Eventually Drucker is correct...

Peter Drucker purported "The purpose of a business is to create a customer".  He outlined five deadly business sins that corporations should avoid in order to be successful. 

1. Seeking high profit margins and premium pricing
2. Charging what the market will bear
3. Using cost-driven pricing
4. Focusing on past winners
5. Giving problems priority over opportunities

One quick glance at Apple's Iphone strategy seems to defy Drucker's number one deadly sin.  The notion that big margins absolutely lead to maximum profit is problematic.  Apple charges high premiums for a device that offers comparable features to other smart phones in the market.  Additionally, the continuous iPhone releases with marginal new features appears to align with deadly sin number two.  As a marketing student, I know high price and charging what the market will bear will afford lower risk to competitors and an invitation to enter a market segment.  Apple's iPhone has been wildly successful and appears to be immune to Drucker's warnings. 

In a recent Business Insider article, iPhone's pricing was the center of attention.  Should Apple consider lowering product prices to increase market share?  According the article's author, yes.  Jay Yarow states that Apple is perfectly happy with it marketing strategy but lower prices would increase market share. 

"One strange criticism that pops up is people saying that if Apple lowered prices it would hurt the company since it's currently positioned as a high-value, premium company."

Yes, a business can charge premium prices for a premium product but the iPhone is not as upscale as its price suggests.  Yarow calls out the elephant in Apple's boardroom... "The important thing here to keep in mind is that Apple managed to be a premium company selling a less-than-premium product."  Apple has had great success with various price points on their other products.  However, it seems that Apple is happy with a small piece of the market as long as the margins are grossly profitable. 

I think that Apple's iPhone is beginning to show signs of weakening.  With each iteration, consumers still line up over night but the product's value is questioned more often.  The iPhone 5C, c is for color, was not as successful as Apple forecasted.  Apparently adding a simple colorful cover on the same product and changing its name doesn't work... even for Apple.  Another issue that I find Apple will face is the increasing amount of new competitors.  Motorola has been innovating good phones lately and the newest Moto G should provide good competition at less than half the price...

 Only time will tell, but I find eventually Drucker will be proven correct.

 

 

Peter Ferdinand Drucker, 1909-2005

 

 

Yarow, J.  (2013). Business Insider.  To All the People Who Say Apple Can't Lower Prices Because It Would Destroy The Brand.  Retrieved from  http://www.businessinsider.com/apple-pricing-2013-11#ixzz2lPw6ERwb

 

PharmaSim

This week in Pharmasim the team progressed to period six. We followed our marketing strategy plan and it appears to be working well for us. Since our PharmaSim is a team competition, I cannot reveal too much infomation in this blog. (If you came here to find why we are so successful... begin at the first chalk talk and then proceed through week eight). What I can say is this... Our team is having a lot of fun in this simulation. We are enjoying the challenge of managing advertising, promotion, MSRP, special decisions and sales force. We began with a stock price of $11.14 and are current trading at $43.85. While this metric demostrates good progress it is the end result of many more important metrics.    

For example, the below chart shows mfr sales.  As the team continues to meet and exceed the customers needs and product values... our OTC products will continue to move off the shelves.

Additionally,  "free" market research is available through social media.  It can require some translation but a good amount of customer value can be found.

A quick skim shows that we have work to do on Allround+.  "Can be hard to find" indicates our shelf presence is weak and POP could be a quick solution.  "More coupons, please!" indicates we are not enticing the customer base.  The team will need to review our inputs and try to adjust to exceed the customer needs.

As I previously stated, I cannot go in to Allround strategy but I think the product volume is about to explode!  C/S is chart busting and the value is one of the highest I have seen in my experience with PharmaSim.  

There is another aspect that I find works well with PharmaSim-  teamwork.  Our team has a good blend of thristy greed and what Drucker calls "customer attention".  Satisfying the customer's wants are the number one goal and profits are the results of fulfilling this goal.

Onward and Upward...

On second thought...

The current Pharmasim comparative results measure manufacturer sales $, cumulative manufacturer sales $, net income $, cumulative net income $, share of manufacturer sales $ and stock price.  I find these measurements are enough to gauge the competition.  For example, I can see that team one made a drastic change in period one that enabled manufacture sales to increase from $212M to $239M in period 2.  This change also increased the team's share of Mfr sales 12.3% to 13% respectively.  However their cumulative net income is lower than other teams.  The current measurements indicate team one most likely dropped the MSRP on their product or offered promotional discounts. 

 

 

 

When looking at share of manufacturer sales % graph we can see that team 3 and 4 have unhappy customers.  Both team's sale percentages are declining.  The first graph shows their sales dollars are increasing but the volume is going down.  This is mostly likely attributed to price or changes in promotion.  They are getting more money in and have less of a market %. 

