5 Strategic Marketing and Brand Management

Question 1

A company’s marketing strategy encompasses the following elements:

Answer 1

 Which customers to target
 Which geographical segments to target
 Which products or services to sell and what customer needs they will satisfy
 What competitive advantage will the company’s products and services have

Question 2

Competitive advantage

Answer 2

Marketing strategy ultimately seeks to give the organisation competitive advantage. Competitive advantage is based on the value the company provides in terms of the quality of its products and services as well as its pricing, relative to competitors.

Question 3

Product-market strategies
Ansoff’s matrix can be considered in relation to marketing strategies:

Answer 3

 Market penetration – sales of existing products in existing markets by persuading current
customers to purchase more or persuading competitor’s customers to switch
 Market development – sales of existing products in new markets – new market segments or
new distribution channels
 Product development – introduction of new products to the existing market
 Diversification – new products being sold into new markets

Question 4

Segmentation
Market segmentation is the division of the market into homogenous groups of potential customers who may be treated similarly for marketing purposes.
Some companies adopt an undifferentiated approach to marketing, producing a single product aimed
at the whole customer base. However, marketing activity is likely to be most effective if it is aimed at particular market
segments, which can then be reached with a distinct marketing mix. There are various ways that markets can be segmented:

Answer 4

 Geographical, perhaps between home and overseas
 Demographic factors such as sex, age, income and social class
 Social, cultural and personal factors (psychographic) including, occupation, economic circumstances, lifestyle, personality, education and beliefs and attitudes
 Behavioural factors including benefits sought, what prompts the purchase, whether the customer likes buying new products, how likely customers are to switch, how the product is used

Question 5

Segments targeted need to be large enough to be viable and profitable and the company needs to be
able to reach them.

Segments can be targeted in different ways.

Answer 5

 Differentiated marketing – producing several versions of the product, each aimed at a different
market segment
 Focused marketing – producing an ideal product for a single product sector

Question 6

Positioning is the act of designing the company’s offer and image so that it occupies a distinct and valued place in the target customers’ mind.

To market effectively, a firm must decide how to position its product or service in the marketplace. It must decide where to compete and how to compete (what advantages is it going to offer).
Positioning is only likely to be successful if it has certain key elements:

Answer 6

 Clarity – target market and differential advantage
 Consistency – key differentiating factors must not keep changing
 Credibility – customer must believe in the differentiating factor e.g. that the product is superior
 Competitiveness – what is offered must be something that competitors cannot supply or match

The position of brands can be plotted in terms of perceived price and quality (x, y axis graph)

Question 7

A firm’s pricing strategy will be influenced by its positioning and overall strategic objectives. A firm might use a discounting strategy to break into a market, and price cutting to increase market share when consumers are sensitive to price.
Generally rising prices may be caused by:

Answer 7

 Excess demand for a product
 Rising costs
 Market research indicating consumers place a higher value on the product than the price suggests

Question 8

Pricing strategies

Answer 8

Bundling and unbundling
Bundling means setting a single price for a number of products or services that tend to be bought
together. It can be used to effectively lower the price. Unbundling is effectively raising the price by
establishing a separate price for each product or service

Discounts
Discounts involve reducing the price of an item or a group of items (bulk discounting) by a certain
percentage. Discounts and promotions can be used to encourage consumers to buy specific items at a
specific time, but they are not usually means of repositioning the items or brand.

Customer loyalty programmes
Under loyalty schemes, customers are supplied with free or discounted goods or services, when they
redeem the credit they have accrued on their loyalty schemes.

Financial reporting implications
IFRS 15 Revenue from contracts with customers explains how and when revenues should be
recognised, including when the above incentives in sections 2.1 – 2.3 are used.
See chapter 21 for detail.

Question 9

The marketing mix
The 7Ps
The marketing mix consists of seven Ps, the last three of which relate exclusively to service-based businesses.

