Oticon - Change Management

Critically assess Oticon’s approach to change management.

Oticon is born in 1904 as a distributor and in 2007, Oticon’s most sophisticated product ever was introduced on the market (Oticon 2009). A major milestone in the 100 years of Oticon’s existence has been the implementation of the strategic change initiated by Lars Kolind in response to modifications in the operating environment and is resulting to multiple operational changes.

We are here in front of a change that modifies in depth the culture, management and structure of the whole organisation. Beside the dimension of the change there are other factors that have to be analysed like change typologies, strategies, triggers, drivers and barriers and also the level of effectiveness of this change.
a. Typologies:
There are different change typologies e.g. Grundy (1993), Tushman et al (1986), Dunphy & Stace (1993) or Burnes (2004 p.323) “Incremental or fine-tuning forms of change are geared more to changing the activities, performance, behaviour, attitudes of individuals and groups, whereas transformational change is geared towards the processes, structures and culture of the entire organisation”.

Nadler et al. (1995) also defined 4 types of changes that are somehow similar to the three already described; Tuning (incremental and proactive), Adaptation (incremental and reactive), Re-orientation (transformational and proactive) and Re-creation (transformational and reactive).

This change is a large scale Re-creation or Corporate transformation i.e. frame-breaking or discontinuous change to transform the organisation from slow and inflexible old-fashioned lacking key capabilities especially in developing and promoting new products, into a learning and knowledge based organisation. Kolind made the decision to be radical by removing all vestiges of Oticon’s “old style” and replacing all the ways of working in terms of organisation, communication, job descriptions, line management, etc… even building and workstations.

b. Strategies
According to Johnson, G. & Scholes, K. (1993 p.10), strategy could be defined as: “the direction and scope of an organisation over the long term which achieves advantage for the organisation through its configuration of resources within a changing environment to meet the needs of markets and to fulfil stakeholder expectations.”

Interpreting the drivers for change experienced by Oticon, which necessitated a radical re-thinking of the company’s competitive strategies, demonstrates that the company found itself misaligned with its external environment. Trading losses, increased competition and technological advances challenging Oticon’s state of equilibrium (Hayes, 2007 p.80) triggered a hard drive to improve financial performance and maintain competitive advantage.

There are different models of strategy that are adopted in practice, i.e.:
a) Porter’s Competitive Forces Model
b) Resource Based Model
c) Strategic Conflict Model
d) Theory E and O
e) Vision building

Depending on the phases of the change we are in and the level of change (corporate, business or functional) we can use multiple strategies or at the same time or in the different implementation steps.

Considering the competitive forces model (threat of new entrants, bargaining power of suppliers, threat of substitute products or services and bargaining power of buyers), Porter maintains that only three generic strategies are available to organisations: cost leadership, product differentiation and specialisation by focus. Oticon’s CEO built his vision of product differentiation developing a concept of the organisation’s ideal future, identifying its mission and formulating a clear statement of desired outcomes. He made it clear that the new mission of the company was: “To help people with hearing difficulties to live life as they wish, with the hearing they have.”.

At the same time we can also observe the mix of Theory E and O (Beer and Nohria. 2000 pp. 133-141) being implemented at the same time (1 2 Manage 2009 extract of “The key differences between theory E and Theory O” table):

Dimension of Change Theory E Theory O Theories E and O Combined

Leadership Manage from the top down Encourage participation from the bottom up Set direction from the top and engage the people below

Focus Emphasize structure and systems Build up corporate culture; employees’ behaviour and attitudes Focus simultaneously on the hard (structures and systems) and the soft (corporate culture)

Process Plan and establish programs Experiment and evolve Plan for spontaneity

If we look at the Leadership, Focus and Process, we realise that Oticon is effectively using that strategy in order to bring more buy-in from the organisation to develop a new culture based on blending the new systems (knowledge based organisation) and the human values (treat employees as responsible adults).

As mentioned earlier we also realise that human values are in the middle of Oticon’s new strategy. As quoted page 236 of the 4th edition of Managing Change (Burnes 2004), Hax and Majluf (1996 p. 10) state that:

“The essence of the resource-based model ... [is] that competitive advantage is created when resources and capabilities that are owned exclusively by the firm are applied to developing unique competencies. Moreover, the resulting advantage can be sustained due to the lack of substitution and imitation capabilities by the firm’s competitors.”

Oticon used a Resourced Based Model to achieve above average profitability by developing VRIN (Value, Rare, Inimitable, Non-substitutable) resources. They indeed involved the workers in getting consensus on the new direction and its rationale and developed new resources like offices, IT capabilities, skills, knowledge and aptitudes.

c. Triggers, drivers and barriers

The main triggers here are changes in technology, disconnect with market’s needs, unbalanced global positioning and more advanced competitors leading to the risk of being out of business. The company had to make a decision and define what will support the change initiative (drivers).

