Changes in channels of distribution

Abstract

Internet disrupted many industries and many industries had to adopt the changing customer behavior as customers got used to using the internet. There is hardly any legal and regulated industry today that is not touched by the internet or technology. And technology keeps on evolving, it evolves fast. In this paper we are going to explore one industry that has witnessed a substantial change in channels of distribution, we will see the fundamental reasons behind the change and try to figure out what is the most significant among those. We will discuss the insurance industry because I believe Insurance industry has evolved a lot including their distribution channel,

 

Keywords: distribution channel

 

 

 

 

 

 

 

 

 

 

 

Changes in channels of distribution

Insurance is a basic need that provides us financial security. In the pre-internet era, the distribution channel for any type of insurance product was Broker/agent. The company had to pay commission to the insurance agents or brokers for every sale. Insurance brokers or agents, had and still have the contact factor, they communicated with a potential client, worked out a customized plan for the client and they were there to answer questions.  Ellen Carney(New York Times, 2015), a researcher from Forrester Research said that among the 40000 insurance agencies in the US will shrink by a quarter and those who survive will deal with complex product required by affluent customers.

According to LIMRA’s 2016 Insurance Barometer Study, 60% of US adults have some type of insurance policy (iii.org, n.d.). According to A.M. Best on NY Times, talking specifically about Auto Insurance, direct sales have jumped to 28% in 2012, which is double than it was in 1995.

Changes in technology played the biggest role in the insurance sector, people are using the internet more and more for everyday use and with a smartphone and other handheld devices, people are carrying internet everywhere. According to Daniel Newman on Forbes, the insurance industry has cut down their costs up to 65% just by using technology. And this cost reduction has some benefits to customers too, customers now enjoy a discount on the price.

The marketing strategy has also changed. Now any customer has access to the self-service dashboard where it is possible to add or reduce coverage and all, get a quote for free almost instantly. And claim processing is really fast, you can submit a claim using your smartphone, and the companies process it as soon as they can. And insurance companies are marketing all these benefits to customers, while the customer can save money and time using all these features, the insurance company also saves on agents and broker commissions0 they had to pay.

Competitors often offering something others are not. Like Geico markets that you will save 15% on your insurance premium, liberty mutual markets that your premium won’t be increased after first accident and Allstate gives you money back for being a good driver. According to Newman, customers love to compare before they purchase. And the internet gives customers option to compare all competitors easily before they decide which insurance company to buy from.

Customer behavior has evolved and still evolving with time. Initially, the insurance industry was selling their products directly on websites, then they started providing everything and some more on smartphone apps. For example, if you have Geico Auto Insurance policy, whatever you do on a website you can do those on an app (geico.com, n.d.) and get roadside assistance or talk to an agent with one tap on the screen. And since customers are using smartphone and internet more and more they love these features. According to Pew Research, 89% US population use the internet and according to John Greenough, auto insurance companies are going to use internet of things to cut cost. The insurance companies will monitor insured customers and their driving habits using the internet and might offer some more discount. One more thing is, of course, the customers are more knowledgeable about the product so they can shop around and choose what fits their need most.

In my opinion, the marketing strategy is the most significant factor behind the change in the distribution channel. Customers were very used to their previous distribution channel which was mostly agents and brokers. Insurance companies had to educate the customer base about the fact that everything can be done on the web and it is usually faster. And the smartphone apps are even better now. Insurance companies are marketing the benefits, and customers are adopting the benefits because mostly it is free and saves them money, time. I do realize the fact that all these are possible because of the internet, but customers adopting the advancement because of the awareness being spread by the marketing team of the insurance companies.

 

Conclusion – Insurance industry has changed the distribution channel mostly to the internet. But they need to keep working on providing better user experience, making it easier to interact, get help, easier to understand products and cutting the cost and reducing the price to consumers (Beauchamp,2018). And the marketing team has to work on the marketing to spread the awareness.

 

 

 

 

 

 

 

 

 

 

 

References

Winer, R., & Dhar, R. (2011). Marketing management (4th Ed.). Boston; Prentice Hall.

Beauchamp, P (January, 2019). 3 Ways the Insurance Industry Must Change to Survive. Retrieved on https://www.huffingtonpost.com/parker-beauchamp/3-ways-the-insurance-indu_b_14052270.html

Newman, D. (September, 2017). Top 5 Digital Transformation Trends in Insurance. Retrieved from https://www.forbes.com/sites/danielnewman/2017/09/05/top-5-digital-transformation-trends-in-insurance/#6ce54a9530ba

Greenough, J (November, 2015). Auto insurers are using the Internet of Things to monitor drivers and cut costs. Retrieved from http://www.businessinsider.com/iot-is-changing-the-auto-insurance-industry-2015-8

Dougherty, C (January, 2015). Insurance via Internet Is Squeezing Agents. Retrieved from https://www.nytimes.com/2015/01/19/technology/insurance-via-internet-is-squeezing-agents.html

Retrieved on 3/17/2018. Retrieved from https://www.iii.org/fact-statistic/facts-statistics-life-insurance

Retrieved on 3/17/2018. Retrieved from https://www.geico.com/web-and-mobile/mobile-apps/

 

Portfolio Activity week 7

In this Marketing Management course, you have learned advanced concepts and tools for marketing products and services. These are the same concepts and tools that marketing managers use around the world. However, it is worth considering how marketing is perceived in your country and what the ethical dimensions of these marketing strategies are. For example, in the Diageo case discussed in Unit 3, we saw that the company has reduced the prices for many of its liquor brands in Africa as well as selling them in smaller, less-expensive packages.

