Marketing Strategy 2

Why do marketers rarely try to appeal to all potential customers?

few products can satisfy the needs of all potential customers

how do companies successfully develop new products and strategies to satisfy the needs of different customer groups

1. market segmentation

2. target marketing

3. positioning

Market Segmentation

the process of dividing the total market for a particular product or product category into homogenous segments or groups

market

a group of individuals or organizations, or both, that need products in a given category and that have the ability, willingness, and authority to purchase such products

-a set of all actual and potential buyers of a product category

ex. of market segmentation

You might segment the toothpaste buyer market according to the primary benefit sought by consumers. This might result in five segments - those primarily seeking fresh breath and white teeth, those primarily seeking good taste, those primarily seeking cavity prevention, those seeking a toothpaste that helps sensitive teeth, and those primarily seeking low price. Market segmentation thus involves breaking down a large, heterogeneous market into smaller, more homogeneous segments. Everyone within each segment is not exactly alike, but they are similar to one another in terms of what they want in a toothpaste.

Market segmentation thus involves breaking down a large, ________ market into smaller, more ________ segments.

heterogenous/homogeneous

marketing segmentation approaches

1. mass marketing

2. differentiated marketing (multisegment approach and concentrated approach)

3. one-to-one

4. mass customization

mass marketing

no segmentation of the market

a single marketing program is used to offer the same product to all consumers. The seller mass-produces, mass distributes, and mass promotes one product to all buyers in the market.

ex. Henry Ford's famous comment about the Model T is a classic example of mass marketing. He supposedly said, "I will give my customers any color car as long as it is black." Up until the 1960's most companies used a mass marketing approach. For example, the Coca-Cola Company produced only one beverage and aimed it at the entire soft drink market.

pros- production and marketing efficiency and economies of scale

cons- vulnerable to competition

flour, sugar and agricultural products may still use this

differentiated marketing

the seller identifies market segments, selects one or more of them, and then develops products and marketing mixes tailored to the selected target market(s).

multi-segment approach

A strategy that chooses two or more well-defined segments and develops a distinct product and marketing mix for each

ex. Crest now makes Crest 3D White for those interested in whitening, Crest Cavity Protection for those interested in cavity prevention, and Crest Kids for those interested in good taste.

pros- better match between market wants and product benefits

cons- higher marketing and production costs

concentrated approach

A strategy that involves focusing a firm's efforts on one segment of a market and developing a highly specialized marketing mix for that one segment.

ex. sensodyne toothpaste

advantage- specialization

cons- all eggs in one basket

one-to-one marketing

Occurs when the company creates an entirely unique product or marketing program for each customer in the target segment.

ex. custom built home, computer networking system set up for a business, custom made airplane. In such instances, the product has significant modifications made to it to meet unique customer needs and

mass customization

providing unique products and solutions to individual customers on a mass scale.

ex. Customized PC's, Build a Bear Workshop, customized shoes from Nike

approaches to segmenting a market

1. geographic

2. demographic

3. psychographic

4. behavioral

5. geodemographic

geographic segmentation

The market is divided based on where potential customers live such as Northwest United States or Texas. The market may be divided based on nations, regions, states, cities, or neighborhoods.

-People living in different geographical areas often use and consume products differently.

For example, what part of the country will there be greater demand for snow tires? What about surfboards?

demographic

This is the division of a market on the basis of statistical data such as age, gender, income, occupation, education, race.

-easy to measure

ex. if we look at gender, men and women have differences in needs when it comes to clothing or personal care products. If we look at age, children and adults have different preferences when it comes to cereals. For these product/markets demographics may serve as good segmentation criteria.

-these variable do not give us insight into what people think or feel

psychographic segmentation

dividing a market into different segments based on social class, lifestyle, or personality characteristics.

The division of a market based on quantitative measures of lifestyle, personality, and values. You may have two people who match each other perfectly in terms of geographic and demographic characteristics, but be very different in terms of lifestyle, personality and values. One person may spend their time playing video games and the other hunting and fishing. They would therefore have different purchase needs.

-VALS (values and lifestyle) 8 groups

Behavioral Segmentation

The market is divided up on the basis of one or more characteristics of the consumer's RELATIONSHIP TO THE PRODUCT. Two types of behavioral segmentation include usage rate and benefits sought.

usage rate

divides the market according to the quantity of the product that is consumed or used by different consumers. Segments could include light, medium, and heavy users. For example, would you consider yourself a part of the light, moderate or heavy user segment for fast food?

benefits sought

segments the market according to the different benefits that the potential buyer seeks from the product. Although consumers seek as many benefits as possible from the products they buy, they are often looking for one overriding benefit. Example - refer back to segmenting toothpaste market by benefits sought.

geodemographic segmentation

A type of market segmentation by which consumers are grouped according to demographic, lifestyle and a geographic variable, such as a zip code.