As described by Hayes, Force-field analysis, based on Lewin’s (1951) three-steps model involves two broad types of forces, the ones supporting and the ones resisting change. “When the forces pushing in one direction exceed the forces pushing in the opposite direction the dynamic equilibrium changes. The level of behaviour can be changed towards a more desirable state by increasing the strength of forces for change in the desired direction (increasing the driving forces) or by diminishing the strength of restraining forces” (2007 p. 137). There are other tools or methods to evaluate drivers and barriers to change as e.g. SWOT or PESTEL analysis that may even be more valuable as they will encompass a broader spectrum of data to analyse.

One of the main drivers (Supporting forces) was to bring Kolind as CEO of the company. Oticon was evolving in a growing market which is positive force to achieve better results. He had a vision for Oticon which was revolutionary by changing in depth the company’s values i.e. its reason to be and also to implement the technology to enable the change e.g. IT. Another major driver is the consistence of the vision and strategy and the way it had been put in place by involving all workforces (even if it is a top-down approach) and explaining not only the change but also the rationale.

On the other hand, there were some resisting forces as after analysis the CEO realised that there was nothing they could do better than the competition. Original skills and competencies were not adapted to the new structure and so had to change the culture.

Resistance to change was a restraining factor as they had to fight against people losing part of their power as the organisation was flattening to transform from a technology based company into a knowledge based one.

d. Level of effectiveness of the approach

There are 3 main approaches to Organisational change, planned, emergent and contingency. Lewin (1947), Bullock & Batten (1985) and Kotter (1995) defined steps in the Planned approach but based on the change that has been implemented and also the way it had been done shows a mix of the Planned approach (top-down approach) and Emergent as they will change the structure, the culture, the learning and the managerial behaviour. The CEO also involved the theory E and O in the process and built a shared vision i.e. we may say that the overall approach used is the Contingency one, meaning seeking to use the best method available for a specific environment.

Another key point explaining it is not a 100% Planned approach is that even if indeed we have an Unfreeze and a Make the change steps, we don’t really have a Refreeze as when it seemed to re-freeze, the CEO went back to a Make the change step (step 5 from Kotter 8 steps, 1995).

In conclusion, based on financial terms, market shares or the sustainability of the solution, there is no doubt this approach has been the right one for this specific environment. The vision has been clearly communicated and the different strategies used have been effectively and efficiently implemented to drive the change and overcome the resistance that could have undermined the objectives’ achievement.

Critically evaluate how Oticon deals with people issues during their change process

The implemented change is impacting not only the organisation but also the other stakeholders. It is therefore interesting to first analyse who are the impacted people to see how they were impacted and how their resistance has been overcome while implementing the new structure. The leadership style used to change the company’s culture is also key to analyse how Oticon dealt with people during the change.

The aim of the change is multiple, redefining corporate culture to include a better customer service, to improve employees’ involvement and also to facilitate launches of new ideas and products on the market place, to achieve competitive edge in the sector.

a. Stakeholders analysis

I would paraphrase the PMBOK Guide definition of stakeholder i.e. an individual or an organisation that is actively involved in the change, or whose interests may be positively or negatively affected as a result of change execution or change completion; they may also exert influence over the change and its result (PMBOK Guide, 2000).

Based on this definition, we can identify the stakeholders and map them according to their Power/Interest in the change to assess their level of influence:

This analysis allows us to better determine how to approach the different stakeholders to make sure we can get their buy-in to achieve the objectives of the change.

As we can see, internally the resources are highly interested in the change as they will be the engine to make it happen. To mitigate the risk of potential conflicts, Lars Kolind has clearly communicated that he has the legitimate formal power to send the ultimatum that if someone is not eager to accept the change he should leave the company.

b. Resistance to change

As per Mullins (2005) and Buchanan & Huczynski (2004) change is generating resistance and that can be attributed to different factors as e.g. misunderstanding, fear of the unknown etc... What is important is how we handle and overcome the resistance to change in order to deliver the change itself. We also have to recognise that at the same time different parts of the same organisation can be at different stages of the change. Elisabeth Kubler-Ross demonstrated in 1969 the main steps individuals go through when there is a change:

• Denial

• Anger

• Bargaining

• Depression

• Acceptance

We also have to realise that even if we go through these stages, it may take more or less time to go through these.

