Marketing Concept - The St. Gallen Management Approach (eBook)

2 Market analysis as the basis for market-oriented business management

2.1 Case study MAMMUT

MAMMUT — Absolute Alpine

■ From a specialist in ropes for alpine sports to an integrated provider of alpine sports equipment

The MAMMUT company was founded as a rope factory in Canton Aargau more than 150 years ago, in 1862. Over the decades, it increasingly specialized in ropes for alpine sports and pioneered a number of innovations. In 1952, it introduced the first glacier-climbing rope made of synthetic material. In 1978, the first (horizontal) diversification into the area of clothing followed with the clothing line “Altitude” jacket and pants made from Gore-Tex. In the years that followed, MAMMUT developed into an integrated provider of alpine sports equipment. Important milestones included the acquisition of backpack manufacturer FÜRST in 1989 and the ski and hiking boot brand RAICHLE in 2003. CEO Rolf Georg Schmid, a University of St. Gallen alumnus, has managed the company since 2000. In 2006-07, the company had the opportunity to take over LUDICO, a supplier of headlamps and flashlights with stores in Switzerland and Germany. For management, this raised the question of whether MAMMUT should broaden its range with electric and, later, electronic equipment components.

The following fictional discussion raises points management may have considered.

Clothing line product manager:

“There is danger of diluting the MAMMUT brand if we broaden our range into the area of electronic equipment. More and more, clothing is differentiated and distinguished through brands. It’s important to question the extent to which the actual needs of our customers are met by this move.”

[56] Financial manager:

“Diversifying by taking over LUDICO will cost a lot of money. For me, the primary question is whether the forecasted or expected sales volume will be enough to cover those costs. I want to know more about market potential and long-term demand trends that will drive investments in product development and production facilities.”

Marketing manager:

“This is about a product category that will be distributed outside our classic sales channels, as well, for example in electronics stores. I am not sure if we have the competence for marketing those kinds of products. Therefore, I want to connect the dots. I need information about the importance of individual marketing tools in customers’ purchase decisions.”

Managing director:

“Ladies and gentlemen, you are right. Before we make a decision, we have to do a deeper market analysis. I will instruct my assistant to draft a brief for commissioning a market research company.”

For consideration:

1. Prepare a list of the necessary marketing information for taking the first steps into the headlamp and flashlight business.

2. Try to identify a data source or a method of research for each piece of marketing information.

3. Draft an opportunities-threats analysis and a strengths-weaknesses analysis for the takeover of LUDICO based on the data identified above.

In fact, MAMMUT acquired LUDICO in 2007. By now, the headlamps especially have developed into a regular feature of their product range. MAMMUT also diversified further into electronic equipment.

2.2 Customer behavior and markets

Even non-profit organizations — for example non-governmental organizations (NGOs) such as environmental and human-rights organizations, but also state service providers like public transport and universities — compete in markets with their services. Many NGOs compete for donations on the donations market. Due to the deregulation of the public-service market, there is increasing competition between public and private providers. State-run hospitals, for example, compete with private ones.

In all cases, management’s objective must be to generate

– sufficient demand (enough customers) or incidents of use or purchasing,

– sufficient appeal that generates a willingness to pay (based on alignment with the needs of the respective market) and

– appropriate delivery and handling costs

in the relevant markets.

2.2.1 Definition and role of markets

Companies are connected to a wide range of markets via their economic environment. These include job markets, financial markets, resource markets and sales markets. In the context of business processes, procurement markets for intermediate consumption and components are important. But sales markets are more important as a source of income.

Traditionally, markets are understood as places where supply and demand meet (Samuelson, 1961, 61). These places can be real in the form of a specific geographical space (traditional market place, fair or mall), institutional in the form of a stock market that can be accessed electronically or from a distance, or virtual in the form of a data system (e.g., electronic market places like eBay). Information, products and services are exchanged, prices are set, and contracts negotiated in markets. A transaction is achieved if one partner (buyer) places a higher value on a piece of information, a product or a service than the other partner (seller). A piece of land, an author’s rights or a painting typically changes hands only if someone is willing to pay a higher price than the price for which the current holder is prepared to keep it. Naturally, both [58] transaction partners will try to influence the price in their favor. Therefore, the ability to assess a partner’s buying motives and the subjective value they attribute to the object of exchange is crucial.

Using a market is never free of cost; sometimes, substantial transaction costs arise. These can be identified based on the individual steps of a market transaction (Williamson & Masten, 1995, 233 ff.):

– Initiation: costs for information and selection of transaction partners

– Negotiation: costs for negotiation, writing and completing contracts

– Settlement: costs for coordinating, controlling and customizing the contract

The more conventions (e.g. standard contracts, established rules or even rituals for the market partners) and infrastructure (e.g. for information exchange or transaction) there are, the lower the costs. Here, specialized markets with standardized contracts such as individual financial markets or raw materials markets have distinct advantages. However, those conventions and transparent markets are rarely open to innovative products and services, such as a new consultancy service, where every contract has to be negotiated individually.

2.2.2 Players and market types

A large number of vendors, intermediaries and buyers are necessary for a functioning market. Often, these primary players do not act autonomously. Many influencers affect their behavior.

Customers influence each other — the purchasing behavior of neighbors and friends influences one’s own purchasing decisions (on conspicuous consumption, cf. Veblen, 1899, 20 ff.). Especially for institutional buyers, buying decisions are often reached in committees and [59] may be influenced by experts such as architects or consultants. To some extent, complex group-dynamics processes occur even in families and groups (cf. Solomon, 2009, 458). Attitudes are formed and identities conveyed in larger communities. Here, communities can be understood as “systems of customers with similar values”, who exchange views about a topic or a product (Kuss & Tomczak, 2001, 199 ff.).

A customer system consists of a customer and the social elements influencing him that can be depicted in a stratigraphic model. A customer benefit is created on every level: structures and infrastructure like distribution systems or markets, which create efficiency on the level of the buyers’ community; atmosphere on the level of the co-customers; and security on the level of the co-decision makers (cf. Fig. 24).

Customers are subject to processes in their purchasing behavior: The repeat-purchase cycle comprises the phases of initial purchase, usage, repeat purchase, and complementary and replacement purchase. If customers are satisfied and trust a provider, they tend to buy more and different products from him. A managing director who is satisfied with a consulting firm that has developed a marketing concept will order other consulting services from the same firm. The “share of wallet” (the share of total expenditure a customer spends with a particular company) increases. A satisfied customer will recommend the company to others. Satisfied customers lead to the acquisition of new customers via word of mouth (cf. also “behavioral-scientific reactions” in Section 5.2.2).

[60] These processes lead to customers becoming economical only after a certain commitment period (cf. Fig. 25)....