In a page or two, please reflect on the role of marketing in your country and putting on the ‘marketing manager’ hat, give some specific examples of where you think marketing “crosses the line” into unethical behavior, and make some recommendations for what should change.

Currently, I live and work in the USA. The market in the US is mostly consumption driver. And marketing managers are always busy with the advertisement, promotions on the products or services they offer. On average companies spend 11% of their budgets on marketing (Deloitte, 2017). Based on the company size that amount can be significant. But before starting any advertisement campaign understanding the target market segment is really critical, both for business to business and business to customer businesses. According to Wall Street Journal, companies spend on average spend 14.8% – 8.7% of their marketing budget on analytics. While analytics helps marketing managers understand the ROI on their efforts, it also helps them understand customer behavior. With internet adaptation, it has become easy for marketing managers to reach to the potential customer via surveys. Surveys are a great way to collect data about what customers want in a product or service. Many times surveys are used to understand if customers are happy with product and service and to find out if something needs to be changed. Surveys focus on customer needs and understanding what features they are seeking.

Another critical part of the job is an advertisement or reaching to the customer base to make them aware of the product or service. Based on the product or service type offered marketing managers can use both traditional mediums and internet to reach the target segment. Developing a marketing strategy for the product or service with advertisements or sales promotion is vital because in a nutshell marketing managers primary responsibility is to reach target customers with advertisements, sales promotions and understand the need of the customer, what are they looking for in a product or service. While marketing managers can use Facebook, Twitter, LinkedIn, Instagram or snapchat to reach targeted market segment better. But the conventional media did not die either. Marketing managers still use print media, TV, radio, in-store promotions. Or use direct mail to send coupons to the consumers.

While millennials are not fan of expensive cable bills but that is being compensated well with internet. Sending junk advertisement emails to consumer cannot be classified as unethical but using user data such as cell number or email address to directly market product or service might not please the consumer. And when I think about unethical practices of marketing managers, I can think of many examples where my personal information was used that was available somewhere on internet without my consent. Google or Facebook is a great tool for marketing managers as they offer cost per click ads which are targeted, but in order to do that these internet companies use personal data of the users. For example, if I search for a shoe on internet, until next search all I will see is advertisement of shoes on Facebook or on my Gmail inbox etc. Sometimes I get direct emails from people trying to sell me something, and maybe they got my email from LinkedIn profile which was meant for the recruiters. But worst of all are the scams, one such example is tax fraud. Some scammers will pretend as IRS and they tell you that IRS is suing you, and you better pay some amount. I do not consider those to be marketing, those are scams. But point is sometimes on internet our cell # remains visible. And marketing teams pick up those numbers and call us to sell their service. For example, I have a website and as a domain owner my information is available with the hosting company. That information can be found by some SEO companies, as they know where to look. I need to pay extra money to hide my information. SEO companies tried calling me, emailing me for months after I purchased the domain. And I think calling me was not only crossing the line but it was not really ethical. My personal information was not out there for them to use. But I am not sure who to blame. I am sure the hosting company is aware of this problem, and that is why they ask for money before they hide out personal information. So should I blame the hosting company to make their customers vulnerable or the SEO companies who are taking advantage of information that is already out there on web.

I can understand emailing me details about their service, and I would be okay with that, but calling me multiple times and trying to sell was not acceptable. My recommendation would be sticking to email marketing, but telling me just about the service is not good enough. There are thousands of companies out there who are offering same service or similar price or cheaper price. Sending some examples of work, like some of their previous work would help me understand if they are any good. I think that can be a better way to market than just saying we offer you this service for this price.

Discussion topic week 7

What are the pros and cons of using the Web as a distribution channel? Are there any situations where it is inappropriate for a company to establish an e-commerce site? Be prepared to defend your answers to your peers.What are the pros and cons of using the Web as a distribution channel? Are there any situations where it is inappropriate for a company to establish an e-commerce site? Be prepared to defend your answers to your peers.

According to US Department of Commerce in the 4th quarter of 2017, 9% of total retail purchased happened on the internet. The Internet is being used as direct and indirect channels, with rising penetration on internet-enabled devices and online retailer options web is a great distribution channel. The web started being considered and used as a distribution channel with the internet boom, and now allegedly it is killing brick and mortar stores for tech sector (Jetta, 2017). Using the internet to order something is convenient, no need to the driver to make a trip to somewhere. Most of the time you get a discount coupon or a free delivery to your home. You can compare and read the review before you buy. Yet only 10 – 15% adults in the US make a purchase weekly online according to Pew Research Center.

But these are only a few pros, the web offers many more pros as a distribution channel.

The pros of using the Web as a distribution channel

Marketing research is really easy for the e-commerce sites, most of the sites have the profiles of the customers and with all the information it is very easy to analyze the demographics.

Communications is really easy and effective. Companies put on ads, they feature their items to grab the attention of potential buyers, email coupons. The best part is these communications are very much targeted and cost-effective.

Matching or Customizing is a huge part of e-commerce nowadays. When you purchase something from Amazon, you see suggestions. Using user behavior the e-commerce websites automatically suggests items to the customer.

Relationship Management – can be handled with a loyalty program and with an e-commerce site it is easier to store and earn a point every time, as there is no chance of forgetting to carry the card to store. But this is not the only criteria, the perceived value of the loyalty program has to be something substantial to use it.