If we consider the timeline of the Oticon change, we can see that it took from 1988 (appointment of the new president) till August 8 at 08:00AM (this shows Chinese superstition) to have the change implemented and impressive results were reported in 1994. After 2 years of using the usual tools to increase profit, Lars Kolind realised that he had to go for more radical change to bring Oticon to a sustained competitive edge. It took 15 months to prepare all minds and souls to accept the change to work in a “structureless” structure or a “spaghetti organisation”.

He also successfully used the Participation tactic (Kotter and Schlesinger 1979) to overcome the potential reluctance in the company. As the company is to be seen as being composed by responsible adults, they could not hide the situation anyway, therefore it made sense to get the support from the staff and be open with them. Other tools have also been used, education and communication as communication is at the centre of the new approach, so the new direction and the human values have been communicated to get employees buy-in and understanding. Facilitation and support tactic to ensure staff will have the right level of skills has also been put in place. Oticon offered the employees a PC and motivated them to identify their training needs.

On the other hand, no negotiation was available, as if the staff rejects the new approach, he is asked to leave the company.

c. Leadership style

Leadership means different things to different people and many theories have been developed about leadership e.g. Fred E. Fiedler (Contingency Model in 1967), James Kouzes and Barry Posner (Leadership in Action in 2003), etc… Let us also clarify the difference between a Leader and a Manager to avoid confusion. Hayes (2007 pp. 168-69) will split the differences in terms of what has to be done and the capacity to do it.

• “Managers decide what needs to be done through a process of goal setting, establishing detailed steps for achieving these goals and identifying and allocating the resources necessary for their achievement (through planning and budgeting). They develop the capacity to accomplish their agenda by organizing and staffing.”

• “Leaders, on the other hand, focus on setting a direction and developing the strategies necessary to move in that direction (creating a vision). They focus on aligning people, communicating the new direction and creating coalitions committed to getting there.”

Lars Kolind can be seen as a visionary leader using a transformational approach to motivate his employees to deliver is vision. He is, as defined by Burnes (2004 p.510), using the force of his personality to motivate his followers to sacrifice their self-interest in favour of Oticon.

The Managers also had to play a role (Top, Middle and First level management, (Burnes 2004 p.500)) delivering the vision. Simple processes have been implemented to open projects (1 senior manager approval is enough) and the most impacted managers are the ones moving from a hierarchical structure to a project based organisation which implied changes in their behaviour to attract the best staff in their team and retain them.

Oticon made the conscious decision to treat their employees as responsible adults i.e. used Theory Y assumptions. McGregor (1960) maintained that there are basically two views of human nature: a negative view – Theory X; and a positive view – Theory Y.

Theory X, consists in a view where the workforce tries to do as less as possible, avoid responsibility and will look for security more than what is best for the company.

Theory Y, on the other hand, consists in assumptions that give a much more positive view of human nature, e.g. eager to increase the level of responsibility, staff is usually keen on sharing and use creativity and consider work as something natural.

d. Oticon’s culture

Burns listed many definitions of organisational culture, but the one, even if laconic, I would go with, is the one from Drenna (1992: 3) i.e. Culture is “how things are done around here” (Burnes 2004 p.170).

We demonstrated that the change in Oticon can be seen as a Re-creation or Corporate transformation i.e. frame-breaking or discontinuous change that impacts the whole organisation. This means the culture in the organisation will have to change to enable sustainability of the competitive edge. This is the reason why all things reminding the past and the old culture had to disappear including walls and buildings.

Burke and Litwin (1992) consider that a transformational change e.g. Oticon’s involves a paradigm shift, and completely new behaviours. Instead of changes designed to help the organisation do things better (incremental change) the organisation needs to do things differently or do different things (Hayes 2007 p.121).

Denison gives us the 4 main pillars to success in this type of cultural change, consistency, mission, involvement and adaptability (Denison Consulting 2009). Lars Kolind used those 4 main streams in his implementation plan as he spent time building his vision, developed the mission for the company, consistently communicated it and involved the stakeholders in the process to adapt the company to the better respond to the market.

To conclude this part of the essay, we can say that Lars Kolind had the right leadership style to change in depth the culture of Oticon and sustain this change in order to deliver the vision he committed to.

Reference list / Bibliography

1 2 Manage, 2009. Theory E and Theory O. Edinburgh, UK: 1 2 Manage. Available from: http://www.12manage.com/description_beer_nohria_theories.html [Accessed 04 July 2009]

BEER, M. and NOHRIA, N., 2000. Cracking the code of change. Harvard Business Review (May-June), pp. 133-141

BUCHANAN, D. and HUCZYNSKI, A., 2004. Organizational Behaviour – An Introductory Text, 5th ed. London, UK: FT Prentice Hall.

