Correlating Innovation, Business Models, Development Plans, Private Financing
London Business School Insight Marketing Oct 2008
1. Marketing
22
Issue 9 October 2008
0.18 .
0 Price
.10.0.8 2
812
0 busters
Strategies to fight
low cost rivals
Price check
Using price to awaken
consumer thinking
Place your bets
The success of Betfair
PLUS:
Value Merchants
– how to create
superior value in
business markets
2. Economic downturn?
Time to address the
marketing challenges
facing your organisation
London Business School’s marketing Customer Focused Marketing: The Key to Unlocking Profits
Aligning customers and market strategy
programmes will provide you with the Dates: 2-7 November 2008, 31 May – 5 June 2009, 8-13 November 2009
knowledge and tools needed to market
Market Driving Strategies
successfully during uncertain times. Create new markets through innovation
Dates: 9–14 November 2008, 14-19 June 2009, 15-20 November 2009
For more information contact our Client Services Team on
+44 (0)20 7000 7391 or email execinfo@london.edu
Marketing Fundamentals
Examine and critique core marketing principles
London Business School
Dates: This is an evening programme
Tel +44 (0)20 7000 7390
(once a week from 12th January 2009 until 16th March 2009)
Email execinfo@london.edu
www.london.edu/ For more information, contact the London Business School Centre
for Marketing via email: cm@london.edu
3. Marketing Insight
Issue 9
In this issue “By far the single
most important
thing marketers
04
News and forthcoming events
can do to boost
the bottom line
06
Strategies to fight low cost rivals
Companies have only three options: attack, coexist
is improve the
uneasily, or become low-cost players themselves.
None of them is easy, but the right framework can
way they price.
help you learn which strategy is most likely to work,
says Nirmalya Kumar.
Interestingly,
while firms
09
Value Merchants: Demonstrating and
continue to spend
Documenting Superior Value in Business Markets
a lot of money
An excerpt from a new book by James Anderson,
Nirmalya Kumar and James Narus.
trying to reduce
10
About Betfair
costs or bolster
A look at this company launched in 2000 and now
revenue, very little
the world’s number one online betting exchange.
attention is paid to
12
Marketing Insight interview: Anton Bell
optimising price.”
Paddy Barwise talks to Director of Central Marketing
Anton Bell about the role of marketing and branding
at Betfair. page 14 Marco Bertini
14
Introducing Marco Bertini
London Business School Assistant Professor
>>
Contact
Marco Bertini discusses the effect that price can
have on consumers’ judgments and preferences
and suggests how pricing can be used to solve
some of the issues facing marketers today.
16
Using price to awaken consumer thinking...
...and impact buying behaviour. Marco Bertini All enquiries to:
develops the findings of recent research on the Centre for Marketing
psychological aspects of pricing. London Business School
Regent’s Park
London
19
Centre for Marketing contact information NW1 4SA
United Kingdom
Tel +44 (0)20 7000 8627
Email cm@london.edu
3
Issue 9 October 2008
4. News
The latest updates from Marketing ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
>>
New faculty appointments
Rajesh K. Chandy
BA (Madurai Kamaraj) MBA (Oklahoma) PhD (Southern California)
Professor of Marketing
Science Institute Alden Clayton Award for the
Rajesh K. Chandy joins London Business
best marketing dissertation proposal, and
School on sabbatical leave from the University
the Mary Kay Award for the best marketing
of Minnesota, where he holds the James D.
dissertation. Fortune magazine described
Watkins Chair in Marketing, and served until
his findings on innovation as “an unorthodox
August 2008 as Co-Director of the Institute for
and bracing set of management principles.”
Research in Marketing. Chandy served (with
He serves on the editorial boards of Journal
the CEOs of 3M, IBM, Microsoft, Medtronic,
of Marketing Research, IEEE Transactions
and UPS) as a member of the US Secretary of
on Engineering Management, Journal of
Commerce Advisory Committee on Measuring
Marketing, International Journal of Research
Innovation in the 21st Century Economy.
Rajesh K. Chandy
in Marketing, Journal of the Academy of
His areas of expertise include innovation,
Marketing Science, and Marketing Letters.
technology management, and marketing
Chandy has received a number of teaching
strategy. His research and publications on
awards, including the Outstanding Professor
innovation have received several awards,
of the Year Award, the Award for Excellence
including the Journal of Marketing Harold
in Teaching, and the Outstanding Faculty
Maynard Award for contributions to
Dedication Award at the Carlson School of
marketing theory and thought, the American
Management, University of Minnesota.
Marketing Association Early Career Award
for Contributions to Marketing Strategy, the
AMA TechSIG Award for the best article on
Technology and Innovation, the Marketing
John Mullins
BA (Lehigh) MBA (Stanford)
PhD (Minnesota)
Associate Professor of Management Practice in Marketing and Entrepreneurship
John Mullins is an Associate Professor of John’s best-selling trade book, The New
Management Practice in the Entrepreneurship Business Road Test: What Entrepreneurs
and Marketing groups at London Business and Executives Should Do Before
School. He earned his MBA at the Stanford Writing a Business Plan (2e, London:
Graduate School of Business and his PhD. Prentice-Hall/FT 2006), is the definitive
from the University of Minnesota. An award- work on the assessment and shaping of
winning teacher, John brings to his teaching entrepreneurial opportunities. John is
and research 20 years of executive experience also co-author of Marketing Management:
in high-growth retailing firms including two A Strategic Decision Making Approach,
John Mullins
ventures he founded and one he took public. 7th edition and Marketing Strategy: A
Decision Focused Approach, 5th edition.
