Review & Discussion Too narrow definition of the market prevents from foreseeing threats from subsitution Railroads didnt think about transportation in general but only about trains Hollywood film industry didnt consider the whole entertainment market but only films Porters 5 Forces: tool to list substitutes direct & indirect competitors Product oriented businesses Example: Railroads, Hollywood Define the market in terms of the product Customer oriented businesses Examples: DuPont; Cornings Key to success: apply technical know-how to create customer satisfying uses Define the market in terms of the need GrowthApparent customer needNo other solutions = no substitutes Decline Other solutions to the need are available The need decreases cuz new tech Growth Dry-Cleaning Need driven by woolen clothes No other technical solutions Decline Dry-Cleaning Synthetic fiber replace wool = need decreases! Ultrasound tech replaces chemical = new solution! When Market/Industry declines, companies must strive to EXIT it EXIT barriers can be Emotional: Example corner store groceries beaten by supermarkets: the companies with the courage of their convictions [...] kept their pride but lost their shirts Other exit barriers: When costs too high (layoffs cost) When equipement cannot be reconverted/sold Companies only capitalize on growth opportunities Growing industries go into decay Assume Growing demographics = growing industry Assume Growing demographics = growing industry Assume No substitute possible for the product Assume No substitute possible for the product Faith in economies of scaleFaith in economies of scale Assume optimizing manufacturingis sufficient (cost reduction, better quality) Assume optimizing manufacturingis sufficient (cost reduction, better quality) Why Growth-Decline cycle?Why Growth-Decline cycle? HYPOTHESIS: If the number of consumers grow, sales will also grow = growing industry True only if no substitute for the need Example of Oil Industry Kerosene lamps substituted by light bulbsKerosene lamps substituted by light bulbs Natural gaz substituting oil for heating, even cars (diesel)Natural gaz substituting oil for heating, even cars (diesel) Innovations come from outside the industryInnovations come from outside the industry Fail to recognize new opportunities: plasticsFail to recognize new opportunities: plastics Focus on producing more at lower cost Focus on selling more: market offering is just the generic product/service Neglect the marketing aspects: The role of marketing is to listen to the customer Market Offering includes the 4Ps: Product, Price but also Place & Promotion How the product is made available? When & under what conditions available? Focus:the selling Objective: convert the product into cash Push strategy: salesmen try to sell as much as they can SELLINGSELLING Focus: the customer Objective: satisfy at best customer needs Pull strategy: salesmen capture customer needs MARKETINGMARKETING Symptom: new models sell better than the old ones Problem: the producer doesnt know what the customer wants - WHY?? Research of Customer Preferences limited only to what already decided to offer No listen to customer concerns: no attention paid to customer needs about point of sale or repair&maintenance It is not the cost that sets the price It is the price at which the product can be sold profitably that drives the need to cut costs Mass production results from marketing strategy, dosnt replace such First, determine price for level of demand Last, cut cost to be profitable at this price Improving the Product wont save sales if another substitute satisfies customer needs much better Example: the buggy whip industry Example: oil vs electricity Creative destruction: when a new (tech) solution fits better customer needs, the old one must be abandoned Example: gaz stations will become obsolete if new fuel last much longer Illusion: superior product will sell itself False Hypothese: continuous growth is a matter of product innovation Note that if u replace product by market offering the statement is true Product Innovation focus: features of product Market Offering focus: satisfy customer needs Focus on how to do the product R&D Neglect how to sell - marketing The organization view itself as making things, not satisfying the customer needs The organization view itself as making things, not satisfying the customer needs the customer comes to tell them what they need (military) No need to research customer needs Success factor: Success factor:Identify consumer needs Identify consumer needs Physical delivery of customer satisfaction Physical delivery of customer satisfaction Creating the things that achieve the satisfaction Creating the things that achieve the satisfaction Find the raw materials to make the products Find the raw materials to make the products Attributes of a Leader Will to succeed Viewpoint: company is creating customer value & satisfaction He knows where hes going which road is not important, only the final destination Human organization Redefining the firm from product to customer orientedpays off (several examples listed in the conclusion) marketing mania : chasing customers needs disregarding costs (segmentation) marketing mania : chasing customers needs disregarding costs (segmentation) Expand to new segments without effort to organize & integrate new businesses Expand to new segments without effort to organize & integrate new businesses Bigger marketing department doesnt automatically make more results Bigger marketing department doesnt automatically make more results Change organization from functional to customer-oriented without consideration of company culture Change organization from functional to customer-oriented without consideration of company culture Create great product but being unable to educate the customer how to take advantage of it Create great product but being unable to educate the customer how to take advantage of it Yes, definitely. However must understand the relationship between customer need, price, production, technical solution The target is satisfy the need But can it be done at reasonable price/cost? Does it makes sense to produce in mass or not? What technical solution(s)? Must learn how to do SMART customer-orientation Today, much more tools to: Today, much more tools to: understand the market (Porters 5 forces)understand the market (Porters 5 forces)the product & industry lifecycle,the product & industry lifecycle,the needs of the customer (value chain, the 7s McKansey) the needs of the customer (value chain, the 7s McKansey) markets dont automatically expand with population growth: growing demand vs sustanable development Slowing demographic growth in the WestSlowing demographic growth in the Westex. electronicsShorter product lifecycles:Shorter product lifecycles: deeper understanding,Models and derived tools Marketing is more sophisticated : Marketing is more sophisticated : ex. the internetNew market rules:New market rules: climate change, global economy,scarce ressources, politics, culture&religion Not to forget, growing importance of external factors like Not to forget, growing importance of external factors like The big success stories recognize the need of customer orientation and take advantage of it: Starbucks, McDonalds, Coca Cola, Festo, Toyta Example of Kodak: since they defined themselves as being in the photo industry, they didnt have problems going digital and remained a leader. Others like Fuji or Konica we dont hear about anymore!