Answer 9

 Product – quality, performance, durability, style
 Place – shops, website, catalogue
 Promotion – free trials, coupons, buy one get one free deals, mailshots
 Price – price skimming, price penetration, price discrimination, dynamic pricing
 People – relationships with customers, chat bots
 Process – the overall customer experience
 Physical evidence – what the customer has to show for the experience e.g. a certificate or photograph

Question 10

Customer relationship management
Databases

Answer 10

Database marketing is an interactive approach that builds a database of communications and interactions with customers and then uses individually addressable marketing media and channels to contact them further.

Data mining is the process of sorting through data to identify patterns and relationships between different items

Question 11

Database marketing can be used as the basis for customer relationship analysis in various ways:

Answer 11

 Identifying profitable customers using RFM analysis (Recency, Frequency, Monetary value of purchases)
 Developing new customers (obtaining information from potential customers, modelling target markets)
 Tailoring messages and offerings based on what customers have actually purchased

Question 12

Big data
Big data analysis emphasises the importance of the volume and variety of data available, particularly on-line (online purchases, website browsing, social interactions). Effective analysis of big data can help organisations in:

Answer 12

 Customer engagement – who customers are, where they are, what they want, how to contact them
 Customer loyalty and retention – what factors influence loyalty and why customers continue to purchase
 Marketing optimisation – spending money to best effect and targeting marketing in the right areas

Question 13

Customer relationship management
Customer relationship management (CRM) is the use of database technology and ICT relationships to help an organisation develop, maintain and optimise long-term and mutually valuable relationships between itself and its customers.

The three key aspects of CRM are:

Answer 13

 Acquisition – attracting initial purchases from customers
 Retention – subsequent purchases, purchase of similar or next level of products or services
 Extension – extending purchasing to other products or services

Question 14

Web 2.0
Web 2.0 technologies enable users (customers, staff and suppliers) to interact with content and each
other, increasing opportunities for collaboration and the sharing of knowledge. They invite customer
feedback and customer participation in the creation of products or services, enabling better
innovation and a more customer-centric approach.
Important aspects of Web 2.0 can include:

Answer 14

 Social networking
 Blogs
 Wikis
 Instant messaging
Research has indicated that social media influences buying decisions significantly for some product categories and helps building relationships. Digital marketing and CRM

Question 15

Brand management
Organisations need to understand what their brand is and how to strengthen it. Strong brands can influence customer choice and create loyalty, also attract employee talent.

Reasons for branding
Reasons may include a combination of some of the following:

Answer 15

 Quick and concise product differentiation
 Barrier to entry if entrant has to develop its own brand
 Required for advertising
 Readier acceptance by retailers
 Reduces importance of price differentials
 Enables piggybacking of other products
 Facilitates market segmentation

Question 16

Branding strategies
Kotler suggests five strategies for promoting an established brand:

Answer 16

Line extension - Applying an existing brand name to new variants of the current product

Brand extension - Using the existing brand name to launch a product in a new category

Multi-branding - Launching several brands in the same category

New brands - New product, new brand

Co-branding - Combining two brands

Other important decisions when developing a brand are:
 Global or local – global brand may be simple but not aligned with needs of many customers
 Online development – strategies range from migrating the traditional brand online (perhaps with some variation) to creating a new digital brand

Question 17

Brand valuation and financial reporting

Answer 17

Under IAS 38 Intangible assets internally generated brands are not recognised as an intangible asset.

However, under IFRS 3 Business Combinations, brands:
 Should be measured as part of the intangible assets gained in an acquisition
 Can be capitalised and included in the group accounts at fair value

Valuation of brands
Under IFRS 13 Fair value measurement fair value should reflect the highest and best use that could be made of the brand. As there is no active market for a brand, brands will have to be valued on the basis of observable inputs (other than quoted market prices) and unobservable inputs, forming the basis of a valuation based on current replacement cost or future income.
See chapter 21 for detail.