Since becoming a business school
professor in 1992, John has published three John has consulted and taught executive
books, numerous cases and more than education on four continents for a variety of
40 articles in a variety of outlets, including organisations both large and small, including
Harvard Business Review, the MIT Sloan the African and European Venture Capital
Management Review, and the Journal Associations, Eastman Kodak Company,
of Product Innovation Management. His the International Finance Corporation
research has won national and international of The World Bank, the International
awards from the Marketing Science Institute, Planned Parenthood Federation, Kenya
the American Marketing Association, Airways, Phoenix Equity Partners, Pumpkin
and the Richard D. Irwin Foundation. Ltd., Roche Diagnostics, Time Warner
He is a frequent speaker to audiences in Communications, the Young Presidents’
entrepreneurship and venture capital. Organization, and numerous others.
4 Issue 9 October 2008
5. ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forthcoming Events
Executive Education
October 2008 November 2008
Executive Workout Executive Workout
Launch Event, London Launch Event, London
Wednesday 1 October Monday 17 November
08.00 – 9.30am 18.30pm onwards
With Steve Currall, Visiting Professor of With Dominic Houlder, Adjunct Professor
Organisational Behaviour and Entrepreneurship of Strategic and International Management
After Hours with London After Hours with London
Business School, London Business School, Zurich
Executive Workout Launch Events Tuesday 14 October Monday 17 November
Be the first to experience first-hand a taster of 18.30pm onwards 18.30pm onwards
our new 2-day programmes, network with other
senior executives, meet and learn from world- With Andrew Scott, Richard Portes, With Zeger Degraeve,
class faculty. Helene Rey and Lucrezai Reichlin Professor of Decision Sciences
After Hours After Hours with London Other cities we will be visiting in
Business School, hosted by 2009 include: Paris, Amsterdam,
A series of informal evenings when senior
Allen & Overy, Frankfurt Dubai, Abu Dhabi, Copenhagen,
business executives can meet with the
Milan and London
London Business School Wednesday 29 October
Executive Education senior 18.30pm onwards
For more information and to register for any of
management team.
the events listed, please contact either Rebecca
Each evening includes With Steve Currall, Visiting Professor of
or Kate in our events team:
a keynote seminar followed Organisational Behaviour and Entrepreneurship
execevents@london.edu
by a networking drinks
or visit www.london.edu/execed/events/
reception.
Forthcoming Event
Centre for Marketing
12 November 2008
Price Discrimination
Strategies
Anja Lambrecht
London Business School
A company can price discriminate between profitability of such pricing strategies based
customers with a high and a low willingness on results of multiple research projects. We
to pay by offering multiple pricing plans. Such discuss questions such as why customers and
plans differ in their monthly fee, their usage companies benefit from a “flat-rate bias”, how
price and possibly the number of free units. For customers’ uncertainty about usage contributes
example, mobile phone companies offer many to profits, when it may be profitable to switch
different cell phone plans ranging from none to customers to new tariffs and whether companies
unlimited free minutes. Web hosting companies should offer so-called rollover minutes.
charge different monthly fees depending on the
amount of web space and bandwidth. Insurance
companies typically charge a flat fee per month
but experiment with pay-as-you-drive insurance.
This seminar highlights several strategies For full details and to register,
that companies can use to price discriminate please visit www.london.edu/marketing/
with optional pricing plans and evaluates the
5
Issue 9 October 2008
6. Feature
Strategies
to fight low
cost rivals
Nirmalya Kumar
Over the past five years, I’ve studied around 50 incumbents and
25 low-cost businesses. My research shows that ignoring cut-price
rivals is a mistake because it eventually forces companies to vacate
entire market segments.
The sustainability of
When market leaders do respond, they often the brutally competitive German market.
low-cost businesses Aldi doesn’t pamper customers. Its stores
set off price wars, hurting themselves more
display products on pallets rather than shelves
than the challengers. Companies that wake Be it in the classroom or the boardroom,
in order to cut restocking time and save money.