-"birds flock together"

-PRIZM, 66 different demographic and behavioral clusters

Evaluating the Attractiveness of Market Segments

1. size and sales potential

2. expected growth

3. cost

4. competition position

5. compatibility

product positioning

more than just the products image. It is the way consumers perceive the product relative to competing products.

How do you determine the most appropriate product positioning strategy?

The key is to go back and look at what is important to the target market you have selected. For example, if good value is important to the target market then you can offer lower prices than your competitors.

Product Design

formula for success

market research + product design + promotion + distribution + pricing / (segmentation and target market) / consider competition, benchmarks, competitors market segmenting and satisfying customer satisfaction levels

formula for success expanded

-Find out what people want (i.e., market research)

-Give them what they want (i.e., product design)

-Tell them you have what they want (i.e., promotion)

-Go to where they work and live, provide the product there and explain how you have the solution to their needs (i.e., distribution)

-Collect the money for a job well done (i.e., pricing)

It seems simple, but you must remember that one offer will not work for everybody. Consequently, businesses must:

break down the market into smaller groups with similar needs (segmentation) and then develop a strategy for each selected group (target marketing)

factors to consider in the formula to success

-To further complicate matters, remember that someone always wants to make money in the same market as you (i.e., competitors)

-Smart competitors study their competition and make something better (i.e., benchmark)

-Smart competitors find a group (i.e., market segment) whose needs are not met and develop a superior strategy for that group

-Smart competitors check their offer against customers' evolving needs (i.e., customer satisfaction level)

In quarter 2 you will primarily focus on three things

1. You will first determine where the market opportunities are through your market research. (i.e., Market Opportunity Analysis)

2. Next, you will establish your Strategic Direction by selecting 2 target segments and deciding on what basis you will compete.

3. Finally, you will set up shop by designing 1 or 2 brands and opening 1 or 2 initial sales outlets. This will allow you to test market and get feedback on designs.

market opportunity analysis (MOA)

the description and estimation of the size and sales potential of market segments that are of interest to the firm and the assessment of key competitors in these market segments

customers buy ______ not ______

benefits / components

-these benfits help customers realize their goals

while customers buy _____, manufacturers produce ________-

benefits / components

a good way to start product design is the apply the

Quality Function Development approach

QFD involves the following steps.

-First, take the most important benefits desired by your target segment and lay them out in a row (e.g., feels light, handles steep incline, softer ride on bumps).

-Second, place all the available components (also referred to as features or attributes) below them in another row (lightweight carbon fiber frame, more gears, suspension, soft gel comfort seat).

-Third, speculate on which components will be necessary to deliver these benefits

-Fourth, draw green lines linking the benefits with components that are useful or required in achieving the benefit. These are positive correlations. (e.g., feels light and lightweight carbon fiber frame)

-Several components might be necessary to provide the complete benefit. In other cases, only one component might be necessary to deliver the benefit.

-Also, be aware that some components detract from the benefit. These are negative correlations. Draw red lines linking the benefits with the component that detracts from the benefit. (feels light and more gears)

-Use market research to identify which benefits are most important to your target market and which benefits are less important.

-Use this research and the identified positive and negative correlations to determine what components should be included in the product design to deliver the best overall satisfaction.

Elasticity of components

more is not always better/ offering more can decrease customer satisfaction

ex. Students should see that adding peanuts adds more happiness to a point and then its starts to decrease.

Elasticity of components

1. More of a feature is always better. Sometimes more of a feature is always better (e.g., longer battery life, better gas mileage)

2. More of the feature will add value up to a point but then ceases to add anything more. (e.g., number of channels on cable)

3. More of features will add to enjoyment up to a point and then more features will detract from enjoyment (e.g., peanut example, attentive waiters)

4. A little of a feature is just right, more takes away value (e.g., a little bit of seasoning in food is good, but add too much and it detracts)

5. Any amount of the feature is bad. (e. g., for some people it would be coconut in candy)

6. No response, indifferent.Presence of feature has no impact on response to product. (Fuel injected carborator added to a car)

The take away. More isn't always better. Need to find the sweet spot. Don't keep adding more components to deliver a benefit if it is not rendering more satisfaction or enjoyment for the customer.

impact of competing benefits

Product designers must always understand how the pursuit of one benefit impacts the pursuit of another.

-For example, a mountain bike rider wants the benefit of being protected from the dirt which requires fenders. The rider also wants a bike that is lightweight. Fenders add to the weight of the bike. The designer must evaluate the trade offs of the competing benefits when deciding whether or not to include fenders as a component. In this example, the market research showed that the target market highly rated the benefit of protection from dirt. There was a strong positive correlation between dirt protection and fenders. Research also showed that the target market highly desired a lightweight bike. However, there was only a weak negative correlation between fenders and additional weight. The designer would conclude that adding the fenders would provide a high desirable benefit while only minimally adding to the weight of the bike.

How to Deduce Customer Response Functions

1. review industry and popular press

2. conduct focus groups and interviews

3. conduct customer surveys

test marketing

To complete your research, you must let your potential customers try your product and observe how they react to different combination of components and benefits.

