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
Market Driving Strategies - May/June 2007
© 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
Market Driving Strategies - May/June 2007
© 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
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
Rule 11: Resource Allocation
The optimal
resource allocation
depends on
the marginal effect and
not the average effect.
Session 9 - 12
Market Driving Strategies - May/June 2007
© 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
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
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
Market Driving Strategies - May/June 2007
© 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
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
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
Market Driving Strategies - May/June 2007
© 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
Market Driving Strategies - May/June 2007
© Prof. Markus Christen
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 Capital1  T ax Rate
Market Driving Strategies - May/June 2007
© Prof. Markus Christen