1. Session 2 & 3 Market, Segments & Customer Value group3

2. 2 Recap….

3. 3  Market  Market Segments  Target Market  Niche Market  Mass Marketing  Customization  Mass Customization  Forms of Competition –Direct –Indirect

4. 4 Markets & Competitive Space

5. 5 Markets And Competitive Space  Markets and Strategies  Product-Market Scope and Structure  Describing and Analyzing End-Users  Analyzing Competition  Developing a Strategic Vision about the Future  Market Size Estimation

6. 6 Markets And Competitive Space The Challenges ― Markets are increasingly complex, turbulent, and interrelated. Importance of a broad view of the market. Essential to develop a vision about how the market is likely to change in the future. Continuous Monitoring is Necessary to: Find promising opportunities Identify shifts in value requirements Understand competitors’ positioning Guide targeting and positioning decisions

7. 7 Markets And Strategies Markets and Strategies are Interlinked Forming a Shared Vision Value Migration Challenges

8. 8  Market changes often require altering strategies  Forces of change create both market opportunities and threats  Inherent danger in faulty market sensing Markets Impact Strategies

9. 9  Customers shift purchasing to new business designs with enhanced value offeringvalue  Beware of disruptive technologies  Market sensing and organizational learning are essential Value Migrations

10. 10 Product-market Scope And Structure  Matching Needs with Product Benefits  Product-Market Boundaries and Structure  Forming Product-Markets for Analysis  The Changing Composition of Markets

11. 11 Matching Needs with Product Benefits  A product – market matches people with needs to the product benefits that satisfy those needsmatches “A product – market is the set of products judged to be substitutes within those usage situations in which similar patterns of benefits are sought by groups of customers.”*

12. 12 Product – Market Boundaries and Structure  Determining Product-Market Structure Start with the generic need satisfied by the product category of interest to management Identify the product categories (types) that can satisfy the generic need Form the specific product – markets within the generic product – market Generic Product-type Product Variants

13. 13 SUPER MARKETS MICROWAVE OVENS CONVENIENCE STORES TRADITIONAL RESTAURANTS Illustrative Fast-Food Product-Market Structure FAST-FOOD MARKET

14. 14 Forming Product – Markets for Analysis Factors influencing product – market boundaries:  Purpose of analysis  Changing composition of markets  Extent of market complexity

15. 15 The Changing Composition of Markets  Change due to new technologies and emerging competition  Consider existing and emerging markets  Identify alternative ways to meet needs  Extend product-market analysis beyond industry boundaries (e.g. Fast-foods)

16. 16 Extent of Market Complexity  Three characteristics of markets: –1. Functions or uses of the product –2. The enabling technology of the product –3. Customer segments in the product-market

17. 17 Illustrative Product – Market Structure Generic Product Class Product Type Variant A Regular Variant B Brands Food and beverages for breakfast meal Cereals Ready to eat Natural Pre-sweetened Life Nutritional Special KProduct 19

18. 18 Defining And Analyzing Markets Define Product-Market Boundaries and Structures Identify and Describe End-Users Analyze Industry and Value Added Chain Evaluate Key Competitors Forecast Market Size and Growth Trends

19. 19 Identifying and Describing Buyers How Buyers Make Choices Building Customer Profiles Environmental Influences DESCRIBING AND ANALYZING END-USERS

20. 20 Identifying and Describing End-Users  Illustrative buyer characteristics in consumer markets:  Family size, age, income, geographical location, sex, and occupation  Illustrative factors in organizational markets:  Type of industry  Company size  Location  Type of products

21. 21 How Buyers Make Choices  BUYING DECISION PROCESS: –Problem recognition –Information search –Alternative evaluation –Purchase decision –Post-purchase behavior

22. 22 Environmental Influences  External factors influencing buyers’ needs and wants:  Government, social change, economic shifts, technology etc.  These factors are often non-controllable but can have a major impact on purchasing decisions

23. 23 Building Customer Profiles  Start with generic product – market  Move next to product- type and variant profiles >> increasingly more specific  Customer profiles guide decision making (e.g. targeting, positioning, market segmentation etc.)

24. 24 Analyzing Competition 1. 1. Define Industry Structure and Characteristics 2. Identify and Describe Key Competitors 5. Identify New Competitors 3. Evaluate Key Competitors PRODUCT- MARKET STRUCTURE AND MARKET SEGMENTS 4. Anticipate Actions by Competitors

25. 25 Examples of Levels of Competition Diet-Rite Cola Diet Pepsi Diet Coke Product from competition: diet colas Regular colas Diet lemon limes Lemon limes Fruit flavored colas Product category competition: soft drinks Bottle water Wine Beer Coffee Juices Generic competition: beverages Baseball cards Fast Food Video Games Ice Cream Budget competition: food & entertainment

26. 26 Industry Analysis  Industry size, growth, and composition  Typical marketing practices  Industry changes that are anticipated (e.g. consolidation trends)  Industry strengths and weaknesses  Strategic alliances among competitors

27. 27 Defining Industry Structure & Characteristics Industry Form Industry Environment Competitive Forces Value Added Chain SUPPLIERS PRODUCERS WHOLESALERS/ DISTRIBUTORS RETAILERS/ DEALERS CONSUMER/ ORGANIZATIONAL END USERS

28. 28 Competitive Forces Porter’s 5 competitive forces: Rivalry among existing firms. Threat of new entrants. Threat of substitute products. Bargaining power of suppliers. Bargaining power of buyers.