up to that fact usually change course in one executives invariably ask me the same
Customers bring their own shopping bags or
of two ways. Some become more defensive question: Are low-cost businesses a permanent,
and try to differentiate their products—a enduring threat? Most managers believe they buy them in the store. Aldi was one of the first
strategy that works only if they can meet a aren’t; they’re convinced that a business that retailers to require customers to pay refundable
stringent set of conditions. Others take the sells at prices dramatically lower than those deposits for grocery carts. Shoppers return the
offensive by launching low-cost businesses incumbents charge must go bankrupt. carts to designated areas, sparing employees
of their own. This so-called dual strategy Successful price warriors stay ahead of the time and energy needed to round them
succeeds only if companies can generate bigger rivals by using several tactics: they up. At the same time, Aldi gets the basics
synergies between the existing businesses and focus on just one or a few consumer segments; right. There are several checkout lines, so wait
the new ventures. If they cannot, companies they deliver the basic product or provide times are short even during peak shopping
are better off trying to transform themselves hours. Its scanning machines are lightning fast,
one benefit better than rivals do; and they
which allows clerks to deal quickly with each
into solution providers or, difficult though it back everyday low prices with superefficient
shopper. Most retailers follow local pricing, but
is, into low-cost players. Before I analyse the operations to keep costs down. That’s how
every Aldi store in a country charges the same
various strategy options, however, I must dispel Aldi, the Essen-headquartered retailer that
price, which reinforces the chain’s image as
some myths about low-cost businesses. owns Trader Joe’s in the U.S., has thrived in
6 Issue 9 October 2008
7. 0.
0.26
0.25
a consumer champion. Aldi sells products far
cheaper than rivals do (their average markup
is 13% while that of most European retailers
is 28% to 30%) and according to European
market research firms, the chain had a 20%
share of Germany’s supermarket business.
As Aldi’s story suggests, the financial
calculations of low-cost players are different
0.24
from those of established companies. They earn
smaller gross margins than traditional players
do, but their business models turn those into
higher operating margins. Those operating
margins are magnified by the businesses’
higher-than-average asset turnover ratios,
which result in impressive returns on assets.
Because of those returns and high growth rates,
the market capitalisations of many upstarts
0.23
are higher than those of industry leaders,
despite the larger equity bases of the latter.
Interestingly, low-cost companies stay ahead
of market leaders because consumer behaviour
works in their favour. If a business gets a
customer to buy its products or services on the
basis of price, it will lose the customer only if a
0.22
rival offers a lower price. Since the discounters
win all their customers because of the prices
they offer, they don’t have to worry about
traditional rivals that always charge premiums.
Only new entrants with even lower cost
structures can compete with the price warriors.
The futility of price wars
The moment a company spots a low-cost
competitor, it would do well to ask itself this
0.21
question: Is our new rival targeting a segment
we don’t want to serve or will it eat into our
sales? If the new entrant has set its sights
on customers no other business serves,
incumbents needn’t worry—for the moment.
They can observe without engaging the
competitor. That wait-and-watch strategy often
0.20
works for companies that market products
for people at the very top of the pyramid,
such as wines, perfumes, and cosmetics.
Even when market leaders copy the
critical elements of low-cost players’
business models, they are unable to match
their prices. That’s because the individual
elements of the model don’t matter as
much as the interactions among them.
Slashing prices usually lowers profits for all
0.19
incumbents without driving the low-cost entrant
out of business. I learned that firsthand while
serving as a consultant to a European telecom-
equipment provider that was competing against
traditional rivals as well as a low-cost Asian
competitor for a multimillion-dollar contract in
Africa. All the bidders kept cutting prices in
0.18 7
8. Feature
the business models of such rivals appear to
order to best the Asian rival’s offer, which proved various companies provide. Over time, the
be simpler than their own. In the 1990s, for seller develops a deep understanding of
to be the lowest after every round of bidding.
instance, all the major airlines launched no-frills the customer’s business processes, so the
Eventually, the telecom giants discovered
second carriers—Continental Lite, Delta Express,
that the Asian company had offered a 40% customer finds it difficult and costly to change
discount on the lowest price the customer KLM’s Buzz, SAS’s Snowflake, US Airways’ suppliers. Furthermore, since low-cost players
could negotiate with its rivals! Not surprisingly, MetroJet, United’s Shuttle—to take on low-cost have limited product ranges and service
the low-cost company won the contract. In competition. All these second carriers have since capabilities, they cannot offer solutions.
addition, although the telecom giants would been shut down or sold off, showing how tough Despite the popularity of this strategy, making
it is for companies to use the dual strategy.
not have made profits on their lowest bids, the changeover is difficult. Many companies,
Although most executives don’t realise it,
the Asian contender seemed likely to do so. such as Boots, Compaq, Xerox, and Uniys,
didn’t succeed because they assumed that
selling solutions required modifying their existing
“Successful price warriors stay ahead business models rather than transforming them.
of bigger rivals by using several tactics: Switch to low-cost models
In theory, a company can consider switching
they focus on just one or a few consumer from a high-cost to a low-cost business
model. In practice, such a transformation
segments; they deliver the basic product is unlikely because the incumbent will have
a profitable albeit shrinking business to
or provide one benefit better than rivals maintain. Moreover, switching to a low-cost
business model means acquiring capabilities
do; and they back everyday low prices that are different from the company’s existing
competencies. It’s hard to imagine many
with superefficient operations to keep market leaders having the stomach for that.
