Day8 in MIT Sloan Fellows Class 2023, Introduction to Marketing and Strategy-2
The definition of Strategy
As I explained in the previous blog, we learned the definitions of strategy, market, segment and value chain.
The definition of Value
What makes value?
In the class, there are only two ways on the demand side and the supply side.
- Improve your operation and generate the same benefit with a lower cost
- Improve your customer experience and generate more benefits.
1st is about cost, and 2nd is about revenue.
TAM; Total Addressable Market consists of # of customers and $ per customer.
The definition of "true customer".
So, the biggest and the most critical question in marketing is "who is our customer"?
Technically, People suggest that customer is who pay for your products.
However, strategically, it should be end-users. All the value chain is directed to end-users. If you generate a profit in any layer of the value chain, the final benefit would be received by end-users. So, in the long-term and strategically, we should focus on end-users.
In the middle-term and short-term, absolutely we need to check some middle-layer customers but always should have a comprehensive view of the value chain.
Why does a great product/company fail in marketing?
Then, what is a typical pitfall of great products/great companies in marketing activity?
They sometimes consider wrong customers, deploy ineffective advertising campaigns or set a lousy brand proposition.
However, the most severe and typical issue is that customers simply do not recognize their value.
How does a consumer make decisions?
Consumers know products or services benefit from only two sources.
Search and Inference.
- Search: Aggressively explore data and information about products/services
- Inference: Passively receive data and information about products/services
Expertise matters
Searchability depends on customers' expertise and the speciality of products/services.
Some products are cheap and daily use, so people rarely search for information about them.
The other factor is the customer's ability. Interestingly, the segment that searches the most is neither "new entrants" nor "experts". Both new entrants and experts rarely search for the information because experts assume that they know enough about the products, and entrants do not know what to search for.
Then, the typical pitfall emerges. If you developed an innovative product, both experts and new entrants ignore your product because they rarely know your items. However, new product marketing tends to aim at either entrants or veterans.
Inference works very differently, but it is a complementary function of search. So, many people rely on one inference if products are not searchable. The typical two signals of inference are price and brand image. From pricing and brand image, customers infer the quality of products. In addition, brand image can project customers' status as well.