29. 29 Key Competitor Analysis  Business scope and objectives  Management experience, capabilities, and weaknesses  Market position and trends  Market target(s) and customer base  Marketing program positioning strategy  Financial, technical, and operating capabilities  Key competitive advantages (e.g., access to resources, patents) Also via Perceptual Mapping

30. 30 Extent of Market Coverage Customer Satisfaction Current Capabilities Past Performance Competitor Evaluation

31. 31 Developing A Strategic Vision About The Future  Industry Boundaries Blurring and Evolving  Competitive Structure and Players Changing  Value Migration Paths  Product Versus Business Design Competition  Firms are Collaborating to Influence Industry Standards

32. 32 Market Size Estimation Unrealized Potential Company Sales Forecast Industry Sales Forecast Market Potential Estimate Product-Market Forecast Relationships (area denotes sales in $’s)

33. 33 0 100 200 300 400 500 600 700 800 900 Sales (in 1000s of units) 2001200220032004200520062007 2008 Market Potential Sales Forecast Company XYZ Sales Forecast Product-Market Forecast Relationships for Industrial Painting Units

34. 34 Review: Appendix 3A Forecasting Guidelines

35. 35 Strategic Market Segmentation

36. 36 Strategic Market Segmentation  Segmentation and market- driven strategy  Identifying market segments  Forming segments  Finer segmentation strategies  Selecting the segmentation strategy

37. 37 Segmentation and Market- Driven Strategy SEGMENTS VALUE OPPORTUNITIES CAPABILITIES/ SEGMENT MATCH TARGET(S) POSITIONING STRATEGY

38. 38 From Mass Markets to Micro Markets OLDNEWNEW CONSUMERSPassively receiveEmpowered media users whatever TVcontrol and shape content networksthanks to TiVo, iPod and broadcastInternet ASPIRATIONSTo keep up withTo standout from the the crowdcrowd TV CHOICEThree networksHundreds of channels plus maybe aplus video on demand PBS station MAGAZINESAge of the bigAge of the special interest glossies: Time,magazine for every age Life, Newsweekand affinity group ADSEveryone humsTalking to a group of the Alka-Seltzerone, ads go ever jinglenarrower BRANDSRise of the big,Niche brands, product ubiquitous brandsextensions and mass from Coca-Colacustomization mean many to Tideproduct variations

39. 39 Identifying the Health & Beauty Supplies Market Segments Level of Competition Generic Product Type Product VariantProductDefinition Health & Beauty Aids Shaving Equipment Electric RazorsIllustrativeCompetitors Consumer Product Companies Gillette, Remington, Bic Braun, Norelco, Remington, PanasonicNeed/WantSatisfied Enhancement of Health & Beauty Shaving Electric Shaving

40. 40 Market Segmentation Activities and Decisions Market to be Segmented Decide How to Segment Form Segments Finer Segmentation Strategies Strategic Analysis of Segments

41. 41 Product Variant Segmentation Product Type Segmentation Generic Segmentation

42. 42 Purchase Behavior Characteristics of People/ Organizations Use Situation Buyers’ Needs/ Preferences Segmentation Variables

43. 43 Illustrative Segmentation Variables Characteristics of people/ organizations Consumer Markets Industrial/ Organizational Markets Age, gender, income, family size, lifecycle stage, geographic location, lifestyle Type of industry, size, geographic location, corporate culture, stage of development, producer/ intermediary Use situation Occasion, importance of purchase, prior experience with product, user status Application, purchasing procedure (new task, modified rebuy, straight rebuy Buyers’ needs/ preferences Brand loyalty status, brand preference, benefits sought, quality, proneness to make a deal Performance requirements, brand preferences, desired features, service requirements Purchase behavior Size of purchase, frequency of purchase Volume, frequency of purchase

44. 44 Requirements for Segmentation Segmentation Requirements Response differences Identifiable segments Actionable segments Favorable cost/benefit Stability over time

45. 45 Approaches to Segment Identification IDENTIFIERS OF CUSTOMER GROUPS CUSTOMER RESPONSE PROFILE  Characteristics of People and Organizations  Use Situation  Buyers Needs and Preferences  Purchase Behavior and Loyalty Can use: Experience & Available information Cross classification analysis Database segmentation Can use: Cluster Analysis Perceptual Maps

46. 46 Segment Dimensions for Hotel Lodging Services

47. 47 Illustrative Consumer Perception Map Low Quality High Quality Expensive Inexpensive GROUP I GROUP V GROUP III GROUP II GROUP IV Brand E Brand D Brand C Brand B Brand A