Low-cost players will continue to mushroom,
costs down.” and some will succeed. However, there will
always be two kinds of consumers: those who
buy on the basis of price and those who are
When differentiation works partial to value. Therefore, there will always be
companies should set up low-cost operations
room for both low-cost players and value-added
only if the traditional operation will become more
When businesses finally realise they can’t
businesses. How much room each will have
competitive as a result and the new business
win a price war with low-cost players, they try
depends not only on the industry and customers’
will derive some advantages that it would
to differentiate their products in a last-ditch
preferences, but also on the strategies traditional
not have gained as an independent entity.
attempt at coexistence. Companies, we’re
businesses deploy. If incumbents don’t take on
Another factor that affects incumbents’
told, should adopt the following approaches:
low-cost rivals quickly and effectively, they can
low-cost businesses is the allocation of
Design cool products, as, say,
blame no one for their failure but themselves.
resources. When disruptors are new ventures,
Apple and Bang & Olufsen do.
they face market tests of their capital needs.
Continually innovate in the
Subsidiaries face internal resource-allocation
tradition of Gillette and 3M. This article is an abstract from the author’s research,
processes that optimise different criteria—both
Offer a unique product mix, like that of which can be read in its entirety in Strategies to
for legitimate reasons, such as higher margins
Sharper Image and Whole Foods. Fight Low-Cost Rivals, Harvard Business Review, 84
(December 2006), 104-12.
and lower risk, as well as illegitimate ones,
Brand a community à la Harley-
such as power and politics. Consequently, the
Davidson and Red Bull.
parent may end up starving the new unit.
Sell experiences, as Four Seasons,
Nordstrom, and Starbucks do.
Switching to conquer
Three conditions will determine their efficacy.
First, smart businesses don’t use these tactics If there are no synergies between traditional
in isolation. Second, companies must be able and low-cost businesses, companies
to persuade consumers to pay for benefits should consider two other options: they
and the ability to do so usually depends on can switch from selling products to selling
the products they sell. And third, companies solutions or, radical though it may sound,
must bring costs and benefits in line before convert themselves into low-cost players.
implementing the differentiation strategy. Switch to solutions. Since low-cost players
turn incumbents’ basic products or services
Dealing with dual strategies into commodities, existing companies may be
able to succeed by selling solutions. By offering
When companies discover that the low-price
products and services as an integrated package,
customer segment is large, they often set up
companies can expand the segment of the
low-cost ventures themselves. Because of
market that is willing to pay more for additional
their years of industry experience as well as
their abundant resources, incumbents are benefits. Solutions offer several advantages:
often seduced into believing that they can They include a large service component, so
easily replicate cut-price operations. Moreover, it’s hard to evaluate the quality of the solutions
8 Issue 9 October 2008
9. ?
Value
Merchants:
Demonstrating and Documenting
Superior Value in Business Markets
By James C. Anderson, Nirmalya Kumar and James A. Narus
allows more refined targeting through various
squanders the superior value of the supplier’s
Purchasing managers in business markets
levels of service and enables suppliers to
market offerings while getting little in return.
are becoming increasingly sophisticated in
capitalise on differences between customers.
Doing business based on demonstrating
their strategies and tactics. Increasingly held
and documenting superior value is, indeed,
accountable for reducing costs, purchasing
Transform sales force to value merchants
a rare commodity. Yet it doesn’t have to be so.
and other customer, managers don’t have the
challenges suppliers to transform their sales forces
By adopting the customer value management
luxury of simply believing suppliers’ claims of
from selling on price to becoming value merchants.
approach presented below, value merchants
cost savings. A relatively easy and quick way
can prevail when they encounter challenges.
to obtain savings is for purchasing managers
Profit from value provided is all about how
to focus on price and obtain price concessions
Conceptualise value focuses on the companies can profit from the superior value
from suppliers. To enhance their negotiating
they provide customers. Although it is natural
fundamental building block of the customer
power, purchasing managers attempt to
to think first of price premiums, there are also
value management and addresses questions
convince suppliers that their offerings are the
three other means of obtaining a fair return
like: What do we mean specifically by “value”
same as their competitors, so that they could
from customers for value provided in business
in business markets? How does one define
be easily replaced.
markets: a more profitable mix of business, a
points of difference, points of parity and points
In the face of such pressure, suppliers
greater share of the customer’s business, and
of contention vis-à-vis the next-best alternative?
cave in and match competitor prices. It is a
the elimination of value drains and value leaks.
rare commodity in business markets to find
Formulate value propositions begins with
firms that do business based on demonstrably
superior value. analysing what potential changes in the market
Big idea: Prices are transparent, value is offering customers would value most vis-à-vis This content is taken from the new book, Value
opaque. The book presents a methodology for the next-best alternative. This is used to develop Merchants: Demonstrating and Documenting Superior
Value in Business Markets by James C. Anderson,
how to demonstrate the value of your firm’s a value proposition to aspire to, and qualitative
Nirmalya Kumar and James A. Narus
offering versus the next best alternative in research is conducted to refine the value
monetary terms. proposition. It brings together years of consulting experience
and research to provide the reader with a detailed
explanation of customer value management and how
Value merchants versus Substantiate value propositions provides a
to implement it. Discover the required tools to develop
value spendthrifts methodology for persuasively substantiating new strategies that shift the focus from pleasing
value propositions to customers.