Regarding Distribution, today’s e-commerce sites are great. As long as you have a postal service you can get the item delivered, this might not true all the time though. On another hand, you can expedite the delivery with some extra fee in most of the cases. So no customer actually feel left out, since they can order online and get it delivered does not matter how far they are from the actual manufacturer.

Cost efficiency wise usually the e-commerce stores are better than brick and mortar stores. They are easy to set up and does not take many people or physical space to run. In that way, it helps manufacturers to save cost (Gaille, 2015).

Internet store or e-commerce stores came into existence in the late 90s or early 2000s, when it comes to grocery less than 5% adults’ order 6 or fewer times online (Jetta, 2017). So, there are reasons (or cons) why the web is not replacing brick and mortar store anytime soon.

The cons of using the Web as a distribution channel

Contact is a bit challenging when it comes to the web. For any new product when users are not very knowledgeable, customers usually suffer to obtain knowledge about that product. Although, now the manufacturer is producing demo videos explaining how it works to provide some idea to the first time buyers.   That is not the only thing though, getting information about a return policy or warranty or payment for all these customers might need to talk to someone. Although e-commerce sites make this information available and many sites provide support over chat, email or phone, still brick and mortar stores do better on this front with an actual human who is easy to reach.

Negotiation is not possible on the web, although the customer can find a coupon and get some discount, real negotiation happens on stores, not on an e-commerce site.

Financing is often an issue on big ticket item and most of the time the retail store offers options which are not present on an e-commerce platform. Although some sites might have that option and some credit cards ( for example Amex s offering Plan it, which is easy monthly installment plan on big ticket items) are offering that, but it is not that widespread yet.

Service – while distribution channels can also provide service, but getting a service from a retail store is way easier and saves you time. IF you have to ship a product to get service, it takes way too much time on shipping and actual servicing.

Are there any situations where it is inappropriate for a company to establish an e-commerce site?

At this day and age, it is hard to imagine any company without an e-commerce site. Just about any legal business have a web presence, but I do not think e-commerce sites should be allowed for any regulated substance or material( I am not considering anything illegal at all). When I say regulated, in many countries tobacco and alcohol are age restricted, so those should not sell on an e-commerce platform. As it is a bit difficult to verify age on the internet, anyone can fake ID and buy those age-restricted products. And this applies to anything such as weapons, lethal chemicals or prescription drugs – whatever is regulated are not appropriate to be sold on e-commerce sites.

References:

Retrieved on 3/16/2018. Retrieved from https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

Jetta, K. ( June,2017). The E-Commerce Paradox: Brick-And-Mortar Killer…Or Is It?. Retrieved from https://www.forbes.com/sites/forbestechcouncil/2017/06/30/the-e-commerce-paradox-brick-and-mortar-killer-or-is-it/#760490447736

Gaille,B. (November,2015). 12 Pros and Cons of Distribution Channels. Retrieved from https://brandongaille.com/12-pros-and-cons-of-distribution-channels/

Case Study of Friends Furever Android ad

Abstract

Friends forever were released in February 2015, and it was shared 5.6 million times, making it most shared ad ever (Chokkattu, 2015). This video essentially showed the friendship between cute animals, who are different in shape, size, and color. Yet they seem to enjoy themselves. We will try to understand if this ad is emotional or rational, we will try to find out the target audience for this ad and the reason behind this video going viral.

 

Keywords: android ad

 

 

 

 

 

 

 

 

 

 

 

 

Friends Forever

The video can be watched at https://www.youtube.com/watch?time_continue=9&v=q-NKpDTwMms . This video shows the pair of different animals playing around, happy, enjoying themselves out in nature. The ad ends with “be together. Not the same” message.

 

Would you consider this to be an emotional or rational ad? Why?

            Let us consider this ad to be rational for a moment. We can explain why Animals are happy, they are free, out in nature, playing around, as nature intended them to be. The message “be together. Not the same” makes sense when we consider the fact none of the animal pairs were same animals, so they were together but they were not same, but still, they were having fun with each other. But the question is why would Google use animals to advertise a mobile operating system that runs 1.5 billion devices that point in time.

Now let us see if we can explain the ad any other way. The ad featured cute animals of all shape, size, color – they are out in nature, trying out new things and having fun. Google did not directly advertise their product here, they have shown the spirit, on one side there is apple, all the devices are very homogeneous, and they run in one ecosystem, not open. But on the other hand android runs 1.5 billion devices, big and small, different brands use android os, developers can make their own app and run on their device, it is an open source operating system. Human has this need of standing out, doing something that is never done before, getting to know someone he does not know. In this ad, Google has captured all these spirits. This ad is definitely an emotional one, capturing human emotions, although cute animals are hard to resist in this case spirit of these animals represent the spirit of human nature that resonates with Androids nature.

 

Who do you think is the target audience for the ad?

            This ad was posted as a video, so you have to have an internet connection and you need to be on YouTube to watch the ad. Saying that everyone likes cute animals, even if someone is allergic to animals, but they will definitely like watching their videos. The spirit of happiness, nature and the fun it will appeal everyone. The targeted age group range should be wide too. Young people enjoy outdoors, older people enjoy outdoors too if they do not, I am sure they like having pets around. So my opinion is it was targeted to anyone who has access to social media. But this ad will have some extra appeal to those who enjoy the diversity, open source OS brings to the table.

Why do you think it has gone “viral,” i.e., so many people have wanted to share it?