 

 

 

 

Perhaps the one measurement that could be added to the dashboard is the net marketing contribution.  We know the formula is NMC=market demand x market share x selling price.   The NMC measures how much the marketing strategy accounts for marketing and sales to cover expenses.  As brand managers our goals  include increasing marketing and sales to remain competitive in market shares and penetration. We know these goals include expenses with each given unit price and these expenses must be less that gross profit to ensure the NMC remains in the black.  There is a down side to adding NMC to the dashboard.  It will afford all teams a method to back into each other's selling price.  We can figure out the market demand and use the other metric for market share.  By adding the NMC, the selling price could become a very simple equation.  While I wouldn't mind researching the competition more closely, I don't think I want them researching my team.  On second thought... let's leave the current metrics as they are.



Week 7: Giving business some extra horsepower...

When I was eight years old my Dad and older brothers began teaching me about race cars. I remember learning about the brakes and suspension.  At the time, my Dad's cars had front disc brakes and rear drum so I had to learn two different methods to service each axle.  At age 10, I began working on transmissions  and eventually turning a wrench.. or two on engines.  There was Chevy 350, 396, 427 and even an occasional Dodge 440. While this was just a hobby, one thing that stayed with me was the methodical process to take in the situation and evaluate what is necessary.  There is a process to be followed.  Is the car tracked or it is a street driven vehicle?  What kind of performance is desired?  What is the car's current condition?  

What does this have to do with marketing and situational analysis you ask?  Situational analysis is an examination of internal and external factors of a business. It provides an analysis that reveals a better understanding of the factors that influence business  performance.  What kind of performance does the business desire?  What kind of performance can be achieved?  Situational analysis examines internal factors such as strengths and weaknesses, opportunities and threat.  It details the 5C's; company consumer, competitor, collaborators and context which answer questions about the business.  It also lists market attractiveness assessment to illustrate potential new markets.  The competitive advantage section compares the business to its main rival and points outs pros and cons.  At the end of the analysis, the key issues have been identified, documented and assessed. 

My situational analysis for Pharmasim was challenging.  There were a lot of moving parts that I had to be mindful about.  While it all comes together to form one body of work, I broke each component down into more manageable parts and then reassembled.  If I had to chose the most difficult part it would be the market attractiveness.  There were many variables that required review to accurately assemble this component.  Overall, I find this was a really good exercise.  I learned what is necessary to improve performance and find I have a clear path for my marketing strategy.  Now if I can just bolt a supercharger on this thing...

 

Consumer Decisions

Customer Needs

AT&T offers a wide range of valuable products and services to its customers. In each instance, AT&T's core business is to satisfy the customer's connectivity need. Whether the consumer calls family and friends, browses the internet, sends text messages, pays bills, watches digital television and even streams live video... it is all part of connectivity.  The Company's previous slogan " Your World Delivered"  focused to provide each and every customer with the connectivity to everything they find important in "their world".  This purported a customized wireless service based on individual needs of connectivity.

Benefits

To understand the benefits of AT&T products, let's construct a hierarchy of benefits ladder to illustrate the various benefit levels provided to the consumers. 

 

Emotional Benefits (TOP RUNG): Always on connectedness, communication with family and friends, prestigious brand, strong brand name, most current device product line, competitive value and let's face it... where the IPhone began.

Functional Benefits (MIDDLE RUNG): Fast data network, able to talk and browse simultaneously, nationwide coverage, emergency service with life saving accuracy, minimized call disruption, mobile internet access, email and talking voice mail

Attributes (LOWER RUNG): Competitively priced, LTE network, newest devices, continuous innovation, national coverage, E911 location service, reliable network, user features

 

Consumer Decision Making

As we all know, the cell phone market is saturated.  Most consumers that want or need a mobile phone already have one.  Therefore, a majority of the consumer decision making would be considered nominal because there is not much searching for alternative carriers.  These customers are brand loyal and the purchase (renewed contracted) decision does not require a lot of thought.  However, when consumers are dissatisfied with their current wireless carrier, the decision making becomes extended decision making.  There is high purchase involvement by the consumer and a lot research conducted to find the best carrier alternative. 

 

Week 4: Competition

AT&T contends with multiple competitors in the wireless business and the competition is increasing.  Per Federal Communication Commission regulation, we share our service areas with PCS licenses, other wireless licenses and enhanced mobile radio licenses which promote the presence of multiple competitors.  AT&T direct competitors are Verizon Wireless, T-Mobile, and Sprint.  These competitors have a similar, if not exact, business models. This characteristic is why they are AT&T direct competitors. The below chart illustrates other attributes of the companies. 