BURKE, W. and LITWIN, G.H., 1992. A Causal Model of Organizational Performance and Change, Journal of Management, 18 (3), pp. 523–45.

BURNES, B., 2004. Managing Change, 4th ed. London, UK: Prentice-Hall.

DENISON CONSULTING, 2009, Presentation SIOP Profiles of Organizational Culture. Ann Arbor, MI, USA: Denison Consulting. Available from: www.denisonconsulting.com/dc/Portals/0/Docs/Presentation_SIOP_Profiles_of_Organizational_Culture.ppt [Accessed 05 July 2009]

HAYES, J. 2007. The Theory and Practice of Change Management. 2nd ed. Basingstoke, UK: Palgrave MacMillan

JOHNSON, G. & SCHOLES, K., 1993. Exploring Corporate Strategy. London, UK: Prentice Hall.

KOTTLER, J.P. and SCHLESINGER, L.A., 1979. Choosing strategies for change. Harvard Business Review, pp. 106-114.

MCGREGOR, D., 1960. Theory X and Theory Y, in D.S. Pugh (ed.), Organization Theory: Selected Readings. London, UK: Penguin.

MULLINS L., 2005. Management and Organisational Behaviour. 7th ed. UK: Pearson Education Limited.

NADLER, D., SHAW, R. and WALTON, A.E., 1995. Discontinuous Change. San Francisco, CA: Jossey - Bass.

OTICON, 2009, Oticon through the years. Copenhagen, Denmark: Oticon. Available from: http://www.oticon.com/com/AboutOticon/CorporateCulture/OticonThroughTheYears/index.htm [Accessed 09 July 2009]

Marketing strategy - Customer segmentation - Pricing

1.    GeoPure Water Technologies Marketing strategy

After having been through the 6 steps (Kotler P. and Keller K.L. 2009) of a market research (including the 2006 research from Texas A&M university),  GeoPure launched on the market, based on Texas A&M university technology, a service for desalination of oilfield brine and so generate additional water resources for the Oil & Gas operations. Before going in the Marketing-Mix, let’s first identify the strategy GeoPure has put in place.

Considering the competitive forces model (threat of new entrants, bargaining power of suppliers, threat of substitute products or services and bargaining power of buyers), Michael Porter maintains that only three generic strategies are available to organisations: cost leadership, product differentiation and specialisation by focus.

GeoPure implemented a focused marketing strategy to get more intimacy with the targeted segment (Texas oil and gas industry and groundwater users in west Texas at first). The strategy is dynamic i.e. depending on the environment you have to adapt your strategy to meet the market and GeoPure moved into Differentiation strategy when they started to sell a treatment system to handle feed water where suspended solids have already been removed.

Kotler and Keller define as Categories of Service Mix (2009) the continuum from pure tangible goods to pure service with in the middle tangible goods with accompanying services, hybrid and major service with accompanying minor goods and services. Assuming that GeoPure keeps ownership of all the on-site deployed hardware, they then sell a service to their customers and not tangible goods.

This has an impact on the Marketing-Mix as we have 7 P’s to take into account, Price, Product, Promotion, Place, People, Process and Physical evidences.

The new Product development 8 steps (Kotler P. and Keller K.L. 2009) will help understanding how the 7 P’s interact with each other. Once they knew what would be the product (basic product as per Kotler and Keller 5 levels of products) and got the solution developed and tested they could work on the marketing strategy.

Place is a given as Texas is a major drilling place for the start before testing in other states and Canada. This also drove the distribution channels for this new service. Brassington and Pettitt (1997) define distribution channel as the structure linking a group of individuals or organisations through which a product (tangible) or service (intangible) is made available to the consumer or industrial user. In the GeoPure case, we have direct distribution covering the whole market as it is a new technology they are the only ones to offer.

Promotion has been key in getting the first commercial deals. The GeoPure presence in specific conferences dedicated to the targeted customer segments with marketing booths, published articles and companies specific presentation, opened doors and allowed them to get the first 30 customers.

Pricing is a critical point. We have a new technology so no competitors on this segment yet and customers needing a scarce resource (fresh water) but also a market to “earn”. It looks like a Maximum Market Skimming (Kotler P. and Keller K.L. 2009) approach would be the right one here as we have buyers interested in the service, there is no competition and the price is assumed to be lower than fighting for fresh water including delays caused by issues with local communities. Using this approach will allow GeoPure to make maximum profit before the competition develops similar technology and also come on the market. GeoPure must make sure they don’t overprice else the competitors may be aggressive on the price and ruin the whole strategy.