 

According to Oliver Smith advertisers focused on friendship, shared experience using furry friends and that provoked strong feelings of warmth and wellbeing. And obviously, people wanted to share that feeling with others. As we can see people shared this video on social media for others to watch it. And in social media, we have our friends and family, so it is very understandable why people would want to share the warmth and happiness with a closed one. There is another secret, Google does not push its own brand too much in the ad, so even if someone watches and shares it later, in their mind they would not share an Android ad but they would share the lovely playful animals, the feeling he or she got while watching it.  So I think the advertisement of Android being subtle here was equally important.

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Chokkattu,J. (November, 2015). Google’s ‘Friends Furever’ ad just became the most shared ad of all time. Retrieved from https://www.digitaltrends.com/social-media/google-friends-furever/

Retrieved on 3/12/2018. Retrieved from https://www.youtube.com/watch?time_continue=9&v=q-NKpDTwMms

Winer, R., & Dhar, R.(2011). Marketing management (4th ed.). Boston; Prentice Hall.

Discussion Topic Week 6

A major problem facing marketing managers is how to allocate their communications budgets across both traditional and new, digital media (search like Google, social networks like Facebook, and others). What factors would you consider in making this allocation decision?

Allocating the communications budget is not going to easy, but we can definitely start with focusing on the target audience and their general trend of media usage. Other factors to consider would be if the product or service that is being advertised suits the media, cost to advertise if we can measure the effectiveness of the ad – things like that.

As a marketing manager, we have many options to choose from, such as print media (newspaper, magazines), radio, TV and now with internet usage on the rise globally, social media and other ad mediums are immensely popular. But, it is all about reaching to the potential customer. If we do not target our audience carefully and do not reach them, then we would not use our budget wisely. Knowing the target audience is critical and how to reach them. And one strategy might be region specific and might not work in other parts of the world. For example, the internet is widely used in USA, Canada, so social media ads can be considered in these countries, but social media ads might not be an option where internet is not widely used yet.

Next factor to consider how effective the ads are and one way to make ads effective is to reach the target audience as much as possible. Which can be difficult with TV or radio, speaking strictly keeping millennials in the USA, in mind. Many of them do not even watch TV or listen to free radio. They mostly use ad-free subscription services. Then how to reach these millennials?

According to Boston Consulting groups, US millennials have combined annual buying power worth $1.3 trillion.  And according to pew research, 87% of the millennials between ages 18 – 29 use social media such as Facebook or Instagram (Egan, 2015). And using this information we can focus on reaching to them. Target advertising and cost on click makes ads on social media and ads on search pages really efficient. And moreover, we can measure click-through rate and sales conversion rate that helps marketing managers to tune the ad campaign.

Now, most of the items can be sold on the internet and a brand awareness can be created over the internet, but print media is still a great way to reach the target audience. Say if we are selling a product or service targeting exclusively to men, then we can put an ad in men’s magazine, such as “Men’s Health”, same goes for women. But other media such as TV, radio or print media does not give us the conversion rate, we will not be able to find out, how many sales are originated due to the ad campaign. For this reason, internet ads are efficient.

Besides, for internet ads, one can set exact budget, which can work on a small budget, but for any other media, it is usually not so small. Like an ad slot during super bowls which help to reach millions cost in millions.

According to Robert Allen in the year 2017 US retailers spent $16.95 billion on digital ads and they are projected to spend $18.97 billion. On the other hand, traditional advertisement spends are going down every year. And mostly for the reasons stated above – you cannot measure the direct impact of your ad, usually expensive than internet ads and worst of all, the ads on TV or radio are not efficient enough, it is not guaranteed that the ads will reach to the target audience at all.

Essentially these are the factors I will consider, and if internet advertising is not an option then we will have to find out the next best option, where we can reach the most number of the target audience, most effectively and efficiently.

References:

Egan, J (January, 2015). 18 statistics markets need to know about millennials. Retrieved from http://www.leadscon.com/18-statistics-that-marketers-need-to-know-about-millennials/

Allen, R (November, 2016). 2016 US Digital Marketing Budgets: Statistics and Trends. Retrieved from https://www.smartinsights.com/internet-marketing-statistics/2016-us-digital-ad-spend-statistics-trends/

Customer Oriented Pricing for Medi Cult

Abstract

Medi-Cult the biotech company from Denmark has an alternate of IVF that is IVM, it is a cheaper option but more importantly, it does not include hormonal stimulation. And hormonal stimulation is the most uncomfortable phase and causes side effects like nausea, mood swings, general discomfort etc. Medi-cult has skipped this step and does not cause these side effects. That does make IVM more effective, but at least women might be willing to try again if the first attempt goes to waste. We will try to discuss the economic value and will try to determine a price for the procedure.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What are the sources of economic value for IVM vs. IVF?

Per-cycle of IVF costs $9000 that includes – IVF treatment cost – $5000, Cost of hormones – $3000, Lab work cost – $500 and Misc cost – $500. The hormonal stimulation process has side effects such as nausea, mood swings, general discomfort etc. These site effects cause loss of work days and in 2% of cases hospitalization. Moreover, this procedure lasts for 30 days.

So we can safely conclude that the cost of IVF is not just the $9000 patient pays but all the physical and mental discomfort the patient goes through and in 2% cases the hospitalization makes it a horrible experience. No wonder, with 80% failure rate not many women go back to this process ever again. And that means giving on the hope of becoming a mother or a parent in man cases.