	AT&T	SPRINT	Verizon
Market Cap:	179.25B	23.56B	132.21B
Employees:	245,350	39,000	180,900
Qtrly Rev Growth (yoy):	0.02	0.00	0.04
Revenue (ttm):	127.47B	35.44B	118.26B
Gross Margin (ttm):	0.56	0.42	0.61
EBITDA (ttm):	28.19B	5.30B	32.45B
Operating Margin (ttm):	0.10	0.02	0.13
Net Income (ttm):	7.30B	-4.33B	1.56B
EPS (ttm):	1.31	-1.44	0.55
P/E (ttm):	25.84	N/A	84.62
PEG (5 yr expected):	2.08	N/A	1.78
P/S (ttm):	1.38	0.68	1.11

While AT&T has a few direct competitors it also has a lot of indirect competitors.  In the wireless division, our indirect competition is any company that offers phone apps, wireless advertising and WiFi/Internet capabilities.  Our indirect competitors do not offer the same exact service but have the ability to gain market share because of a somewhat similar product or service.  For example, Google is a good example of an indirect competitor.  They have their own phones (Android) and are expanding their presence around wireless.  It will only be a matter of time before Google buys a secondary wireless company to become a direct competitor.

 

Not so long ago AT&T was concentrated on wireless and wire line consumer markets.  Our customers were distinctly identified by devices, service features and plan pricing.  Our competitors each have unique offerings that differ slightly while still offering similar service.  However, the entire base market is converging.  We are still focused on bringing it all together for our customers with innovative smart phones and next generation TV services but we also have a distinct focus on IP growth.  As the world moves increasingly faster towards IP based solutions we have additional priorities. We will lead the next wave of growth to meet the demand for higher speed broadband access.  Our IP will enable full access everywhere, all the time and in every device to meet customer needs.  We see a dramatic increase in video and live streaming that will test network capacities.  We believe this is where all markets will converge into single devices that must be able to do it all.  In the future, the current smartphones won't be so smart.  The new market will demand intelligent devices connected to a cloud based solution and IP will be king.  AT&T has the most powerful IP backbone in the industry to support the future demand.  AT&T is not just going to be a segment leader but rather the corporation that leads the world into the communication future.  

Week 3: Q&A with an AT&T Insider

 

Why is AT&T performing above break-even?

AT&T increased total wireless subscriber base to 107 million and continued to lead all major U.S. wireless providers in smartphone penetration and average revenues per wireless contract subscriber. Our mobile data revenues grew 17.8 percent to a $27 billion annualized run rate. We also had increases in other products such as U-Verse.  We posted the largest annual increase in total AT&T U-verse TV and broadband subscribers to date bringing the total to more than 8 million. Additionally, U-verse revenues grew 37.9 percent at a $10 billion annualized run rate.
 

Overall AT&T revenues grew over $127 billion, the highest total in the company's history which adjusted earnings per share increased 8.5 percent.  Cash from operating activities topped $39 billion, up 12.8 percent from the previous year.

 

 Why is AT&T doing better than planned?

As consumers increasingly embrace the mobile life, teams across the company are exploring new ways to put smarter applications and seamless connectivity, literally, in the palms of consumer hands.  This has led to an unprecedented social media video explosion.  Subscribers are using data at an exponential rate which has bolstered awareness of the new LTE network.
 

Why is AT&T doing better than last period?

 A year ago AT&T identified several issues the company faced.  Our number one priority was to add spectrum, the airwaves that carry our customers’ mobile communications. We also said we would accelerate our company’s shift to growth businesses. Additionally, it was made clear that AT&T would take steps to further improve capital structure and return value to our shareowners.  As such, we continue to increase revenue while driving down operational costs. 
 

 How do social trends impact AT&T?

AT&T is a leading innovator in the technology sector.  AT&T works diligently to make the products that customers can use to enhance their daily life.  It is no surprise that customers are connecting to the internet... and staying connected.  This social trend has been on the rise for a decade but Facebook, Twitter and Linkedin have put on the afterburners and data usage is approaching stratospheric levels. As more and more social media outlets emerge, the need for mobile internet access will exponentially grow. 
 

What are some of AT&T environmental factors?

AT&T has strong competition from good reliable companies.  The company offer customer value products that continue to test AT&T innovation and marketing sense.  Another large environmental factor is the government.  AT&T spent $4 billion dollars on a deal, while somewhat risky, to solve the companies spectrum needs for the foreseeable future.  Unfortunately,  the DOJ thought this deal may stifle consumer options in the wireless arena.  As such, the deal fell through but the $4 billion was committed regardless.  Not many companies can spend $4 billion let alone spend it and not get anything in return except a tax receipt.  Another environmental factor AT&T experiences is with the handheld devices.  As newer, better, faster phones are released quicker to consumer, AT&T must be dynamic is supporting the customer needs.  Not that long ago customers were locked into a 2 yr. contract and the same phone.  Since the smartphone makers to releasing new products sooner AT&T had to adapt its marketing scheme, planning, customer care relationships very quickly to ensure customer satisfaction. 
 

Marketing can be as much as an art form as it is a science.  The science will demonstrate if the company is meeting its objectives.  The science will reveal true breakeven and more importantly... profit.  However, there is an art to all this.  The brand manager doesn't just  look at numbers on performance statement.  The brand manager will conduct situational analysis and then look at the industry.  There are even the occasional inventions that analysis and research just go out the window.  Remember the story about a small company that built the first personal computer while working out of a garage because they could? Even thought others had research data that stated they shouldn't...