People are important in the extended Marketing-Mix, skilled workers, employees, management and consumers add value to the offered service. This includes the people in Texas A&M University, GeoPure but also the workforce at the customers’ side.

Process to get the service on the market is key to the strategy and in this case the way to get the demonstration unit built in a travel-friendly container to test and go through the various stages of the feasibility with the customers.

The Physical Evidences are the way to make a service tangible to the customer. The demonstration unit brings this to GeoPure as it will deliver fresh water to the customer as evidence of the efficiency of the service.

All these components of the marketing strategy have been communicated through mainly three out of the eight modes of the marketing communication-mix. Events and experiences, public relations and publicity and finally personal selling are the methods GeoPure used to position themselves on the market and get their first customers in the conferences they participated. These also enforced an integrated marketing communication to ensure all these communication efforts are co-ordinated.

There is no recipe for success but using these frameworks helped identifying what to achieve and having the right controls in place to maximise the success rate.

2.   Select two different approaches to customer segmentation, explain their advantages and disadvantages and give examples of how companies have used them in practice.

Generally speaking companies have stopped doing mass marketing, they would prefer now using a “rifle” approach instead of a “shotgun” approach (Kotler P., Wong V., Saunders J. and Armstrong G. 1996). This will allow the company to focus energy and budget on the right target.

There are different dimensions in terms of segmentation as it is not only end-consumers (B2C) that are targeted but also it could be other companies (B2B) and the ways of segmenting will be different as the needs will be different and so may be the geographical aspect.

Segmentation for end consumers has multiple levels from mass marketing (Coke) to individual marketing (local tailor). Between those two extremes, I’ll select the geographic and demographic segmentations as they are popular to define a target segment.

I will use as an example Shell Gas in Belgium and how we used both segmentations together to fine-tune our marketing strategy.

Let’s focus on the small bulk part of the business as the cylinders is less impacted by these two segmentations (depends on a retailers network) and the large bulk is a B2B business.

Firstly we used the geographic segmentation as bulk propane can’t be sold (safety reasons) in cities and secondly we won’t advertise were natural gas is available as we are less convenient and more expensive. The second level is to split into three regions to include language into the equation as in Belgium we have three official languages and cultures. Having isolated per region the rural areas helps to define the target regions. This is where the geographical segmentation will stop, this is good enough if we intend to use press advertising in specific regions or communicate at local communities or even neighbourhood level. In our example of small bulk, this is not enough as propane has the image (in Belgium) of old fashioned individual heaters and not central heating. That explains the reason why we also integrated in the geographic segmentation the demographic aspect.

Demography will give more granularity in our customers’ segmentation. It will include attributes as age, gender, family size, social class, income, etc… (Kotler P. and Keller K.L. 2009). We did first, of course, segment our current customers’ base so that we have a clear idea of what type of demographic profile has our customer. Merging both segmentations will allow us to locate where we can find our potential customers and craft specific direct communication to ensure we send the right message to our prospects. Ideally we should be granular enough to impact the prospect positively when communicating our values.

Bottom line, that information was shared with the sales forces that could adapt the sales arguments (after a segmented communication sent to all prospects) and get the contract.

 Based on this experience, these two segmentations are combining quiet well as demographic data can be seen as a “drill down” of the geographical data. This meaning that we can see the demography will be what is in the households. The downside of this combination is that even if it gives you a much better success rate when focusing on your prospects, it is still limited. Those two segmentations are telling you who the prospects are and where they live but not what are their needs and what they aspire to. As example for Shell Gas you may be well in our target profile but, no way, you will use Propane in your garden as you have a son working for Total fuel and so will only buy from that company or you will never buy from a Oil and Gas company because you believe that it is bad for the carbon footprint, etc…

These show that geography and demography are not giving you the motivations of the prospects and the importance of always knowing more about your target to be closer to the prospect and have the right message. So other segmentation types like behavioural or psychographic are complementary to these two in order to adapt the marketing strategy and programme to realise first then recognise the differences between prospects.

Other companies who used those 2 segmentations are e.g. Philips that did not realise that some of their appliances were not fitting in Japanese kitchens or Coca-Cola that sold in Spain bottles of two litres that did not fit in local fridges (Kotler P., Wong V., Saunders J. and Armstrong G. 1996). Mac Donald’s is another good example targeting messages based on both segmentations e.g. children in South of Belgium.

So we could demonstrate that segmentation can help to know customers better, give orientation to allocate resources (budgets) better and also better focus the organisation energy. On the other hand this may also lead to launching a multitude of products and so increase the overall marketing costs and reduce the brand impact on the market.