Customer opinions and preferences are notoriously ______ in predicting purchase behaviors.

weak

__________ are critical to the success of products

good pricing decisions

price is important to the seller because it has direct impact on

demand, sales revenue and profits

revenue

price x quantity sold

profit

revenue - totals costs

when setting the price, you must consider

1. demand and price elasticity

2. cost of production and operations

3. competitive prices

demand

you must consider what your target market is willing to pay for the product.

**there is an inverse relationship between price and demand. $^QD_

demand schedule

estimates the number of a product that will be demanded given different price points

price elasticity

most markets are responsive to price changes, but not equally.

ex. if a movie theater raised ticket prices 50% from $10 to $15, many people would refuse to pay the higher price and use a substitute form of entertainment. As a result, demand would significantly fall for tickets. ON THE OTHER HAND, if a gas station raised gasoline prices by 50% from $2.00 a gallon to $3.00 a gallon, people would continue to purchase the higher priced gasoline because there would be no close substitutes. Demand would not significantly fall.

**the movie tickets have elastic demand and gas has inelastic

if your target market has an inelastic demand...

the demand will drop slowly as prices go up.

-price is not a big factor in a decision to make a purchase

if your target market has an elastic demand...

a small increase in price will cause demand to drop quickly.

-price is a big consideration factor in this market segment.

In the simulation, some market segments are more price sensitive than others and therefore more responsive to price changes.

True

to calculate Price Elasticity

divide the %change in quanity by the %change in price

{Change in quantity / (Sum of quantities/2)}/Change in price / (Sum of prices/2)

If E is greater than 1, demand is elastic.If E is less than 1, demand is inelastic.If E is equal to 1, demand is unitary.

threshold price

each segment has one

As the price of a product rises above the threshold of a segment, demand will decline.

The greater the difference between the threshold price point and the asking price of a product, the greater the drop in demand

cost considerations

your prices must cover all expenses associated with the product, contribute to all other expenses to run the company, and provide a fair profit to the owners.

types of cost

fixed and variable

fixed cost

A cost that does not change as output is increased or decreased. These costs stay the same regardless of the number of units the company produces and sells.

ex. production overhead such as rent on the building, insurance, salary of full-time workers, payment on loans.

variable cost

A cost that varies with changes in the level of output. The more units produced the higher the variable cost. The fewer units produced, the lower the variable cost. Examples - supply costs such as raw materials or component parts, labor costs (e.g., wages for hourly workers).

break-even analysis

This is a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output. Break-even analysis is used to determine the break-even point.

break-even point

is the number of units (or quantity) of product that must be sold at a given price in order to break even. If you sell more units than that required to break even, you will make a profit. If you sell less, you incur a loss.

economies of scale

As your production increases, your total cost per unit goes down. While variable costs will increase with the level of production. Fixed costs stay the same. When production increases, the fixed costs are spread out among more units causing the cost per unit to decrease.

customers will tend to shift toward the

lowest priced product

It is difficult for buyers to remain loyal if they must pay a significant premium for your product.

Nature of Competition

pure competition, monopolistic competition, oligopoly, monopoly

pure competition

s a market structure characterized by many firms producing a standardized product. There is not much difference between one supplier's version of the product and another supplier's version. Market prices are determined by consumer demand. No one seller has influence over the market price. With so many buyers and sellers, it is impossible for one supplier to really alter the prevailing market price. The primary reason why there are many firms is because there is a low barrier of entry into the industry. The best examples of pure competition occur with agricultural / commodity products, such as corn, wheat and soybeans.

monopolistic competition

Similar to pure competition there are many suppliers and the barriers to entry are low. However, the suppliers try to achieve some price advantages by differentiating their products from other similar products. Most consumer packaged goods, such as health and beauty aids, fall into this category. Sellers try to differentiate their product as being better, so they can justify higher prices or increase market share. Monopolistic competition is only possible when the differentiation is significant or the seller can convince consumers that they are significant through promotion.

Oligopoly

a market structure characterized by a few suppliers that provide a particular good or service. A high barrier to entry limits the number of businesses that can compete in the marketplace. Oligopolistic firms have strong influence over the market price of their products. However, they must always consider the actions of the other firms in the market when changing prices because they are certain to respond in a way to neutralize any changes. Auto manufacturers, pharmaceutical companies, and health insurers compete in an oligopoly.

pure monopoly

a market structure where there is only one supplier who has significant market power and determines the price of its product. There are very high barriers to entry, such as high initial costs. Example - some utilities in regional areas are the only provider of the service in their area.

price-performance image

(1) high price/high performance, or (2) low price / basic performance

price promotions

can attract attention to a new product, attack an established competitor or reduce inventory of overstocked products.

rebates

sales promotion techniques in which a consumer receives a specified amount of money for making a single product purchase

-will encourage consumers to buy, but only about 50% will cash in the rebate.