1. Chapter 2 Framing Market Opportunity

2. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2 Exhibit 2-1: Framework for Diagnosing Market Opportunity Seed Opportunity in Existing or New Value System Uncover Opportunity Nucleus: Identify Unmet and Underserved Needs Uncover Opportunity Nucleus: Identify Unmet and Underserved Needs Identify Target Segments Declare Company’s Resource-Based Opportunity for Advantage Assess Competitive, Technical and Financial Opportunity Attractiveness Make Go / No Go Assessment

3. ZOP-MKX-BookChap2-7-10-00-RM Confidential 3 Supporting Slide 2-A: Requirements of an Effective SegmentationMeaningfulMeaningful ActionableActionable SubstantialSubstantial MeasurableMeasurable Customers must demonstrate needs, aspirations or behavioral patterns that are similar within a segment and different across segments –A distinction between a price sensitive and a quality seeking segment is meaningful, since the two segments demonstrate distinguishable sets of needs A company must be able to reach customers within each segment through effective and targeted marketing programs –A customer segment consisting of customers with blue eyes is not actionable, since it is very hard to identify and reach only customers with blue eyes Segments must be large and profitable enough to make the investment in serving them worthwhile –myCFO.com is targeted towards high net worth individuals, helping them manage their portfolios. Even though the number of those individuals is small, the $ amount managed is sizeable, thus constituting a substantial segment Key characteristics of the segments (e.g. size and spending patterns) must be easy to measure Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 269) In order for a customer segmentation to be effective, it must be meaningful, actionable, measurable and substantial

4. ZOP-MKX-BookChap2-7-10-00-RM Confidential 4 Table 2-1: Segmentation Approaches

5. ZOP-MKX-BookChap2-7-10-00-RM Confidential 5 Supporting Slide 2- B: Geographic Segmentation — Description Geographic segmentation divides the market into distinct geographical units, such as nations, states or regions In the Internet space, geographic barriers are to a large extent lifted However, there still are many industries where local relationships and distribution channels play a key role, maintaining the need for a local focus –Webvan is currently operating only in San Francisco and New York. Entry into new geographical markets will require the building of the necessary home delivery infrastructure –Many construction sites have a local or regional focus, since relationships with local or regional contractors and suppliers are of critical importance Country Region Urban vs Rural Density Climate DescriptionDescription Segmentation Examples Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 257)

6. ZOP-MKX-BookChap2-7-10-00-RM Confidential 6 Supporting Slide 2-C: Geographic Segmentation — Citysearch.com Citysearch.com “Where to go, what to do, how to get things done…in your city” Citysearch.com is a leading local portal and transactions company, providing content and services in select popular cities in the US, and slowly expanding to international cities Citysearch provides complete city guides for 40 cities and arts and entertainment guides for 33 cities Citysearch’s offering includes: –Movie listings –Job listings –Restaurant reservations –Ticket purchases –City exploration Citysearch.com “Where to go, what to do, how to get things done…in your city” Citysearch.com is a leading local portal and transactions company, providing content and services in select popular cities in the US, and slowly expanding to international cities Citysearch provides complete city guides for 40 cities and arts and entertainment guides for 33 cities Citysearch’s offering includes: –Movie listings –Job listings –Restaurant reservations –Ticket purchases –City exploration

7. ZOP-MKX-BookChap2-7-10-00-RM Confidential 7 Supporting Slide 2- D: Demographic Segmentation — Description Market division into groups based on customer demographic variables Most popular method for distinguishing customer groups, highly actionable Age Income Occupation Nationality Market division into groups based on business demographic variables Highly actionable, since business demographic data readily available Industry Company size Location B2C: Demographic B2B: Firmographic DescriptionDescription Segmentation Examples Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 258)