3.   There are a number of strategies that can be taken when pricing products and services. Choose any one pricing approach, then critically analyse its merits and potential difficulties and identify in what market, company and competitive conditions such an approach would be appropriate.

First of all, let’s agree on the definition of price: “The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.” (Kotler P., Wong V., Saunders J. and Armstrong G. 1996). Kotler and Keller (2009) relate the pricing of products and services to where the company wants to position itself on the market. Five main objectives are: survival, maximum current profit, maximum market share, maximum market skimming and product-quality leadership. There are also other objectives related to non-profit or public organisations.

In this exercise, we’ll focus on the maximum market share pricing objective. The aim of this positioning, introducing a product at a low price is, is to increase the market shares of the company in a specific market. To achieve capturing the mass market by high initial sales, a market-based approach to pricing in which the price will be lower than the competition to make the product more attractive to the target has to be put in place.

For this pricing strategy to be effective, the market must be receptive to pricing i.e. low price will increase sales, increasing the volume will decrease the unit costs and low price will discourage competitors to enter the market (Kotler P. and Keller K.L. 2009). So it shows attractiveness where economies of scale can bring unit costs reduction and so can generate room to further decrease prices. A good example of penetration pricing is Dell using direct marketing and selling at low prices due to their direct selling strategy and also reducing distribution costs as they did not use distribution networks like their competitors. They could therefore gain market shares against big competitors as Compaq, HP and IBM. It allowed then this company to be leader in computers’ direct sales and so permitted Dell to make substantial profits.

The flip-side of this story shows also the difficulties that are linked to this strategy. Once the competitors adapted themselves to the new market needs by adding this new business model, Dell started to have problems and results started to soar as the big companies regained market share using the same strategy (Kotler P., Wong V., Saunders J. and Armstrong G. 1996).

The main advantages of this strategy are keeping new entrants (Porter’s Competitive forces model) out of this specific market by taking them by surprise, it may also speed-up the adoption rate of the product by e.g. word of mouth and also motivate the distribution channels as the stock turnover will be high. If the penetration is high and sustained as e.g. Windows, the product may also become an industry standard and so being preferred to even better products due to the adoption level in the sector.

The first downside of this strategy is that you have to make sure you can sustain being a cost leader (Porter’s Competitive forces model) and keep the new entrants out else your profit will quickly soar (look at Dell) and your market shares will drop accordingly. There are two other main disadvantages with this strategy. It becomes really difficult afterwards to raise prices for the same product in the same market as the customers will not understand why this happens, it is then necessary to upgrade the product e.g. from the basic to the expected product or even to the augmented one to justify the price increase. The second main issue is a branding, reputation one i.e. selling low cost may also mean low quality and so impact your image on the market i.e. is detrimental to the brand value and the reputation of the company.

Pushed to the extreme, penetration pricing may become, if the price is not sustainable and only aim to “destroy” the competition, an attempt to build a monopoly and this is illegal in some countries.

In conclusion, maximum market share or penetration pricing objective is a valid strategy as long as we evolve in a market that is ready for this and also only if we are ready to be “all-in” i.e. we go for cost leadership overall marketing strategy. It is critical to ensure the competition is kept out of the market or, as a minimum, unable to compete with the pricing we set. If this is the case, then we can reach a dominated or even captive market as the one of operating systems where Microsoft Windows became a standard after having used such a strategy from the beginning.

VisitScotland Product Portfolio - Golf - Marketing

1.    Introduction

As Scotland is known worldwide as 'the home of golf', this sport is played there since the 15^th century and 550 golf courses are available in the country, it is obvious that this specific product is one of the most attractive to visit Scotland.

This is the reason why for this analysis I selected Golf in the Active theme in the VisitScotland Product Portfolio.

2.    What is the customer value hierarchy?

Kotler and Keller develop a 5 levels product framework (Kotler and Keller 2009 p358) to be analysed in order to evaluate added customer value and plan product development.  

VisitScotland website (Scott Porter Research & Marketing, 2006) contains a golfer typology with 8 golfers’ profiles and what are their expectations and motivations.

This is important to mention that it is not a “one size fits all” business and that the below analysis would have to be adapted to each of the segments. For the sake of this exercise I shall assume we do want to attract the segment 3 i.e. “Golfing Tourists”.

1. Core Benefit:

When you buy a green-fee, you are purchasing 3 to 4 hours of relaxation in the nature offering the opportunity to walk or drive a buggy a few miles in good company and enjoying the scenery, this is the fundamental level.

2. Basic product:

It is also necessary to have a golf course with a clubhouse and facilities as buggies and/or trolleys, cloakrooms and a place to get refreshments, this is the minimum set of features needed to operate but not enough to meet our segment’s requirements.