A value merchant recognises the supplier’s customers by reducing prices to retaining customers
by demonstrating superior value.
own costs and the market offering’s value to
Tailor market offerings demonstrates how
the customer and works to obtain a fair return
Available to purchase through Harvard Business
a deep understanding of customer value can
for both the supplier firm and customer firm. School Press and Amazon
be used to construct segment-specific market
The value merchant stands in stark contrast
offerings as naked solutions with options. This
to the all-too-common value spendthrift, who
9
Issue 9 October 2008
10. Feature
About
Betfair
Betfair is the UK’s biggest online betting company
with over 1,800,000 registered customers and over
500,000 active users.
Betfair offers betting on over 50 different
It launched the betting exchange concept
sports and events from 122 different countries.
with cutting-edge technology in June 2000.
Horse racing is the dominant sport, then soccer
Co-founders Andrew Black and Edward Wray
and tennis. Cricket and golf are growth areas.
were named Ernst and Young Emerging
Others include reality TV and financial markets.
Entrepreneurs of the Year in 2002. The
The Betfair Games portfolio has expanded to
company has since become global and runs
diversify its revenue streams in what is a highly
from bases in London, Malta, and Tasmania.
competitive market. Multiples and Accumulator
Central to Betfair’s success is its technology
Betting was launched in 2007 for customers to
which allows it to manage risk perfectly.
have the chance to win across selections with
The result is that punters can choose their
a range of accumulator betting options. This
own odds and effectively bet against each
runs from Malta and has been a significant area
other. Betfair’s bookmaking model results in
of growth and investment. In addition, Betfair
odds which, according to one study, are on
Poker was launched in 2004 and is now the
average more than 20 percent better than the
exclusive sponsor of the World Series of Poker
prices offered by conventional bookmakers
Europe in London. It’s the result of a three
and offers genuine ‘in-running’ betting -
year partnership with Harrah’s Entertainment
this means customers can bet on an event
to stage the first World Series of Poker event
after it has started. Betfair charges a small
outside of Las Vegas. Betfair Casino was
commission between 2-5% on net winnings.
launched in October 2006 with an innovative
Losing customers pay no commission. Betfair
‘zero lounge’ which means the games have no
launched its own Starting Price (SP) in
house edge.
December 2007 allowing customers to take SP
The Betfair mobile product was launched
odds set by customer demand instead of being
in 2006 allowing in-play betting on the betting
dictated by the bookmaker.
10 Issue 9 October 2008
11. “Betfair completes exchange. The company bought and rebranded
‘Mobet software’ from the Scottish IT company
5 million transactions Rapid Mobile to enable secure transactions
to be carried out on a mobile network. Betfair
per day – more Australia was awarded a betting exchange
licence by the Tasmanian Gaming Commission
than all of Europe’s and began operating in 2006. In 2007, the
£10m launch of ‘Tradefair’ enabled betting on
stock exchanges financial markets with a white label agreement
signed with London Capital Holdings to
combined.” produce a spread betting product. It means
the company now employs over 1,200 people
across its bases in Hammersmith, Stevenage,
Hobart and Malta.
With over 350 engineers, Betfair has one of
the fastest and most resilient betting platforms,
completing 5 million transactions per day –
more than all of Europe’s stock exchanges
combined - and 99.9% of the bets are handled
in less than a second. Oracle views Betfair
as one of its top five customers in the world
today, alongside eBay and Google. There are
automated price feeds to third parties for
mobile, automated trading or historical data.
The API (Application Programming Interface)
to third parties integrates the exchange with
participants in the Developers Program to build
customised tools and interfaces for Betfair
sports exchange.
Betfair’s aim is to be the unassailable choice
of the punter by providing the best value,
service and protection. Betfair has a long-
standing policy of not accepting US customers,
funds or bets and was not affected by UIGEA
(Unlawful Internet Gambling Enforcement Act)
passed in 2006, restricting internet gambling
financial processing.
In the UK, Betfair pays tax in exactly the
same way as every other bookmaker: a gross
profits tax at 15%. This allows all bookmakers to
compete on an even footing and ensures a well
regulated and safe environment for all punters.
In the 2007 budget, Gordon Brown set the
Remote gaming duty’ at 15% in line with the
rate of general betting duty.
Betfair works closely with governments and
regulators to provide transparency. It has a 40
strong Integrity Team which monitors betting
patterns and records details of every bet and
currently has 32 Memoranda of Understanding
(MoU) with sports governing bodies to share
information about betting patterns and
customer behaviour.
At the 2007 tennis tournament in Sopot,
Poland, Betfair voided £3.4m bets between
Martin Vassallo Arguello and Nikolay Davydenko
following suspicious betting patterns during
the match. The information provided by the
Integrity Team to the Association of Tennis
Professionals was key to the Gunn and Rees
report ‘Environmental Review of Integrity in
Professional Tennis’ in May 2008.
Betfair has received two Queen’s Awards for
Enterprise: 2003 for Innovation and 2008 for
International Trade. In 2004, it won Company of
the Year at the Confederation of British Industry
Growing Business Awards and in November
2005, it retained its title as Company of the Year
at the CBI Growing Business Awards.
11
Issue 9 October 2008
12. Interview
Marketing Insight interview:
Anton Bell
Director of Central Marketing, Betfair
Professor Patrick Barwise talked to Anton Bell about
the role of marketing and branding at Betfair.
What brought you to Betfair?
