Importance of Marketing For Investment Banking

Topics: Marketing, Investment banking, Discounted cash flow Pages: 11 (3714 words) Published: March 20, 2014
Marketing Strategy for Investment Bankers
I. Overview
This paper sets out to explain how the concepts underlying marketing strategy, which is may be seen as applicable only to industries that provide tangible goods, such as iPads or pharmaceutical drugs, are nevertheless relevant to a service-based industry like investment banking. First, I will define marketing strategy and briefly describe its various elements. Next, I will define investment banking and give a brief description of the various services provided. Finally, I will explain how understanding marketing strategy provides additional rigor and insight to an investment banker’s decision making process. II. Marketing Strategy Overview

Marketing strategy is a firm’s long-term strategy for establishing and maintaining a competitive advantage in the market. It involves decisions about what products to bring to market, how the product should be priced, how it should be distributed, and how it should be promoted – the “marketing mix”. Marketing strategy recognizes that decisions about the marketing mix are interrelated and that they must change over the lifetime of the product. One fundamental concept to marketing strategy is the product life cycle (the “PLC”). This embodies the idea that a product’s sales volume will change over time and in a predictable pattern. Every product will go through four stages: introduction, growth, maturation, and decline. The goal of marketing strategy is to anticipate each product’s life cycle and to modify the marketing mix in anticipation of the product’s progression through that cycle.

A. Stages of the Product Life Cycle
1. Pre-Introduction and Introduction
Prior to introduction, the goal of marketing strategy is to identify what kind of product a market demands, to then determine the diffusion rate of that product, and finally to make decisions as to pricing, promotion, and distribution of the product. Marketing strategist have many tools available to anticipate what features to put into a new product prior to production of even the first unit. These strategies include surveys, conjoint analysis, internet experiments, and information accelerators. Marketing strategist must then predict the anticipated diffusion rate of a product in order to identify its projected sales and the related marketing expenditures in the introductory phase of the PLC (i.e., penetration versus skimming strategies). Rather than using the “napkin model,” which projects sales volume for a new product by looking to industry potential market size and penetration rate, marketing strategist rely on the qualitative factors of the ACCORD model1 and the ATA diffusion model to predict sales.2 Once the initial diffusion model is identified the Bass model can be used to determine the remaining product life cycle.3 2. Growth and Maturity Stages

The introductory period is followed by a period of growth where competitors begin to enter the market. Marketing strategy tells us that after this growth period return on investment will start to flatten as the product enters the maturity phase. The Bass model attempts to anticipate the timing of both the growth and maturity stages. As a product enters the mature phase, firms can expect increased competition for market share as market penetration reaches saturation. Industry participants can expect to struggle with cannibalization from a proliferation of product lines, increased operational complexity, and increased advertising spend, among other things, in an effort to maintain the sales volumes. Firms that understand the PLC are expected to anticipate its products’ movement along the PLC and re-position their marketing mix in order to maximize revenues in the maturity stage of the market (e.g., move into the economy or premium sector). Moreover, attentive firms understand that margins will decrease in the mature phase and will redefine the product’s standard of innovation, moving from spending on product...
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