Regulation and It’s Role in Marketing

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In Chapter 3 of Essentials of Marketing we discuss the role the greater market environment has on marketing decisions.  Legal changes along with cultural and social movements can have a profound effect on marketing.  One example would be Germany’s recent decision to ban high-polluting diesel cars starting with some models next year and others in 2019, as detailed in this article.  The move is similar to a broader ban passed by France last year (read more in this NY Times article).  In this case, France will ban all gas and diesel cars by 2040.

Regulations like these have significant impact to automobile manufacturers and can significantly impact their product roadmaps.  That won’t be a surprise to most students but what they might not think about is the opportunities that can be created as well.  In this particular case, public transit companies have an opportunity to look at service expansion and companies working on low-emission vehicle technology have an opportunity for significant growth.  For the automobile manufacturers, this can create opportunity as well.  Those that saw the trend coming have an opportunity to get to market faster and capture market share.  Companies can also redirect their promotional strategies to highlight compliance with the new regulations.

Struggling with Market Maturity

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Smartphones have been one of the most disruptive innovations of the past decade.  They’re so ubiquitous it’s not surprising to see them in the hands of a 4 year old, a centenarian, or anyone in between.  Their success has been a boon to manufacturers like Apple and Samsung.  In Apple’s case, iPhone sales now represent approximately 70% of all company sales.  The challenge that can come from that success is continued sales once the market reaches maturity and has been fully saturated.

To maintain that revenue stream companies have to continue to invest in innovation to develop new versions with features that compel customers to upgrade to a new model.  Over time that becomes harder and harder to do as you get diminishing marginal returns with each successive generation.  That challenge appears to be hitting the smartphone industry according to the Wall Street Journal article, Your Love of Your Old Smartphone Is a Problem for Apple and Samsung.  (See access note below)  The article talks about similarities between the smartphone market and the automobile market.  The devices have reached the point that improvements from one model year to the next are no longer as compelling as they once were so more and more users are choosing to continue using an older device or buy a secondhand/refurbished device rather than buy the newest models.  The combination of less compelling reasons to upgrade coupled with the continued increase in price is taking a toll on new phone sales.  Consumers are now waiting 31 months on average to replace their phones as opposed to a 23 month average 4 years ago.

Ask your students what they would do if they were a smartphone manufacturer.  Do you hold price to maintain margins or drop price to increase unit sales?  Do you delay new releases to have more impactful versions and spread the costs out over a longer period?  Do you decide the market is moving from maturity into decline and formulate an exit strategy and harvest what you can?

Please note that we generally try to avoid using articles from the Wall Street Journal because a subscription is required but they do generally provide trial access to allow non-subscribers an opportunity to view a few articles.

Amazon’s Grocery Vision

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This week Amazon opened their prototype grocery store to the public.  What’s so different about it?  It’s entirely self-serve with no checkout process.  Hundreds of cameras and sensors identify what a customer puts in his/her cart and automatically charges their account when they walk out of the store.  More details can be found in this USA Today article.  While the concept may not seem revolutionary, the experience is fairly disruptive as compared to the current grocery shopping paradigm.  Not only does it require use of a specialized smartphone app, it also challenges decades of ingrained behavior – the checkout counter is the last step of the retail shopping experience.

Amazon frequently pushes the envelope with new technologies and concepts.  Some are a tremendous hit and others are spectacular failures.  Which do you and your students think this will be?  If you were responsible for a national rollout, how would you build your marketing plan?  This concept will clearly appeal more to Innovators and Early Adopters and receive resistance from Laggards and the Late Majority.  Can you effectively use that information to target a marketing campaign or is it impractical in this scenario?

Welcoming unwelcome innovation

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In my Principles of Marketing class I ask my students a simple True/False question: “Good marketing means giving customers the products and services they ask for.”  I’m always surprised at how many say “True”.  What they don’t yet realize is that customers don’t always know what they want or even what’s possible.  Successful innovators often develop products that people aren’t asking for and, sometimes, they create products that are so disruptive they elicit a negative initial reaction from their customers.  That doesn’t mean the idea is necessarily bad but it does mean they need good marketing to help customers get over that initial rejection and embrace the benefits possible.

Amazon is one of those companies that’s not afraid to take risks in all aspects of their business.  Some of those ideas are spectacular failures but those that have succeeded have helped propel the company to becoming one of the world’s top three retailers.  One of Amazon’s most recent initiatives is the “Amazon Key“.  This new device replaces a traditional lock on a customer’s front door with a smart, electronic lock.  This new lock allows Amazon delivery personnel to deliver products inside a customer’s house, not just at their front porch.  The device includes video recording of the delivery as well as options for the owner to block entry.  The idea has been met with understandable skepticism.  Allowing strangers into our home feels like an invasion of privacy and there’s an inherent fear of theft when the consumer hasn’t personally vetted the delivery personnel.

Ask your students what they think about the innovative delivery idea.  How can Amazon successfully promote the new concept in a way that gets customers past that initial rejection and to the point that they install the Amazon Key on their front door?

Promoting differentiation in a mature market

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Bloomberg’s short article/interview entitled “A Folding Bike Helmet That Looks Good and Still Shields Your Brain” shows inventors can still find room to innovate, even in a mature product market.  Spanish inventor, Carlos Ferrando, created a bike helmet that has two unique features – it collapses/folds to reduce space when not in use, and it is designed to be more aesthetically appealing than the traditional bike helmet.  Ferrando said he wants his helmet to “normalize the idea of wearing one (bike helmet) as a fashion accessory”.

Ask your students who they think the target market for this product would be.  If they say “bicycle riders” push them to go deeper.  It’s true that anyone who rides a bicycle could benefit from this product but a mass market strategy is unlikely to be as successful for a product like this.  A segmented strategy has a better chance of success.  In chapter 4 we offer a possible market segmentation for the bicycle-riders product-market.  If students believe this product could effectively serve multiple segments you might want to break them into groups and have each group focus on a particular segment.  Ask each group to develop a promotional strategy for their target market.  After a few minutes have each group share their strategy and discuss the differences.  If the students did a good job there should be distinct strategies for each market.  If the strategies are generally similar then they’ve taken a “Combiner” approach which doesn’t really cater to the unique attributes of each segment.  Either way, you have a good discussion!