Medi-Cal’s IVM takes only 2 days, skips the hormonal stimulation and skips all physical and mental side effects related to the hormonal stimulation. And cost of IVM treatment: $5,000; cost of hormones: $300; lab work: $250; miscellaneous costs: $250. So, the lower cost means a freedom to set a lower price too or have a better profit margin. But there are few points – although there is no side effect and IVM takes 2 days instead of 30 days, the success rate is same as IVF that is 20%. And chances are that the woman or the couple could try again if they fail on the first time. So for IVM the source of value is not only in the cost, but on the fact that it does not give any side effect, no chances of hospitalization, no missed work days, and even the first attempt fails the patient can take further attempts, and having a baby or becoming a parent has reward in its own terms.

 

What method(s) mentioned during the lecture seem most appropriate for determining what a person/couple would be willing to pay for a cycle of IVM?

I believe in this specific case we can use “Perceived Value Concept”. The perceived value on IVM would be significantly better than IVF, because of the reason we have discussed. And Medi Cult can increase the perceived value further by creating a brand value, providing great customer service, they have a first mover advantage already so, I believe they can use the “Perceived Value concept” to determine what a person / couple would be willing to pay for a cycle of IVM.

Assuming away issues like insurance coverage, channels (clinics), regulations, etc., approximately what price would you charge for a cycle of IVM?

According to ihr.com IVF treatment costs $12000 – $15000. Given the fact that IVM does not have any side effects IVF has, or it take way too less time, just 2 days instead of 30 days IVF takes and there is no chance of hospitalization, I am sure IVM will have a higher perceived value. And since initially there is no competition, so we can price accordingly. I would charge $19999 for one cycle of IVM and if the person or couple does net get success at first attempt I would be happy to give them a 25% discount. I believe since IVM does not hurt the person, so Medi Cult should provide some help to get happiness of becoming parent.

 

 

References

Winer,R. (n.d.). Customer-Oriented Pricing Exercise. Retrieved from https://my.uopeople.edu/pluginfile.php/248560/mod_workshop/instructauthors/BUS5112%20WA5%20Medi%20Cult%20Case%20Study.pdf

 

Retrieved on 3/6/2018. IVF Costs – In Vitro Fertilization Costs. Retrieved from https://www.ihr.com/infertility/ivf/ivf-in-vitro-fertilization-cost.html

 

Winer, R., & Dhar, R.(2011). Marketing management (4th ed.). Boston; Prentice Hall.

Discussion Topic Week 5

Back in 2007 when first iPhone was launched by Apple, it was first of its kind, Apple had the first mover’s advantage with smartphones. What made iPhone a hit was not just the fact that the consumer based never had such a product before, but what the customers could do with it. The apps made the smartphone more than a phone, it was like a mini multimedia device with the capability of browsing the internet, playing music and watching videos. After that lot of other manufacturer brought smartphones to the market but Apple still enjoys a premium.

We are going to focus on iPhone 7. According to ZDNet Apple spends around $219.80 on components to make iPhone 7 32 GB. But please keep in mind, Apple invested money on R&D to come up with the product and of course there is an assembling cost. And Apple retails the product for $649. So we can see Apple enjoys a premium margin of more than 100%. And this is a good example where customer perceived value is greater than the price and the price is way greater than the cost.

The target segment was the Apple customers in North America and Europe who were already using Apple products, but not only those but any tech-savvy mobile phone user who needs the experience of the great product quality and ease of use Apple offers. In this case, Apple’s customer information was critical because it is an expensive product. And Apple cannot target just any market, because the customers might not have purchasing power. So their target markets are where people can afford an iPhone. And then the customer who is already using Apple products are first adopters. Because they are familiar with Apple products, they are loyal to the brand. The brand Apple has another point of attraction because, not everyone can afford an iPhone, because of its premium pricing.

Apple can use the same information about its customer base and use it to price the products. So every year they bring in new products adding some new features, and their loyal customer base is usually the first to buy the product mostly because of the new offering in that product. And the loyal fan base usually wants to be the first one to own the product, because there is a prestige involved. Some actually wait for the price to go down, although they appreciate the quality of Apple product along with the ease of use they know the prices drop pretty quickly so they wait it out and purchase after the price drop. But the major reason is the inflated perceived price, and below are few reasons behind that –

  1. Apple provides an ecosystem, with MacBook, iTunes, iPod, and iPhone, so the user of all these products find it easy to share, store digital information
  2. The quality of hardware and the ease of use is of course great
  3. The after sales service is best in class
  4. You get iPhone with any major carrier, so the phone is widely available
  5. Apple has an investment in advertising and established itself as a distinct brand

Apple has developed such a loyal customer base and brand value that they can bring $1000 iPhone, but it was not a hit. Personally, I think the customer base does not perceive an iPhone to be so expensive.

My next brand is one that I personally use and especially a fan of – Nike. When Phil Knight started the company European running shoes used to dominate American market. When Nike started it focused on runners as target market segment. And Nike was committed to providing better running shoes those were lighter and cheaper than European contenders. Now Nike sells pretty expensive brands like Air, Jordan etc. those are premium shoes. According to solecollector.com Nike spends $28.50 on a $100 shoe that they sell on the market(Dunne, 2014). Nike can charge this premium because of few reasons, and it is not just quality. Let us discuss those.

  1. Nike is very much quality-focused brand, they always deliver great quality products
  2. Brand building was done by brand promotion by great athletes like John McEnroe, Michel Jordan, Tiger Woods all prominent figures endorsed the brand over the years.
  3. Nike is called a technology company at the time, because of their innovations with products, and Nike has a great online presence too

Nike has a loyal customer base, mainly runners and fitness enthusiast. The perceived value of Nike products is more than they price them. Although there are millions of other running shoes those are cheaper, serious runners and fitness enthusiasts do not compromise with quality to avoid health implications. And Nike has the brand reputation they go for despite the premium price Nike charges.

