Slide 1 Strategic Marketing Management MKTG 485 Week 6 May 3, 2004

Slide 2 Segment Analysis Best, Chapter 5 – Segmentation Strategies –Web Depot Assignment Best, Chapter 6 - Competition

Slide 3 Segment Analysis Market Size Market Share Price (Margins) Rate of Growth

Slide 4 Effects of Growth Rates on Revenue

Slide 5 Segmentation Strategies 1.Mass Market Strategy 2.Large Segment Strategy 3.Adjacent Segment Strategy 4.Multisegment Strategy 5.Small Segment Strategy 6.Niche Segment Strategy 7.Mass Customization

Slide 6 1. Mass Market Strategy

Slide 7 1. Mass Market Strategy Generic value proposition Core customer needs Business’ generic positioning

Slide 8 1. Mass Market Strategy Generic value proposition Core customer needs Business’ generic positioning –WalMart – Low Prices. Always –Sears – Where America Shops –MLB – America’s Pastime

Slide 9 Wal-Mart Rules America! 2002 Performance –2002 Revenue - $245 billion –2002 Weekly Customers – 138 million in 4,750 stores –82% of American households purchased at least once Success Formula – Cost Minimization with savings passed on to consumers –Low wages – avg $13,861 in 2001 –Buy cheap, sell cheap Leads to Category Domination –32% of all disposable diapers –26% of all toothpaste –20% of all pet food

Slide Large Segment Strategy

Slide Large Segment Strategy Focus on Heavy User Competition?

Slide Large Segment Strategy Focus on Heavy Users –Hertz in Car Rentals Competition? –Enterprise in Home Market

Slide Adjacent Segment Strategy

Slide Adjacent Segment Strategy Systematic Entry & Expansion

Slide Adjacent Segment Strategy Systematic Entry & Expansion

Slide Adjacent Segment Strategy Systematic Entry & Expansion –Honda’s entry into motorcycle market –Cannon’s entry into photocopier

Slide MultiSegment Strategy

Slide MultiSegment Strategy Focus on Less Competitive Segments

Slide Small Segment Strategy

Slide Small Segment Strategy Focus on Sophisticated User Focus on Environmentally Concerned

Slide Niche Segment Strategy

Slide Niche Segment Strategy Focus on Special Need Users Focus on Status/Luxury

Slide Mass Customization

Slide Mass Customization Internet-based Businesses

Slide 25 Segmentation Strategies 1.Mass Market Strategy 2.Large Segment Strategy 3.Adjacent Segment Strategy 4.Multisegment Strategy 5.Small Segment Strategy 6.Niche Segment Strategy 7.Mass Customization

Slide 26 Segmentation Strategies A B A D G Mass Market Large Segment Adjacent Segment Multi- Segment Small Segment Niche Segment Mass Customization A A

Slide 27 Segment Profitability Net Revenue Var. Cost Marketing = Mrkt x Mrkt x per - per - Mktg Contribution Demand Share Cust. Cust. Expenses ( ) = Number of Customers Margins = Mktg Expenses per customer - ( ) x

Slide 28

Slide 29 Segment Profitability Net = Net Mktg - Fixed Income Contribution Expenses

Slide 30 Segment Strategies SegmentCharacteristicsStrategy Good Bad Ugly

Slide 31 Industry Forces Market Entry/Exit Buyer/Supplier Power Substitutes/Rivalry

Slide 32 Effect on Competition? Industry ForceExampleCounter Strategy Easy to Enter Market Hard to Exit Market Powerful Buyers Powerful Suppliers Many Substitutes Intense Rivalry (excess capacity)

Slide 33 Effect on Competition? Industry ForceExampleCounter Strategy Easy to Enter Market Espresso stands Hard to Exit Market Bankrupt airlines

Slide 34 Effect on Competition? Industry ForceExampleCounter Strategy Powerful BuyersDell, Gateway (HP printers) Powerful Suppliers Intel Microsoft

Slide 35 Effect on Competition? Industry ForceExampleCounter Strategy Many SubstitutesAutomobiles Intense Rivalry (excess capacity) Dell – Compaq – HP – Gateway – Sony

Slide 36 Initial State Competitor Self Hold Price Cut Price 5% Hold Price Share – 10% Volume – 1,000,000 Price - $100 Margin - $40 Net Contr. - $40 million Share – 8% Volume – 800,000 Price - $100 Margin - $40 Net Contr. - $32 million Cut Price 5% Share – 12% Volume – 1,200,000 Price - $95 Margin - $35 Net Contr. - $42 million Share – 10% Volume – 1,000,000 Price - $95 Margin - $35 Net Contr. - $35 million

Slide 37 Competitive Advantage AdvantageExamplesMethods Cost Dell vs. Compaq Southwest Airlines Wal Mart, Office Depot NBC vs. CBS Quality HP Printers Intel, Microsoft Sony, Toyota Marketing Coca Cola McDonalds

Slide 38 Marketing Warfare

Slide 39 Basic Assumptions Markets are competitive Competitors are rarely of equal strength Competitive strategy is dictated by one’s relative strength Proper deployment of assets is key to success –I.e., what you do with your assets is as important as the strength of your assets.

Slide 40 How Markets Divide Themselves Leader - > 30% share Challenger % share Flanker % share Nichers - 1% or less

Slide 41 Leader – Defend Position ApproachExamples Adopt an Aggressive Offense against the competition Microsoft Use resources to increase the cost of competition AT&T Broadband

Slide 42 Challenger – Focus on Leader ApproachExamples Attack Leader’s strength but narrowly Pepsi Consider turning leader’s strength into weakness Netscape

Slide 43 Flanker – Focus on Overlooked Areas ApproachExamples Segment market to identify unmet needs Chrysler Avoid direct competition with leader and challenger Jack in the Box

Slide 44 Nichers/Guerillas – Find areas not attractive to Others ApproachExamples Think smallJolt Subaru Be prepared to quit when competition hits up Hummer Microbrews Snapple