Building a brand
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Transcript Building a brand
Resource
Allocation
Prof. Markus Christen
INSEAD Singapore
May/June 2007
Resource Allocation
Three levels of resource allocation
• Which segments?
• Which brands/products?
• What marketing instruments?
Steps in resource allocation
• Set priorities among segments and products (marketing strategy)
• Match marketing mix strategy with (customer view of) buying process
(marketing tactics)
• Quantify cost and return for different marketing instruments by product and
segments (marketing control)
Identify synergies and conflicts across the product line (e.g.,
customer groups, channels)
Session 9 - 2
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
Question
Marks
Cash
Cows
Dogs
High
Stars
15 %
Low
Market Growth
Set Priorities: BCG Growth-Share Matrix
10
High
1.0
Low
Relative Market Share
Session 9 - 3
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
0.1
Saku: Classification of Product Portfolio
High
Cider
10 %
Import
Beer
Mineral
Water
Low
Market Growth
Other
Alcohol
Soft
Drinks
Beer
10
High
1.0
Low
Relative Market Share
Session 9 - 5
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
0.1
Comments: Portfolio Analysis
Portfolio matrices are NOT decision tools, but they are useful
analysis tools
• Simple to construct, easy to read
• Repeat for competitors and compare
• Repeat over time to track changes
Possible pitfalls
•
•
•
•
Attractiveness and position are subjective assessments
Atomization of company or product portfolio
Focus on existing businesses/markets and existing world
Overlook strategic roles of products (“guard dog”)
Session 9 - 6
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© Prof. Markus Christen
Marketing Mix Strategy
Customer Buying Process
•
•
•
•
•
Think - Like - Buy
Buy - Like - Think
Buy - Think - Like
Think - Buy - Like
…
High involvement versus low involvement
New purchase versus repeat purchase
Session 9 - 7
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© Prof. Markus Christen
Buying Process: Hierarchy-of-Effects
Customer Behavior
Measure
Your Decision
Do customers know about
us?
awareness
advertising
Do customers have interest
in us?
interest
targeting, positioning
(consideration)
Do customers want to buy
us?
purchase
intentions
product, price, advertising
message
Can customers buy us?
distribution
coverage
sales force (size, allocation),
product, price, advertising
Can retailers get enough
products?
stock outs
demand forecast, production
planning
Session 9 - 8
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
Influencing Buying Process
Effect
Main Forces
Information
Awareness
advertising, forgetting,
share-of-voice
advertising experiment,
competitive ad spending
Purchase
Intentions
customer perceptions,
product features,
advertising, competition
MDS, semantic
scales, conjoint analysis
Availability
sales force,
feet-on-the-street
product, price, ads
sales force experiment,
competitive sales forces
Market
Demand
maturity of segment
product attractiveness
market forecasts,
MDS, …
Session 9 - 9
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
Quantify Marketing Investment & Return
Account
Hours/Month
Sales
A
5
217
B
1
30
C
2
40
D
3
300
E
1
5
F
5
250
G
2
20
H
1
50
1. Is this a reasonable allocation of sales hours?
2. How might hours be optimally allocated?
Session 9 - 11
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© Prof. Markus Christen
Rule 11: Resource Allocation
The optimal
resource allocation
depends on
the marginal effect and
not the average effect.
Session 9 - 12
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© Prof. Markus Christen
Quantify Marketing Investment & Return
Account
Hours/Month
0
1
2
3
4
5
6
A
20
200
205
208
213
217
220
B
20
30
50
68
80
90
95
C
0
5
40
45
50
55
55
D
0
100
250
300
340
375
400
E
0
5
10
15
20
25
26
F
200
220
230
240
245
250
260
G
0
10
20
30
35
35
45
H
0
50
110
150
180
200
215
Present hours allocated
Session 9 - 13
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Judgment-based Response Function
5 data points to fit an S-shaped response function
•
•
•
•
Sales at current marketing spending?
Sales at 50% lower / 50% higher spending?
Sales without marketing spending?
Sales with saturation spending?
Can account for media and copy effectiveness (quality)
Session 9 - 14
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© Prof. Markus Christen
Judgment-based Response Function
ADBUDG Model of judged response to marketing effort at 0, half of current
level, 50% greater than current level, and saturation.
Judged Sales as a Multiple of Current Sales
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
0
0.5
1
1.5
2
Marketing Effort as a Multiple of Current Effort
Session 9 - 15
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2.5
3
Optimal Resource Allocation Rule
You want to increase marketing expenditures (Mktg), if the additional
expenditure is less than the additional gross margin (GM) generated:
•
•
•
•
Mktg increase (Mktg)
Mktg x Mktg/Mktg
%Mktg x Mktg
Mktg / GM
• %Mktg / %GM
• GM
• GM / Sales
Mktg / Sales
=
=
=
=
GM increase (GM)
GM x GM/GM
%GM x GM
%GM / %Mktg
= Elasticity
= Sales - COGS
= %Gross Margin
=
Elasticity x %Gross Margin
Increase
<
Maintain marketing spending when Mktg / GM
= Elasticity
Decrease
>
Session 9 - 16
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© Prof. Markus Christen
Optimal Resource Allocation Rule
Marketing / Sales (%)
Increase
Maintain marketing spending when Mktg / GM
Decrease
Elasticity
45
40
35
30
25
e=0.1
e=0.2
e=0.3
e=0.4
e=0.5
20
15
10
5
0
10% 20% 30% 40% 50% 60% 70% 80%
% Gross Margin
Session 9 - 17
<
=
>
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
Marketing Mix Elasticities
Price elasticities for non-durable consumer products are around –2.0
Advertising elasticity for consumer goods is around 0.3 short-term (0.4 with
carryover effect included)
But large variations
• by stage pf product life-cycle
• by strategy (e.g., pioneer vs. follower)
• by type of product, country, etc.
And many complexities
• non-linearities
• interactions (e.g., price elasticity is influenced by advertising)
• competitive effects
Session 9 - 18
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Rule 12: Limited Resources
When resources
are limited,
the relevant cost
is the opportunity loss
from forgoing
alternative uses.
Session 9 - 19
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
Rule 13: Value-Creating Investment
Not every sale
is worth your effort.
Pre - T ax M arg in
Session 9 - 20
%Incremental Investment Cost of Capital
1 Cost of Capital1 T ax Rate
Market Driving Strategies - May/June 2007
© Prof. Markus Christen