References:

Kingsley, A (September, 2016). Here’s how much the iPhone 7 costs to make. Retrieved from http://www.zdnet.com/article/heres-how-much-the-iphone-7-costs-to-make/

Dunne, B (December, 2014). How Much It Costs Nike to Make a $100 Shoe. Retrieved from https://solecollector.com/news/2014/12/how-much-it-costs-nike-to-make-a-100-shoe

Analysis of Consumers and Competitors

Abstract

Soft drinks are smartphone apps are very different in nature and in terms of the market, those are in a different stage in PLC. Colas are mostly in slow growth matured stage while smartphone apps are mostly in the growth stage and growing slowly. We will try to focus on matured markets here since the smartphone reach in some of the emerging economies is not that great. But in matured markets like Europe or USA cola has reached a significant amount of population and significant part of the population have access to smartphone and mobile internet. But we need to remember that there are millions of apps available on the app store of Apple and Google, some are already being used by millions of users,  but as a category of product as a whole, apps came to existence may be a little bit over a decade back. So with a comparison to Cola or soft drinks smartphone apps is a very new segment. We would try to explore the differences between markets for both these, in terms of consumers and competitors and how that impacts marketing.

 

 

 

 

 

 

 

 

 

 

Differences between the markets in terms of consumers and competitors?

 

Colas came in to existence more than a century ago. And all of us are aware of names like Pepsi and Coca-Cola. We have seen the advertisements on TV, in stadiums, in stores basically everywhere. Coca-Cola was first introduced on 8th May, 1886 per Wikipedia, and there is no doubt that the market for colas are matured.. Although Coke has a competition as Pepsi and some other local store brands too try to grab some market share. Globally Coke has more than 48% market share, Pepsi has 20.5% and others colas sell almost 31% (Statista.com, n.d.). After launching in 1886 Coke instantly had first mover advantage. Pepsi was launched in 1893 per Wikipedia and Pepsi has significant market share and it exists as number 2 of cola market. Colas have a wide range of customer, from teenagers to elderly people, anyone can consume the drink. Colas are not too pricey either so just anyone can consume colas. Since market for Cola is matured, there is hardly any growth left, with increasing population sales might go up, but the main factors are introduction of new products in existing categories and line extensions, like introduction of new flavors. Speaking brand agnostically, recently cola brands have introduced diet colas that as a product targeted health conscious people who do not want to consume sugar in their drinks. And then colas in different flavors, such as cherry coke are also introduced, although some of them failed to impress, but these are all good examples of line extension of new products. So, introduction of new products such as diet cola or line extension such as cherry coke are few ways cola companies tried to boost their sale. I am intentionally avoiding discussing other categories such as fruit juice, snack offered by Coke and Pepsi, since our main discussion point is only Cola. The competition between Coke and Pepsi is also intense. Both these brands have similar products, in main category or any extended product category. For example both Coke and Pepsi offer regular cola and both of them offer diet cola along with flavored colas. Coke compete hard to maintain their number 1 position and Pepsi tries hard to get market share from coke or at least to remain a close number 2 in market. Other cola companies are small in size and brand name. They offer flavored colas too and try to offer cola for cheap to gain market share.

For smartphone apps, the category was introduced to us by late Steve Jobs when he introduced the first smartphone. And after that Android phones did not wait much longer, and now a decade later we have thousands of smartphones and millions and new apps in app stores. Google, Apple, Microsoft, Adobe and every big and small name launching apps. The industry is growing, and the competition is fierce. Since this category is in a growth phase, we see acquisitions, for example, Facebook bought Instagram and WhatsApp. The consumers are also excited about new apps. As long as marketing managers can put something new and exciting in front of the eyes of smartphone users they usually try those. And one vital factor is in most of the cases these apps are free. For example. Snapchat was introduced for teenagers and this app gained immense popularity in USA. App market is versatile, lot of apps are being released every day, and people have tons of choices. There are lot of “Me too” products. For example, there are many messaging apps, such as hangout from Google or Facebook messenger. User or customers often get a better app later and switch to that. For example, after the launch of snap chat, Facebook lost a significant amount of users. But then with innovation and creativity smaller names like Snapchat created a better product and popular app that Google. Facebook or Microsoft could not replicate. The consumer for these apps are mostly teenagers and millennials. Anyone with a smartphone is a potential consumer though. But I would say the target segment for any particular app is smaller than target segment for any cola. The competition is way too intense in the world of smartphone apps as there are thousands of companies and individual app developers fighting for market share. Cola companies do not have so many new entries like app companies do.

 

How are the decisions on price, advertising, and distribution channels different for the two brand managers?

 

Since for Colas the market is matured, and there is not much competition in terms of new entries in markets, the acceptable price range is already discovered by the industry and all branding managers for big companies set price in the same range. Although the store brands and local brands offer the product for cheap to gain market share from the number 1 and number 2.

 

For the brand manager of a smartphone app, it is difficult than that. Since there are lots of competition, new products are being launched every day, and for most of the types, the initial expenses are not very big. Any coder can code and create an app on app store, so if the app is not sophisticated and offers any feature that nobody else does, there won’t be any pricing power. That is why we see most of the apps are free and some are minimally priced. The reason behind that is the brand managers want to gain market share, penetration is their sole goal.