8. ZOP-MKX-BookChap2-7-10-00-RM Confidential 8 Supporting Slide 2- E: Firmographic Segmentation Example — Onvia.com Onvia.com “The premier emarketplace for small businesses” Onvia.com is a site targeting small businesses, aiming to offer them everything they may need to run their business At the same time, Onvia.com provides sellers with a better and faster way to acquire new customers, through the sales leads that it generates Onvia.com’s offering includes: –Products: over 25,000 business products, ranging from computer hardware to paper clips –Services: critical services that small businesses need to run their business, including internet access, payroll services and long-distance plans –News and advice: Hourly updated news relevant to entrepreneurs in the new economy A large number of companies are focusing on small businesses, trying to provide them with products and services, including: AllBusiness.com, bCentral.com, Business.com, BuyerZone.com, KillerBiz.com, Bizbuyer.com, Works.com Onvia.com “The premier emarketplace for small businesses” Onvia.com is a site targeting small businesses, aiming to offer them everything they may need to run their business At the same time, Onvia.com provides sellers with a better and faster way to acquire new customers, through the sales leads that it generates Onvia.com’s offering includes: –Products: over 25,000 business products, ranging from computer hardware to paper clips –Services: critical services that small businesses need to run their business, including internet access, payroll services and long-distance plans –News and advice: Hourly updated news relevant to entrepreneurs in the new economy A large number of companies are focusing on small businesses, trying to provide them with products and services, including: AllBusiness.com, bCentral.com, Business.com, BuyerZone.com, KillerBiz.com, Bizbuyer.com, Works.com Source: Onvia.com site, Industry Standard, February 7, 2000

9. ZOP-MKX-BookChap2-7-10-00-RM Confidential 9 Supporting Slide 2- F: Needs Based Segmentation Consumers and businesses purchase goods and services because they satisfy their needs –The same product may satisfy many different needs; a person may purchase chewing gum in order to freshen her breath, to promote dental health, to help them quit smoking, or because she enjoys the taste Needs based segmentation seeks to understand why a purchase is made (i.e., what needs are being satisfied) and to divide the market up into groups of buyers whose needs are homogenous Needs based segmentations are particularly compelling for technology companies because they can prevent companies from developing new technology features because they are “cool” or just because they are possible

10. ZOP-MKX-BookChap2-7-10-00-RM Confidential 1010 Reflect.com

11. ZOP-MKX-BookChap2-7-10-00-RM Confidential 1 Segmentation  Does Segmentation Matter on the Web?

12. ZOP-MKX-BookChap2-7-10-00-RM Confidential 1212 CNN Custom News

13. ZOP-MKX-BookChap2-7-10-00-RM Confidential 1313 The Auto Industry  Build-to-Order Technology Is Changing the Auto Industry (video, 4/8/2001, On 24) Build-to-Order Technology Is Changing the Auto Industry (video, 4/8/2001, On 24)

14. ZOP-MKX-BookChap2-7-10-00-RM Confidential 1414 Exhibit 2-3: Priceline.com Segmentation Personal Business Groups Low – Middle Income / Not Frequent Fliers Middle – Upper Income / Frequent Fliers Students Retirees Trip Purpose Flexibility Who Retirees Business Trips Students on Vacation Group Trips All Other Trips Low / Mid Income Families on Vacation Students Going Home Other Low / Mid Income on Vacation High Income Families on Vacation Low / Mid Income on Getaways Last Minute Demographics and Behavior Occasion High Income Non-Family Trips

15. ZOP-MKX-BookChap2-7-10-00-RM Confidential 1515 Exhibit 2-4: Priceline.com Number of Airline Trips Personal Business Groups Low – Middle Income / Not Frequent Fliers Middle – Upper Income / Frequent Fliers Students Retirees Trip Purpose Flexibility Who Retirees Business Trips Students on Vacation Group Trips All Other Trips Low / Mid Income Families on Vacation Students Going Home Other Low / Mid Income on Vacation High Income Families on Vacation Low / Mid Income on Getaways Last Minute Demographics and Behavior Occasion = 5%±2%= 10%±2%= 40%±5% High Income Non-Family Trips

16. ZOP-MKX-BookChap2-7-10-00-RM Confidential 1616 Exhibit 2-5: Priceline.com Segment Prioritization Personal Business Groups Low – Middle Income / Not Frequent Fliers Middle – Upper Income / Frequent Fliers Students Retirees Trip Purpose Flexibility Who Retirees Business Trips Students on Vacation Group Trips All Other Trips Low / Mid Income Families on Vacation Students Going Home Other Low / Mid Income on Vacation High Income Families on Vacation Low / Mid Income on Getaways Last Minute Demographics and Behavior Occasion = Primary Focus = Approximately 45%–55% of the Total Market Total Number of Trips = 45%– 55% of the Market High Income Non-Family Trips

