week 6: all resources are limited Flashcards
(13 cards)
What types of metrics are needed to capture different aspects of marketing investment
Financial and Marketing metrics
List 5 reasons why resource tradeoffs are constantly evolving
1) Changes in resource limits
2) Changes in customer’s needs
3) Changes in the lifecycle stage of a firm’s products/services
4) Changs in the market landscape
5) Changes in the effectiveness of marketing activities
Changes in Resource Tradeoffs: Changes in resource limits
Resource slack may fluctuate and evolve over time (eg. depending on state of economy).
- Downturn: marketing investments often cut
or scaled down
Changes in Resource Tradeoffs: changes in customer needs
MP1: All customersw differ –> identify target segments.
Size, needs, and financial payoff across segments not fixed; will often change.
Changes in Resource Tradeoffs: change in the lifecycle stage of a firm’s products/services
MP2: products go through different lifecycle stages: Introduction, Growth, Maturity, Decline
–> Each stage requires different investments
Intro: new, risky, unknown, high prices, finding new customers
- Advertising and Trials
Growth: retention, repeat sales, more price sensitive
- Price
Maturity: price competition, profits decline
- Operational efficiency
Decline: destructive competition, changing consumer needs
- Competitive Advantage
Changes in Resource Tradeoffs: changes in the market landscape
Entry and Exit: attratctive markets will attract new competitors, and increased competition will lead to competitor exits.
MP3: SCA form a buffer against competitive attacks
Changes in Resource Tradeoffs: changes in the effectiveness of marketing activities
Things that might change effectiveness of marketing: changing segments, different lifecycle stages, changing economy, competitive landscape
Eg: Price more effective during econ downturn, Advertising more effective during econ expansion (elasticity)
BUT even in stable times, marketing activities can lose or gain effectiveness over time (eg. seeing same commercial month after month for years)
What do tradeoff decisions concern?
Allocating resources across different customer segments, different customer stages (AER), different offerings, regions, BOR strategies, marketing communication formats
Methods for allocating resources should be:
1) Simple enough to be transparent to managers
2) Complex enough to account for the interdependencies across multiple inputs, each with different effects
“Best approach”
Iterative approach (act-learn-adjust): makes optimal allocations across nested levels of decisions
Describe the evolution of Approaches for Managing Resource Tradeoffs
Heuristic era: very little hard data
Anchoring and Adjustment Heuristics:
- Percentage of sales method: marketing resources in proportion to sales revenue from focal product
- Percentage of profits method: marketing resources vary with profits earned by product in previous periods
- Historical method: simply set present resource alloations very close to previous year’s spending
- Competitive parity method: match competitors’ resource allocation
ANCHORING AND ADJUSTING APPROACH:
- Anchoring: marketing resources
–> (link not evaluated by managers) –> Marketing outcomes –> Adjusting (feedback from past outcomes) –> Marketing resources
Data era: detailed data on individual consumers over time. Use historical datra to link past resource tradeoff decisions to outcomes
- Empirical models reveal whether a firm should continue its level of resource commitments or adjust them
- Attribution models: give the exact impact that a small resource increase will exert
- Avoids waste or reliance on arbitrary heuristics. Proactive rather than reactive.
ATTRIBUTION APPROACH:
Marketing resources –> Attribution model –> Marketing outcomes –> Adjusting (feedback from past outcomes) –> Marketing resources
Describe the two Attribution Approaches
Response model-based attribution: statistical model that captures the relationship between past marketing resources and past outcomes
Marketing inputs:
1) Marketing inputs: advertising, price, product design, sales, coverage
2) Competitive actions: advertising, price, new products, discounts
3) Environmental factors: economic metrics, gov, trade barriers
4) Market Response Model
Marketing outputs:
5) Business outputs (metrics): managers needs intermediate metrics to capture the effects orf their decisions in order to adjust their actions
- Metric should align with objectives!
Common metrics:
- Sales
- Customer satisfaction (product-focused, forward-looking)
- Service quality (experience and relationship focused)
- Brand awareness (promotion focused, fast response)
- Brand strength and quality
- Customer retention (aggregate, backward-looking)
- Loyalty
6) Optimise and Evaluate
7) Objectives
8) Adjust marketing inputs
The Response Model (functional) Form
Select functional form that captures reality
- Linear: infrequent in practicee
- Concave/Saturation (DMR): common
- S-shape: slow to start, and reach saturation: common