 

For advertising, the Cola brand manager targets the segment, which is huge and potentially everyone. They offer regular sugary Cola, sugar-free Cola, and since everyone can drink Colas legally at any age, so the target segment is mass population. So the brand managers try to grab the attention of a maximum number of people at a time, like sports venues, music concerts, popular TV programs, super bowl. In store or in crowded places like Times Square in New York City.

 

For the brand manager of smartphone app, the target segment is comparatively smaller. The target segment is a smartphone user, so most of the time the app is advertised in the app store. Sometimes, some apps are reviewed on popular tech magazines, online and print to gain some more awareness. But this advertising is much more niche and not mass like for Cola. But apps would have a networking effect that might be stronger than colas. Someone using a particular app might refer his or her friends and families that is why most apps promote referring more and more people to grow the network of users.

 

The distribution channel is how products reach to customers. For Cola, most customers get it from supermarkets, big box stores like Walmart, and now there are online grocery stores, so customers can order Colas from online sites.

Smartphone apps are available on app store based on mobile operating system, apple app store and Google Play store. Apps are not physical or tangible unlike Colas, so these are distributed digitally, and across the globe, the apps can be distributed over the internet. Cola is tangible, and usually, the distribution is done from bottling plant to warehouses and from there to supermarket and stores selling cola.

                                            References

Winer, R., & Dhar, R.(2011). Marketing management (4th ed.). Boston; Prentice Hall.

 

Retrieved on 2/27/2018. Retrieved From https://www.statista.com/statistics/387318/market-share-of-leading-carbonated-beverage-companies-worldwide/

 

Retrieved on 2/27/2018. Retrieved From https://en.wikipedia.org/wiki/Pepsi

 

Retrieved on 2/27/2018. Retrieved From https://en.wikipedia.org/wiki/Coca-Cola

 

Discussion Topic Week 4

Consider the three major categories of new products: “really new” products (ones that create new product categories like iTunes for digital music), new products in existing product categories, and line extensions which are just new varieties of existing products (such as new flavors). How does the job of the marketing manager differ for these three kinds of new products? How does a marketing manager forecast product demand each of these categories?

How does the job of the marketing manager differ for these three kinds of new products?

Some of the steps in any new product launch are common. Such as identifying a new idea, then selecting the feasible one, R&D department to come up with the prototype, business analyst team to find target segment and price, a testing phase where the customer acceptance is measured and then finally launch. We will highlight the part where the marketing managers job differ based on the type of new product.

Marketing manager for “really new” products have one critical task of creating awareness for the upcoming product. If a customer is not aware of a product the product will never be sold. Although promotion attracts competition it is essential. So marketing team uses print media, online media, TV and radio to introduce the product to the customer base. So in this case marketing managers has to first identify the need and then create a product ( with the help of R&D team) to meet the need of the customer and deliver the value. Then creating awareness about the product, making sure target customers understand the benefit and value proposition of the product. In this case, educating customers and extending support to them becomes critical for the success of the product. And lastly, the price should be what the target customer are comfortable paying for the product. The marketing managers must bear in mind that some product launches are time sensitive, the success of the product depends on when it is introduced, based on that the product can gain first mover advantage over competition or simply be used. And this is where the product enters growth phase in PLC after a successful launch. Once the product gains maturity, the competitors might have caught up and introduced similar products for the lower price.

New category entries is another type of “new product” for a company when the company decides to add already existing products from the market in their own portfolio. In this case, the marketing manager has to reach out to target segment and find out the customer need.  In this instance defining the products value proposition would be essential. Since there are already similar products available in the market and from competitors. Defining the value proposition is absolutely critical for the marketing manager since target segment needs to know why this product is different and better. Few other areas would quality and price. The customer would be pleased to see a better quality for a cheaper price too. And a marketing manager will have to be mindful of that, what the target segment prefers and what is the price they are willing to pay. The business analysis, testing and concept development will be played in a similar manner. During commercialization, the marketing manager has to play a most critical role to create the buzz, presenting the value proposition to increase interest in target segment and then reaching to maximum possible customer base would be important. In this case, the product team can use the Target costing approach since the product is already available from the competitors so getting feedback from the customer would be easier.

For line extension, all the procedures are almost similar to the introduction of a new product. But I believe the marketing manager needs to run more surveys or testing to make sure the product is well liked by the potential customers and for the price. Since the value proposition for the product is already proven, and there is a reference to price point acceptable for the customer, developing and launching this kind of product should be easier. The R&D department can create the prototype after selecting an idea. And then business analysts can evaluate the demand. Once the product is proven to be liked by target segment for the price the marketing manager can work on creating awareness of the product using different online, print or electronic media.

How does a marketing manager forecast product demand each of these categories?

The business analyst teams perform branded and unbranded test to find out the potential sales and to determine the actual formulation respectively. There are essentially 3 different types of use tests for different new products. Let us discuss those –

There is a type of test (Winer, 2011, Pg no 229) usually performed with employees and focus group to determine if it is liked, this sort of test helps remove any serious problem in the product and helps the testers determine if this product is better or worse than the competition. And help the testers understand how the product will be used by customers and based on these finding they can shape up the value proposition for a bigger audience. This kind of test can be performed while introducing new category entry or line extension, to forecast product demand of the product.

The next type of test (Winer, 2011, Pg no 230) is when a sample size of users are given the product to use it for a certain number of days. And after the end of that period, they are asked if they are going to buy the product. This kind of test can be helpful for “really new” kind of product launch or for the line extension products. This could help forecast the demand, popularity of the new product in the market.