17. ZOP-MKX-BookChap2-7-10-00-RM Confidential 1717 Exhibit 2-6:Segmenting Individual Customers Amazon.com Homepage for Two Different Customers Targeting Individual Customers

18. ZOP-MKX-BookChap2-7-10-00-RM Confidential 1818 Exhibit 2-7: Competitor Profiling — Eastman Kodak Eastman Kodak Purchase Camera Purchase Film Take Pictures Digitally Manipulate Pictures Print and Receive Pictures Share Pictures Store Pictures on CD Purchase Accessories Download and Choose Pictures to Print HP Olympus Snapfish Moto Photo Geocities Seattle Filmworks District Ofoto HP Adobe Systems Fuji cameraworks.com Snapfish Shutterfly Direct Competition Indirect Competition

19. ZOP-MKX-BookChap2-7-10-00-RM Confidential 1919 Exhibit 2-8: Competitor Mapping to Selected Segments for Priceline High performance levelMedium performance levelLow performance level

20. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2020 Exhibit 2-9: Priceline.com Overall Opportunity Assessment

21. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2121 Exhibit 2-10: Schwab: Defining Existing or New Value System Release Trapped Value Create New Value

22. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2 Exhibit 2-11: Schwab: Unmet and Underserved Needs (1997 Timeframe) Plan Savings Goal Determine Optimal Asset Allocation Receive Ideas and Recommendations Place Order Sell Stock Research Stocks Track Portfolio Performance Receive Dividends Unmet and Underserved Needs Planning tools to simplify goal setting Tax Reporting Aggregation of investment information Place order and track status anytime, anywhere Access real time account information Place order and track status anytime, anywhere Download to tax software Education on investing Process Steps

23. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2323 Supporting Slide 2- G: Schwab — Opportunity Attractiveness vs. Resource Availability High LowHigh Low Opportunity Attractiveness Resource Availability Note: Opportunity attractiveness based on competition level and opportunity financials Full Management Low Price Quality Advice Customer Service Quality Information

24. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2424 Supporting Slide 2- H: Schwab Resource Availability Company Capabilities Partner Capabilities Overall Segments Capability highly addressing segment need Capability moderately addressing segment need Capability not addressing segment need

25. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2525 Supporting Slide 2-I: Effectiveness of Different Segmentation Methods = Low= High Segmentation Methods Segmentation Criteria

26. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2626 Supporting Slide 2- J: Needs Based Segmentation: Charles Schwab Source: Jeffrey Veen, Hot Wired Style, Monitor Analysis “Saving For a Goal” Saving for retirement Saving for college Saving for house down payment Saving for retirement Saving for college Saving for house down payment “Traders” Hobby investors Active traders Hobby investors Active traders “Financial Planning” Estate planners Tax planners Trust fund managers Estate planners Tax planners Trust fund managers Schwab’s market segments fall into three categories

27. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2727 Supporting Slide 2- K: Types of Needs and Tools to Surface Them Standard ToolsNew Tools Manifested Needs Latent Needs Tool highly surfaces need Tool moderately surfaces need Tool does not surface need

28. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2828 Exhibit 2-12: Schwab Segmentation (1997 Timeframe) Buy and Hold Current Offline Schwab Customer High Net Worth (<$1M) Married Not Schwab Customer Other White Collar Frequent Trades Single Blue Collar Retiree University Student Children > 30 No Children < 30 Mature ( > 55) High Priority Secondary Priority Tertiary PriorityDe-emphasize CI JK D E A G H F M L N OPB

29. ZOP-MKX-BookChap2-7-10-00-RM Confidential 2929 High performance levelMedium performance levelLow performance level Exhibit 2-13: Schwab — Competitor Map to Segments

30. ZOP-MKX-BookChap2-7-10-00-RM Confidential 3030 Exhibit 2-14: Schwab.com Overall Opportunity Assessment