>> to grow our product portfolio and needed to
Curriculum Vitae prioritise this against customers’ perceptions
After Centrica sold Goldfish.com to LloydsTSB,
of the values we stood for – being innovative,
I began looking for a new and fresh online
Betfair 2004-present offering value, being fair and on the side of
environment that would continue my move
the punter and obviously, person to person
away from financial services. When the Betfair
Director Central Marketing
(P2P). Talking to our customers provided
opportunity came along, the company was a
Customer Acquisition, CRM, Insight,
some fascinating insights into their motivations
relatively new and successful enterprise with
Planning and Delivery – across sports,
and we were able to model their responses to
huge scope for global growth. I’d grown up
casino, poker
the range of new product concepts. Further
around betting and gambling - my mum’s
Director/Head of Insight quantitative understanding revealed that
partner worked as an on-course bookmaker
Customer, consumer, competitor and our savvy sports betting customers were still
and I’d done a stint with William Hill when I was
market analytics and research playing more recreational products with our
at university - so I was excited by the chance
competitors, whilst exhibiting sophisticated
to be part of something that was revolutionising
Centrica 2000-2004 behaviour on the Exchange, so it gave us
the gambling industry.
Group Insight Manager – Group CRM confidence in our plans for future growth.
Tell me about the Insight function
Marketing, customer relationship
at Betfair How has marketing evolved at Betfair?
management and insight role for
Centrica Group – Goldfish, OneTel, Building the Insight capability at Betfair was my In the early days of the Exchange, customer
The AA, British Gas first challenge. I started with a couple of data acquisition was heavily driven by word of
analysts querying the new data warehouse and mouth but as our product portfolio has grown
Capital One 1999-2000 then grew to a strong team of Insight specialists over the last four years, so has our marketing
Senior Analyst/Project Manager responsible for customer understanding, investment. Understanding the effectiveness of
behavioural analysis and modelling, consumer our marketing spend is critical as the product
Marketing sub-prime financial credit
and market research, competitor and market and channel mix evolves and we look to
products and new partnership development
intelligence. The aim was to bring these areas prioritise new opportunities. Our Finance and
together to inform and drive business decisions. Insight teams work very closely with Marketing
London School of Economics
to stay on top of this.
and Political Science
What would be a typical As we grow, there is an increasing challenge
BSc (Econ) Econometrics and Mathematical
Insight project? to communicate effectively with our customer
Economics
base. Targeting relevant and valuable
One of the first research projects we undertook
communications to our customers, into an
was simply to understand what our customers
increasingly crowded email inbox, is something
thought about us. Our customer base consisted
that we strive to improve. A solid understanding
mostly of sophisticated early adopters who were
of customer life stage, value and risk is central
very passionate about their betting and with it,
to this activity.
the opportunity that we provided them versus
the traditional bookmaker. We were looking
12 Issue 9 October 2008
13. How has the brand developed
over time?
We have always been keen to differentiate
ourselves from the traditional bookmakers
and our early strap line, ‘Sharp minds Betfair’
was intended to be aspirational and inclusive.
We found this approach excluded the more
recreational segments of the marketplace and
some bettors believed that we weren’t relevant
to them. Currently, our aim is to promote both
the relevance of our gambling proposition
- through scale, value and choice - whilst
reinforcing the key P2P differentiator of our
sportsbook offering, which is betting against
other people. In summary it’s a superior offering
and hence, ‘Betting as it should be’.
So does the brand now have to stretch
across different categories?
Betfair historically was purely a sports betting
exchange, but we also have Poker and Casino
as part of our portfolio. Tradefair was launched
in 2007 for those segments attracted to
financial and spreads products and, more
recently, Tai Kai, where you can set up your own
tournaments and play against your friends for
money or just for fun. Growing our brand from
our primary Exchange heritage and moving
from niche to mainstream has been our biggest
“The online betting
challenge.
exchange enables punters
What’s the most exciting marketing
innovation that you’ve undertaken
to choose their own odds
while you’ve been there?
Betfair continues to innovate, developing new
and bet against each other.”
products and businesses and expanding into
new markets, so the Central Marketing Team
are constantly faced with new challenges. In
the past 12 months we embarked on two new
partnerships, the main one being with Harrah’s
Entertainment sponsoring the World Series communicate with different segments of the achieving clear measurable objectives, is
of Poker Europe. In October we went to air gambling population and show that we are fundamental to marketing effectiveness.
with our first TV campaign and launched the relevant to everyone who wants to place a bet Marketers are often focused on developing the
Betfair Starting Price (SP) in November, which or gamble online. This is important when some big idea or getting the campaign out of the door
kicked off a 5 month multi-channel campaign of our competitors have decades of high street and lose sight of the original objectives and
delivering a series of new innovations from ‘the presence benefiting their online proposition. the target audience. Constantly evolving and
Betfair Stable’. This culminated in the Grand learning from successes and mistakes is critical
What was the message from the TV?
National activity which delivered a record to improving effectiveness and in a fast moving
number of new customers. environment it can be difficult to stop and take
The TV campaign ran from October and used
stock of where these improvements can be
animation to represent the Betfair world -
And this really helped building realised.
the scale of our community, betting against
awareness of the Betfair brand? others online, providing value to the customer.