48. 48 Finer Segmentation Strategies  Logic of finer segments – customized offerings – diverse customer base – close customer relationships  Finer segmentation strategies – microsegmentation – mass customization – variety-seeking strategy

49. 49 Selecting The Segmentation Strategy  Deciding how to segment  Strategic analysis of market segments –Customer analysis –Competitor analysis –Positioning analysis –Estimating segment attractiveness –Segmentation “fit” and implementation

50. 50 Customer Analysis Positioning Analysis Financial and Market Attractiveness Competitor Analysis Strategic Analysis of Market Segments

51. 51 Segment Financial and Market Attractiveness Estimated ($ million) Segment X Y Z Sales* 10 16 5 Variable costs* 4 9 3 Contribution margin* 6 7 2 Market share ~ 60% 30% 10% Total segment sales 17 53 50 Segment position: Business strength High Medium Low Attractiveness # Medium Low High *For a two-year period. ~Percent of total sales in the segment. #Based upon a five-year projection.

52. 52 Segmentation “Fit” for Implementation Segment Attractiveness and Internal Compatibility Internal Compatibility Market Segment Attractiveness HighLow High Low Attractive segments that match with company capabilities Attractive segments but with poor match with company capabilities Unattractive segments that do not match with company capabilities Unattractive segments but with match to company capabilities

53. 53 Continuous Learning About Markets

54. 54 Continuous Learning About Markets  Market orientation and organizational learning  Marketing research information  Information systems  Marketing intelligence systems and knowledge management  Ethical issues in collecting and using information

55. 55 Market Orientation and Organizational Learning  Market orientation perspective includes all relevant sources of knowledge and ideas  Characteristics of the learning organization  Learning and competitive advantage

56. 56 Learning About Markets Open- Minded Inquiry Keeping and Gaining Access to Prior Learning Synergistic Information Distribution Mutually Informed Interpretations

57. 57 A Framework for Market Sensing Probability of the Event Occurring Effect of the Event on the Company* HighLowMedium 1 2 3 4 5 6 7 *1=Disaster, 2=Very bad, 3=Bad, 4=Neutral, 5=Good, 6=Very good, 7=Ideal Utopia Field of Dreams Things to Watch Danger Future Risks

58. 58 Types of Marketing Information  Marketing research studies  Standardized information services  Management information systems  Database systems  Decision support systems  Customer relationship management (CRM) systems  Competitor intelligence systems

59. 59 Strategies for Obtaining Information Strategy alternatives Use standardized research services Collect existing information Conduct research study Internal Data Published information Subscription Single purchase Exploratory Full-scale

60. 60 Advantages and Limitations of Questioning Methods Advantages Limitations Personal Interviews Most versatile and High cost flexible Possibility of interviewer Long questionnaires bias handled more easily Possibility of cheating by Presence of interviewer interviewer due to lack allows more flexibility of supervision in procedure Project time often lengthy More enjoyable for respondents Fewer refusals Telephone Interviews Fewer interviewers needed More noncommittal Relatively inexpensive answers Rapid method of data Some households collection overrepresented Can reach large number of Lengthy and detailed households questions often not More control over interviewers feasible Mail surveys Higher-quality information Questionnaire cannot be Better for collecting changed information on possibly Complex embarrassing subjects Can be completed by Relatively cheaper to conduct person other than intended No interviewer bias Follow-up expensive Response often slow in coming

61. 61 Special Research Studies Problem Definition Information Required Research Method Sampling Plan Questionnaire Design Data Collection Analysis and Report

62. 62 1. Client  Would you recommend this supplier? 2. Supplier  Do you have sufficient funds for this project? 3. What parts of the project will be subcontracted, and how do you manage subcontractors? 4. May I see your interviewer’s manual and data entry manual? 5. How do you train and supervise interviewers? 6. What percentage of interviews are validated? 7. May I see a typical questionnaire? 8. Who draws your samples? 9. What percentage of your data entry is verified? 10. Ask Managers: What do you think about this supplier? Screening A New Research Supplier

63. 63 Impact of the Internet on Marketing Costs & Availability  Online Surveys –Fast –Inexpensive –Limitations in population coverage –Resistance to excessive Web communications  Customer feedback and peer-to-peer Web communications  Monitoring customer Web behavior

64. 64 Marketing Decision-Support System Components Database Analysis Capabilities Display Models

65. 65 Marketing Intelligence and Knowledge Management  Market sensing does not rely on hard data alone – intelligence from publications, sales calls, customer visits, social contacts, Internet, rumor  Knowledge management  Role of the Chief Knowledge Officer  Leveraging customer knowledge – creating “customer knowledge development dialogues” – operating enterprise-wide “customer knowledge communities” – capturing customer knowledge at the point of customer contact – management commitment to customer knowledge

66. 66 Ethical Issues in Collecting and Using Information  Invasion of customer privacy –e.g., use of medical databases to sell healthcare products  Information and ethics –e.g., guidelines for sharing of confidential information –e.g., collecting data from children