3. Expected product:

As a golfing tourist you can expect to find a driving range, a restaurant in the clubhouse as well as a Pro-shop where you can hire clubs and buy all needed golf products and services as balls, tees, tuition, etc… Additional features can be added to reach the level 4 to exceed customers’ expectations.

4. Augmented product:

 So more features can be implemented, main ones would be to have a hotel available with also villas for rent including spa and other facilities as in and outdoor sports as bowling, swimming pool, tennis, etc… These extra add-ons will ensure competitive edge and also define the identity (differentiation) of the product.

5. Potential product:

 The future product, level 5 of the hierarchy, would be to integrate the attributes we listed and new ones. As we have the sport and accommodations ready, we would like to create a “Scotland one stop-shop (OSS)” concept to capture our customers and offer them a full Scottish experience in one location i.e. create a museum focusing on Scotland and the Scottish culture including local craftwork boutique, exhibitions, whiskey tasting events, etc…

3.    New product development

Kotler and Keller (Kotler and Keller 2009 p614) and also Brassington and Pettitt (Brassington and Pettitt 1997 p358) are referring an 8 steps new product development process we will go through to commercialise our new product. 

a.       Idea generation

To generate the ideas of new products, there are well known techniques as Kotler and Keller list (Kotler and Keller 2009 p619). At this level many ideas are still available to the team e.g. create a Golf theme park, etc… including our potential product the Scotland OSS.

b.      Idea screening

At this stage, it is important to assess the feasibility of the project and the probability of success (Kotler and Keller 2009 p620) i.e. probability of technical completion x probability of commercialisation given technical completion x probability of success given commercialisation to do the ranking and keep the best option.

c.       Concept development and testing

This step will require the development of a detailed project that can be tested with a sample of our target audience. It is important to validate the concept with the details being now available i.e. are the golfing tourists interested in discovering the Scottish culture in the same location.

d.      Marketing Strategy development

Here we do position our product on the market and also build a long term strategy including pricing, budgets, and profit projections.

e.      Business analysis

This analysis will provide a detailed profit analysis with risks, returns probability and so forth to confirm it is a profitable investment.

f.        Product development

Once it is considered sound, we can build a prototype, in our case a first cultural event including features we would make permanent to ensure we effectively translated the customers’ requirements into a profitable product.

g.       Market testing

We can plan to invite here a number of golfing tourists to test and give us feed-back on our prototype to have more information on what to change and how to get closer to our target.

h.      Commercialisation

Having used feed-back loops to review our prototype, we are now ready to launch our new integrated VisitScotland theme on the market.

Conclusion

There is no recipe for success but using these frameworks will help to identify what we want to achieve and help putting the right controls or stage gates in place to maximise the success rate.

An important point is the reviews to be planned, even if it is prescribed to do it only for the last 2 stages (Kotler and Keller 2009 p614), at the end of each step to validate the assumptions, risks, issues and constraints.

Reference list / Bibliography

BRASSINGTON, F. and PETTITT, S., 1997. Principles of Marketing. 3^rd ed. Edinburgh: Pearson Education Limited.

KOTLER, P. and KELLER K.L., 2009. Marketing Management. 13^th ed. Upper Saddle River, New Jersey, USA: Pearson Education, Inc.

SCOTT PORTER RESEARCH & MARKETING, 2006. Attitudes Towards Golf Breaks In Scotland Research Golfer Typologies [online]. Prepared for: VisitScotland available from: http://www.visitscotland.org/golfer_typologies-2.pdf [Accessed 26 May 2009]

Visit Scotland - Marketing

1.    Introduction

VisitScotland has been reorganised in 2005 which offers the opportunity to observe how the distribution channels have been set-up from the start to fulfil a demand in a global environment.

The second interest in this case is the history as the concept started in 1969 so there is also tradition to be taken into consideration when dealing with the “more” traditional ways of distributing the goods and services.

2.    Distribution channels

Brassington and Pettitt define distribution channel as the structure linking a group of individuals or organisations through which a product (tangible) or service (intangible) is made available to the consumer or industrial user (Brassington and Pettitt 1997 p472). How will the channels be structured and how will they cover the tourism market?

1. Channel structure

There are a number of ways for customers to buy tourism products. Some are direct - over the phone or internet; others are indirect - through a third party, who may be in the destination or origin country or not.

Buhalis and Laws (Buhalis and Laws 2009 pp11-12) describe the main distribution channels used in the tourism industry. Between the consumer and destination (suppliers/principals), we have 3 main agent types, the inbound and outbound travel agencies (retailers) and the tour operators (wholesalers).