Why are you supporting the Centre for
Over three waves we have seen significant
Brand investment has been central to the past
Marketing at London Business School?
growth in spontaneous awareness, improved
12 month’s marketing success with increased
understanding of our portfolio and, importantly,
exposure on television extending our reach and London Business School is a great place
a 70% increase in consideration.
driving growth in the UK and Europe. We have for staying in touch with new thinking about
a very strong value proposition but the benefits business and marketing. Operating in new
What do you think are the mistakes
of the P2P concept can be a difficult message territory, it is vital to look at exemplars in
people are making in marketing?
to get across in a press ad, a poster or even other categories and apply learnings and best
online. TV has provided a richer medium to practice to our relatively unique model.
Aligning creativity with empiricism, and
13
Issue 9 October 2008
14. Faculty Profile
Introducing Marco Bertini
Assistant Professor of Marketing, Marco Bertini discusses the effect that
price can have on people’s judgments and preferences and suggests how
it can be used to solve some of the issues facing marketers today.
What do you see as the main challenge How can companies improve the and in the way we teach our programmes
for the marketing function today? quality of their pricing decision? and courses. As much as possible, we bring
the insight generated by our research to the
One of the main challenges still faced by the There are a number of steps firms can take to
classroom. The feedback we then receive
marketing function today is accountability. improve the quality of their pricing decisions.
from the students is crucial to ensure we
For a number of years now there has been First of all, prices should not be set based
continue to study relevant phenomena.
pressure on marketers to demonstrate the on costs. This does not mean costs are
return generated by their investments. A lot irrelevant – far from it. Costs are important
What are some of the more interesting
of work has been done in that area. I can to understand the implications of pricing
findings with practical implications
think of a number of important research decisions. Beyond that, pricing policy needs
of your research over the years?
papers and books that have provided useful to start from two key pieces of information:
insights. At the same time, I think there is still (1) the objective worth of the product we As I mentioned earlier, my main area of
a considerable amount of work to do. More are selling, and (2) the perceived value of research is pricing. My work to date has looked
important, I am concerned about some of the that same product to our customers. It is the at instances where price changes people’s
reactive measures that marketers seem to be job of marketing to quantify the benefits in perceptions of the products and services they
taking. Pressured to quantify their decisions, a firm’s offering, measure the gap between buy. I find this topic very interesting because
some marketers are reverting to actions that objective and perceived value, and work such an effect is not really supposed to exist.
have little to do with customers. One example hard to bridge that gap by communicating Price has nothing to do with the quality of
is segmentation. Segmentation is getting a lot value in a way that customers understand. a good. All it is supposed to do is index the
more attention nowadays; however, marketers An additional way to improve the quality terms of trade; that is, price “tells” consumers
seem to favour more and more schemes of pricing is to make sure price policy is well how much money they need to give up in
that rely on easy-to-justify variables such as integrated with the other marketing decisions. order to make a purchase. My own research
demographics and geography in consumer For instance, a deep understanding of and that of other academics in marketing,
markets and account size or industry type customer needs through segmentation gives psychology, and economics show that price
in business markets – none of which really marketers the basic information for price can actually have a very strong effect on
identify what customer needs exist in the discrimination – charging different prices to people’s judgments and preferences.
marketplace. A second example is in pricing, different segments. Unless firms understand My article on page 16 demonstrates
the area I conduct most of my research where value is created, and how that value that price (the amount firms charge, the
and teaching in. Harsher economic times differs across groups of people, the prices way firms present price, etc.) can influence
are putting pricing under the microscope. that are subsequently set are never going to how we perceive everyday goods. I have
Unfortunately, marketers continue to base their be optimal. Also, price needs to be calculated documented cases when the effect is
pricing decisions on the costs of the products in conjunction with the other three “Ps” of driven by the amount of thinking we do or
they sell. Again, this move is easy to quantify the marketing mix. The marketing mix is just the attention we pay. The research of other
and justify, but neglects the key criterion: that: a mix. Better pricing decisions keep academics has identified other explanations.
what is the customer actually willing to pay? these other factors in mind: How should we
What are the main research areas
structure our product line such that we can
What is the single most important you currently working on?
charge different prices for different models?
thing that marketing can do What channels of distribution should be used I am currently working on a number of
to boost the bottom line? to reach different customer segments with interesting projects in the area of pricing and
different prices? What promotional material
By far the single most important thing promotions. One project I am particularly
do we need to develop to communicate
marketers can do to boost the bottom line keen on studies the relationship between
the value we are selling and therefore
is improve the way they price. Interestingly, assortment size and consumers’ willingness to
justify the price we charge? And so on.
while firms continue to spend a lot of money pay. My co-authors and I have conducted four
trying to reduce costs or bolster revenue, different experiments to date. The data tells
What is unique about the
very little attention is paid to optimising us that consumers are willing to pay less for
contribution of London Business
price. This is amazing to me because price low quality products and more for high quality
School’s Centre for Marketing to
is by far the most significant profit lever. A products when assortments are large. This
the discipline of marketing?
