05 Dec 2007  Sharpening Your Skills

Managing Marketing

Sharpening Your Skills dives into the HBS Working Knowledge archives to bring together articles on ways to improve your business skills.

Questions to be answered:

  • How can marketing better align with corporate strategy?
  • Can you place a value on networked customers?
  • Are my new stores cannibalizing direct sales?
  • Should I break out individual costs on a price tag?

How can marketing better align with corporate strategy?

Fixing the Marketing—CEO Disconnect
In many companies, the marketing function has wandered far from the firms' overall strategy. The result: lower margins and declining productivity, says Professor Gail J. McGovern. In this Q&A, she discusses what executives can do to repair the split and introduces a new diagnostic tool for measuring marketing performance used in the HBS Executive Education program.

Key concepts include:

  • In many companies a wall has grown between the marketing function and the C-suite. Reasons for this are varied, but may include CEO and board priorities taken up by other issues or too much delegation of responsibility to the chief marketing officer.
  • When a firm's marketing activities are not supportive of its greater strategic goals, the result can be low growth and declining margins.
  • The key challenge in aligning marketing activities with corporate strategy is to develop a set of metrics to be used by top executives and the board that measure the impact of marketing activities against the goals of the corporation.

Can you place a value on networked customers?

How Do You Value a 'Free' Customer?
Sometimes a valuable customer may be the person who never buys a thing. Professor Sunil Gupta discusses how to assess the profitability of a customer in a networked setting—a "free" customer who nevertheless influences your bottom line.

Key concepts include:

  • In multisided markets, some customers contribute to a company's bottom line directly while others contribute indirect benefits, which are more difficult to calculate.
  • Businesses must be able to assess the value of these "free" customers to efficiently allocate marketing and other expenses to grow the business, and to develop a more accurate estimate of firm value.
  • Using a model for valuing networked customers, Gupta found that in an auction scenario, buyers and sellers had almost equal value even though sellers outnumbered buyers 4 to 1.

Are my new stores cannibalizing direct sales?

Working Paper: Adding Bricks to Clicks—The Effects of Store Openings on Sales through Direct Channels
Consider a retailer who operates both brick-and-mortar stores and direct channels such as direct mail catalogs and a Web site. This working paper considers the effects on a merchant's direct channel sales after she opens a retail store in the area. The study used a proprietary longitudinal data set from a multichannel retailer to understand what happens and to probe the implications for channel management strategy.

Key concepts include:

  • Adding a physical retail store to existing direct sales channels increases firm sales in the long run, as sales from the new store are incremental to sales from direct channels, which show little long-term damage from channel competition.
  • Adding channels produces both cannibalizing and complementary effects that operate in tandem and vary over time. Cannibalization occurs in the short term following the addition of a new channel, while complementarity takes time to manifest itself. Retail store openings cannibalize direct channel sales in the short term if physical stores do not already exist in the retail trading area, but they produce complementary effects that overcome the losses from cannibalization in the long run.
  • The findings suggest that underlying consumer shopping behavior drives this result. The opening of a retail store may induce some existing direct channel customers to switch their purchases to the retail store; simultaneously, new customers are attracted to the direct channels, perhaps due to a branding effect stemming from the publicity surrounding the new store, which makes customers more aware of and more comfortable with the firm's direct channel operations.
  • Use caution extrapolating these results to other retailers. This study involved only store openings by a single retailer with a well-established and respected brand into markets where the retailer did not have stores. Direct retailers with less established brands may benefit even more than this retailer from branding effects by opening a new store.

Should I break out individual costs on a price tag?

Fixing Price Tag Confusion
"Partitioned" price tags that include a main price plus additional charges (lamp $70; bulb $5; shipping $15) may be confusing your customers at best or even causing them to reject the product, warns Luc R. Wathieu. When is an all-inclusive price the best bet?

Key concepts include:

  • A "simple" all-inclusive price will lead buyers to focus on the main benefit offered, while partitioned price formats (main price plus other charges) stimulate people to look into the details of what they get for their money.
  • Price framing can be used as a tool to induce consumers to acknowledge additional points of differentiation.
  • Partitioning a price in the hope that consumers will be fooled and overlook small fees will backfire.