In that sense it can be seen similar to the channel structure for consumer goods described by Brassington and Pettitt and so the channel can be or short or long (Brassington and Pettitt 1997 p475). This is an important concept as typically the consumers can use from zero (direct booking, direct distribution) to all agents (most likely VisitScotland’s partners, indirect distribution) to book a trip and this with VisitScotland.

VisitScotland can be seen as a vertical integrator as the organisation serves multiple purposes between the consumers and the services/goods providers.
They not only assess the standard of accommodation, visitor attractions and places to eat but they also work as a multi-channelled bookings and information service for visitors to Scotland (on-line and telephone requests for information and bookings, on-line information provision to more than 100 Visitors’ Centres).

2. Market coverage

Kotler and Keller (Kotler and Keller 2009 pp 460-461) are also differentiating between exclusive, selective and intensive distribution i.e. whether we use a few, a selection of or all available channels.

Based on the above definition, we can say that VisitScotland is using selective distribution channels mainly internet and its industry partners like VisitBritain, Trade and Professional agencies, Tourism agencies, etc.

Using a selective approach helps to keep control on the distribution and also lower the overall costs.
 

3.    Trends of distribution in the recent years

We did mention what are the channels used to distribute products and services but there are changes happening in the tourism sector. The main two according to Buhalis and Laws are the integration and e-commerce capabilities (Buhalis and Laws 2009 p10).

3. Integration

There is a general trend in horizontal (e.g. Air France & KLM) and/or vertical (e.g. Club Med) integration in the distribution of goods and services.

Both of those behaviours are leading to better cost control and economies of scale i.e. increase profitability to shareholders (Buhalis and Laws 2009 p10).
This is in that context that VisitScotland has been put in place to replace the 14 Area Tourist Boards that were acting at local level (VisitScotland 2009). This is how it became a horizontal integrator playing all the agents’ roles between the destination and the consumer.

4. e-Commerce

Another main stream change is the e-commerce that is also evolving (Kotler and Keller 2009 pp 474-477) as the conventional industry players realised the profit made by the “Pure-Click” companies. This means that a new distribution channel has been created but adding more complexity as it means that strategies had to be implemented to also manage the traditional channels.

The emerging new channel is M-Commerce i.e. distribution through PDAs and mobile phones.

If you search for Scotland in Google, http://www.visitscotland.com/ arrives second below the Wikipedia article. From there you can ask for information or book accommodation, tours, packages … in 14 different languages. This reference can also be found in social networks as Facebook and for some other countries as Australia they also developed Twitter capabilities.

4.    Difference between tangible products and intangible services

Kotler and Keller define as Categories of Service Mix (Kotler and Keller 2009 pp 387-388) the continuum from pure tangible goods to pure service with in the middle tangible goods with accompanying services, hybrid and major service with accompanying minor goods and services.

To understand what this means for VisitScotland, we should go back to the core objectives (VisitScotland 2009):

• Attract visitors by building a successful Scottish tourism brand.
• Engage and work in partnership with the tourism industry.
• Enhance the visitor experience.
• Provide strategic direction to the industry.
• Manage our business efficiently and effectively.

So on the one hand the organisation is set-up to deliver intangible services i.e. activities or benefits that one party can offer to another which is essentially intangible and does not result in the ownership of anything (Kotler, Wong, Saunders and Armstrong 1996 p625). On the other hand we can observe that they also deliver tangible goods as market researches, useful statistics for professionals (http://www.visitscotland.org/research_and_statistics/) and other marketing support material as brochures and guides.

5.    Conclusion

VisitScotland is using the new and the traditional distribution channels for both their services and products by:

• integrating vertically and horizontally the distribution roles using e-technologies
• maintaining selective relationship with intermediaries in the industry through partnerships

6.    Reference list / Bibliography

BRASSINGTON, F. and PETTITT, S., 1997. Principles of Marketing. 3^rd ed. Edinburgh: Pearson Education Limited.

BUHALIS, D. and LAWS, E., 2001. Tourism Distribution Channels. 1^st ed. UK: Thomson Learning

KOTLER, P. and KELLER K.L., 2009. Marketing Management. 13^th ed. Upper Saddle River, New Jersey, USA: Pearson Education, Inc.

KOTLER, P., WONG, V., SAUNDERS, J., ARMSTRONG, G., 1996. Principles of Marketing. 4^th European  ed. Edinburgh: Pearson Education Limited.

VISITSCOTLAND, 2009. Organisation History. Edinburgh, UK: VisitScotland.  Available from: http://www.visitscotland.org/about_us.htm  [Accessed 23 June 2009]