environment How will the company monitor the environment to identify new opportunities and threats? Exhibits What are the details/evidence supporting the company’s action plan?

Figure 5. 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

Chapter 4 Identifying Target Customers

Figure 1. Segment-Based Targeting All potential customers (entire market) © 2019 by Alexander Chernev Customers whose needs the company aims to fulfill (target market)

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 4. Customer Profile and Customer Needs Need-based targeting Profile-based targeting Identifiable customer needs © 2019 by Alexander Chernev

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 7. Tactical Targeting: Cost-Efficiency Value-based segment Profile-based segment “Sniper” targeting (optimal) © 2019 by Alexander Chernev “Shotgun” targeting (too broad)

Figure 8. 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 9. Common Segmentation Errors A. Irrelevant © 2019 by Alexander Chernev B. Heterogeneous C. Not exhaustive

Chapter 5 Developing a Customer Value Proposition

Figure 1. Value as a Function of Customer Needs and Offering Attributes Customer needs © 2019 by Alexander Chernev Customer value Company offering

Figure 2. Dimensions of Customer Value Functional value Customer value Psychological value Monetary value © 2019 by Alexander Chernev

Figure 3. The Customer Value Proposition Company offering Reason to choose Value Customer needs © 2019 by Alexander Chernev Alternative options

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 benefits Costs © 2019 by Alexander Chernev

Figure 6. 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

Chapter 6 Creating Company Value

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

Figure 2. The Key Profit Drivers Sales volume Revenues Unit price Profit Variable costs Costs Fixed costs © 2019 by Alexander Chernev

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 costs © 2019 by Alexander Chernev

Figure 5. The Profit Impact of Strategic Offerings Company value Profit Offering A Offering B Strategic value © 2019 by Alexander Chernev Profit Offering C Strategic value

Figure 6. Economic Value Analysis Monetary value Monetizing strategic value Company value Strategic value © 2019 by Alexander Chernev

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 C Collaborator Value © 2019 by Alexander Chernev Value Customer

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 Profit Total costs Fixed costs Volume © 2019 by Alexander Chernev

Chapter 7 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. Managing the Product Lifecycle Financial performance Revenues Profits Introduction © 2019 by Alexander Chernev Growth Maturity Decline Time

Figure 4. Extending Product Lifestyle through Innovation Sales Third generation Second generation First generation Time © 2019 by Alexander Chernev

Chapter 8 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 © 2019 by Alexander Chernev Motivate

Figure 4. Building a Service-Oriented Company Culture Management beliefs Company policies Employee selection Norms of behavior Teamwork Service quality © 2019 by Alexander Chernev

Chapter 9 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 3. 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

Figure 4. Vertical Brand Extensions Price Upscale extension Price tier A Price tier B Price tier C Core offering Downscale extension Benefits © 2019 by Alexander Chernev

Figure 5. Horizontal Brand Extensions Price Extension A Category A © 2019 by Alexander Chernev Core offering Category B Extension B Benefits Category C

Figure 8. Brand Power, and Brand Equity Branding activities Brand image Customer value Customer behavior Brand power © 2019 by Alexander Chernev Company value Brand equity

Chapter 10 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 © 2019 by Alexander Chernev Elastic demand 50 Quantity

Figure 3. 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 4. Competitive Price–Benefit Map Price Value-equivalence line Offering A Offering B Offering D Offering E Offering C Benefits © 2019 by Alexander Chernev

Chapter 11 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

Chapter 12 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

Chapter 13 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 Hybrid channel © 2019 by Alexander Chernev

Chapter 14 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 by Alexander Chernev

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 Chernev

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 Alexander Chernev

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

Chapter 15 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 Top-down idea discovery Invention © 2019 by Alexander Chernev

Figure 3. Bottom-Up (Invention-Driven) Idea Generation Market opportunity Invention in search of a problem Bottom-up idea discovery Invention © 2019 by Alexander Chernev

Figure 4. The Validated-Learning Approach Observe the market Generate an idea Build a prototype Learn from the outcome © 2019 by Alexander Chernev Test the prototype Build the offering

Figure 5. 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 6. 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 8. The Product-Market Growth Framework © 2019 by Alexander Chernev Current customers New customers Current products Market penetration Market development New products Product development Diversification

Chapter 16 Managing Product Lines

Figure 1. Product Portfolio and Product Lines Product portfolio Product line X Product A © 2019 by Alexander Chernev Product B Product line Y Product C Product D Product E

Figure 2. Product Platforms and Product Lines Customer benefits Product line Product A Product B Product platform X © 2019 by Alexander Chernev Product C Product D Product platform Y Company processes

Figure 3. 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 4. Vertical Product-Line Extensions Price Upscale offering Core offering Downscale offering Benefits © 2019 by Alexander Chernev

Figure 5. Horizontal Product-Line Extensions Price Offering A Core offering Offering B Benefits © 2019 by Alexander Chernev

Figure 6. 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 7. The Fighting-Brand Strategy Price Quality Incumbent brand Low-price competitors Fighting brand Time © 2019 by Alexander Chernev

Figure 8. The Sandwich Strategy Price Quality Premium brand Incumbent brand Low-price competitors Fighting brand Time © 2019 by Alexander Chernev

Figure 9. The Good-Better-Best Strategy Price Quality Best Incumbent brand Better Low-price competitors Good Time © 2019 by Alexander Chernev

Figure 10. 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

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?