The 3rd type of test (Winer, 2011, Pg no 230) is essentially bit extended version of the 2nd type. In this situation, the product is given to home or business for an extended period of testing to find out users experience with the product. Testers get data from before and after questionnaires. Find out usage of the product and the usage pattern can be compared with competitive products too. And this way actual usage for the product can also be found out. This type of test can be used for really new, new category entry or line extension products.

Reference

Winer, R., & Dhar, R. (2011). Marketing management (4th ed.). Boston: Prentice Hall.

Diageo’s Growth in African Market

Abstract

Diageo turned to Africa for further growth in sales and revenue. Since Africa is frontier market that has a lot of growth potential, Diageo did not want to pass the opportunity. The average consumer in Africa does not have great purchasing power, but Diageo tapped into the mass market, reducing prices for their products. Diageo’s journey in African market did not come without any headwinds. It faced competition from other brands, pricing power is not great and Diageo had to deliver their product per local taste. This paper will discuss more on the Diageo’s global branding strategies and the outcome of its actions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Why haven’t Diageo’s global branding strategies worked in Africa?

 

Diageo thought it could apply global marketing techniques to its African spirits brands (Evans, 2015). But the key to success was to making Diageo more like the local brand for the African customer base who are more like global agnostics. They did not care about the brand and were not ready to pay a premium price for the Diageo branded products. The real demand for liquor was for liquors available under $2. “All the real action is when you go below 200 Kenyan shillings,” around $2, says John Williams, marketing director at Kenya Breweries Ltd., a Diageo subsidiary (Evans, 2015). And Diageo was competing against a global brand like Pernod Ricard and other local distillers who were offering a variety of product for the really cheap price. In order to cut cost, Diageo introduced Jebel in a plastic pouch, but the customer preferred glass bottled alcohol from competition to be hygienic and safe, so Jebel’s sale plummeted. In Ghana and Nigeria where customers prefer herbs as those are considered to be healthy, and Diageo was not aware of the fact. So, Diageo focused on being the premium brand they are globally and did not really understand what the local markets in countries like Kenya, Nigeria or Ghana want. And that is what went wrong for them. The local preference for taste, quality and hygiene were different than what Diageo was offering them.

What has the company done to change its marketing strategies?

 

            The company understood the segment and the demand which comes from the products priced below $2. And Diageo changed its marketing strategies to reach the segment. In order to set a base for their spirits business, Diageo introduced a number of herbal and ready-to-drink drinks, with close to 24 brand extensions in 2011. These acted as the basis to pave the road to mixing spirits and non-alcoholic counterparts. Giving customers the end drink might boost consumption of spirits, which bodes well for Diageo (Team, 2015). Apart from introducing products matching the market demand, Diageo tried to reach its customer base, they used banner advertising, radio ads in channels (known as slum radio) popular among targeted segment. They even started delivering using motorcycle instead of trucks to be more local like in Kenya. These are the strategic changes Diageo made.

 

Are there risks to the Diageo brands to the new approach?

 

I believe there are risks. Diageo can now put up banner ads wherever they want or play advertisements over radios. But changes in government regulations restricting Diageo from doing so might force Diageo to look for new ways to reach to the targeted segment. And the competitors can always come up with a better product for the better price that might pose challenges for Diageo too. But there is one more risk posed by the society. If the drinking problem becomes so bad that society revolts against the companies selling spirits, that won’t be good for Diageo or its competitors. However, in spite of the huge potential this market presents, it also poses a number of challenges prevalent in developing nations that could threaten prospects for Diageo (Team, 2015). One of such risk could be, change in regulations by Government and not allowing Diageo to produce alcohol in the mobile distillery and forcing them to set up a new distillery spending $45 million. In that case, selling liquor for cheap would be a problem for Diageo.

What are the social implications of Diageo’s actions?

           

            In my opinion, social implications of what Diageo is doing can create a long-term problem in societies of frontier countries such as Nigeria, East Africa (Kenya, Tanzania, Uganda, Burundi, Rwanda, and South Sudan), Regional Markets (Ghana, Cameroon, Ethiopia, Angola, and Mozambique) and South Africa. Africa has 15% of total global population and half of it is under age of 20. And these are low-income societies which have men with a drinking problem and in many instances and Diageo is trying to sell them cheap liquor in their favorite flavor and taste. And school going children are being exposed to advertisements on city skyline and on radios and that poses a different kind of long-term risk to society. But I understand Diageo is just trying to sell their products, but while doing so they are posting quite a bit of threat to already vulnerable societies.

I believe Diageo should be a little bit more responsible and show some self-restraint while advertising, such as not advertising near schools or parks and playing radio or TV ads when kids are least likely to list or watch them. Aggressively campaigning against binge drinking and maybe they can set up rehabs for alcohol addicts to earn respect and give back to the society.

 

 

 

 

 

 

                                            References

Team, T. (2015). Diageo: Could Africa Be The Motor For Growth?. Retrieved from https://www.forbes.com/sites/greatspeculations/2015/04/30/diageo-could-africa-be-the-motor-for-growth/#17d5f8a47999

 

Evans, P. (2015). Thirsty for Growth, Liquor Giant Taps African Market. Retrieved from http://ih.advfn.com/p.php?pid=nmona&article=67961057

 

Winer, R., & Dhar, R.(2011). Marketing management (4th ed.). Boston; Prentice Hall.