number of studies have shown that a simple polarisation of willingness to pay is puzzling
1% increase in price can increase profit by because the evaluation of any product is
The way in which it integrates rigorous
10-12% on average. This kind of return is supposed to be based solely on the merits of
academic research with practical relevance.
almost impossible with process re-engineering, that good, not on the number of alternatives
All of the marketing faculty at the school
advertising, product development, and available. My co-authors and I believe this
have a strong interest in addressing problems
other measures targeted at cutting costs or effect exists when consumers are uncertain
that are important to practice. We definitely
increasing revenue. A little sophistication in about the value of an offering – a fairly common
pride ourselves in doing things that we think
pricing can go a long way. To me this is the situation. When this is the case, we believe
managers find both interesting and useful. This
first thing marketers should look to improve. that consumers infer how important quality
is evident in the research questions we tackle
14 Issue 9 October 2008
15. “By far the single most important thing
marketers can do to boost the bottom line
is improve the way they price. Interestingly,
while firms continue to spend a lot of
money trying to reduce costs or bolster
revenue, very little attention is paid to
optimising price.”
15
Issue 9 October 2008
16. Faculty Profile
Using price to
awaken consumer
differences are by observing the number of
thinking and impact
alternatives firms are willing to market: the more
populated an assortment is, the more important
quality differences are expected to be, which
in turn increases the willingness to pay.
buying behaviour
A second project I am involved with is
studying the effects of monetary incentives on
the type of products people buy. We argue that
incentives such as quantity discounts, bundling,
referral bonuses, coupons, etc. change people’s
frame of mind, making them much more price
sensitive at the time of selecting a product.
Are you aware just how much the price of a product or
even the way that the price is presented to the consumer
can affect buying behaviour?
painful than a single loss of equal monetary
Recent research on the psychological aspects
value and that advertising a partitioned
of pricing suggests that the relationship
price often triggers negative effect, which
between price and choice might be more
could consequent into boycotting of the
complex than originally thought. Marco Bertini
brand and damaging word-of-mouth.
and Luc Wathieu explore this further. Firstly
Price partitioning will not only impact on
they look at the way that price information
the perception of expenses, but also the
is presented and how this can influence
perception of nonprice attributes; i.e. the
Finally, I am working on a project with perceptions of value. Secondly they consider
benefits of the purchase. Consumers that
colleagues from Columbia and Duke that how overpricing can motivate consumers
are presented with an all-inclusive price
examines the quality of people’s choices when to think about the personal value of a new
are likely to concentrate their evaluation
price is a factor in the decision. Marketers have benefit, in turn affecting their likelihood to buy.
on the focal attribute of the transaction
known for quite a while that pricing can have The practice of price partitioning has
(DVDs, groceries, etc.). A partitioned price,
significant psychological implications. Some of become increasingly common. Instead of
on the other hand, increases the amount
my past and current research has demonstrated charging a simple, all-inclusive price, firms
of attention paid to secondary attributes
that point exactly. In this research we study regularly post sets of mandatory charges
(shipping and handling, advance booking,
a more fundamental question: how good are attached to various attributes of an offer. This
etc.), which in turn affects preference
people at making decisions when they have to phenomenon is not limited to predictable
and choice. It can sensitise consumers to
process price? Common intuition would suggest settings such as Internet sites and catalogues.
features they might otherwise overlook.
that price is the easiest attribute to consider Today, one can also find furniture stores
An emphasis on perceived benefits (rather
when making a purchase. After all, price is an breaking out the cost of sofa pillows and
than expenses) suits situations in which
ubiquitous, objective quantity. However, we hotels charging a separate fee for room keys.
price partitioning increases demand as well
repeatedly found that people make many more There are differing views on the effects
as situations in which price partitioning
errors in judgment when price is presented. of price partitioning on consumer behaviour.
harms demand. For instance, shipping
We attribute this counterintuitive result to two Some believe that price partitioning could
and handling is a requisite in most online
observations: (1) money is much more than a increase demand because buyers tend to
transactions, and the cost associated with
medium of exchange – we feel pleasure or pain underestimate the total cost associated with
this service typically varies little across
just by receiving or spending money, and (2) multiple charges. Others, however, argue
vendors. A secondary attribute is neglected
unfortunately we don’t really have a good sense that price partitioning will decrease demand
if price is all-inclusive but overemphasised
of how much pleasure or pain money brings because multiple losses are generally more
us – this is because money has no specific
inherent value beyond what we can buy with it.
Marco Bertini is Assistant Professor of
Marketing at London Business School. His
research focuses on the strategic implications
“Consumers’ motivation to think
of consumer behaviour, with particular
emphasis on pricing policy and product
is determined by market prices in
differentiation decisions. Marco has also
consulted to companies such as AstraZeneca,
combination with other factors such as
BT, De Beers, and Procter & Gamble. He
teaches on the 5-day Executive Education
magnitude of the potential benefit, initial
programme Customer Focused Marketing:
The Key to Unlocking Profits and on the 2-day
degree of uncertainty, and cost of thinking.”
Executive Workout: Pricing for Profit. For
more information please contact the Client
Services team on +44 (0)20 7000 7378
16 Issue 9 October 2008