BUAD 307 Final

Some examples of mandatory adaptations:

- Artificial sweeteners permitted (approved for use in different countries) - Product specifications (ex. alcohol % in beverages) - Warning labels - Safety features - Anti-pollution features

Marketing Information systems

1. Primary market research: Research that you design and conduct yourself 2. Secondary market research: using information that others have already put together

Usage Rate

"80/20" rule—20% of consumers may account for 80% of consumption (in many product categories) - Note that larger consumption rate segments may be subject to heavy competition - Reasons for targeting smaller segments - Reduced competition - Opportunity for growth Heavy users of a product will buy more, but segments of these may attract more competition. A smaller firm may want to target a smaller segment, especially if that is one that is growing.

Targeting: Selecting Segment(s) and Specializing

"You can't be all things to all people" ---> choose one or more groups. - Focus narrows scope of competition, but demands are greater. - First, how well are existing segments served by other manufacturers? It will be more difficult to appeal to a segment that is already well served than to one whose needs are not currently being served well. Secondly, how large is the segment, and how can we expect it to grow? (Note that a downside to a large, rapidly growing segment is that it tends to attract competition). Thirdly, do we have strengths as a company that will help us appeal particularly to one group of consumers? Firms may already have an established reputation. While McDonald's has a great reputation for fast, consistent quality, family friendly food, it would be difficult to convince consumers that McDonald's now offers gourmet food. Thus, McDonald's would probably be better off targeting families in search of consistent quality food in nice, clean restaurants.

Segmentation, Targeting, and positioning

(1) determine which kinds of customers exist, then (2) select which ones we are best off trying to serve and, finally, (3) implement our segmentation by optimizing our products/services for that segment and communicating that we have made the choice to distinguish ourselves that way.

SEGMENTATION, TARGETING, AND POSITIONING

*refer to chart Segmentation: IDENTIFYING MEANINGFULLY DIFFERENT GROUPS OF CUSTOMERS Targeting: SELECTING WHICH SEGMENT(S) TO SERVE Positioning: Aligning to the market mix yield distinctive appeal for the target segment. - involves elements of the product mix such as PRICE, DISTRIBUTION, PROMOTION, and PRODUCT DESIGN

In-depth interviews

- Costlier than focus groups per person reached - Structured (planned set of questions) vs. unstuctured interviews (going where the discussion takes you) - Generalizing to other consumers can be difficult, but contrasting types of consumers can be identified - biases: subtle, inadvertent feedback Personal interviews are highly susceptible to inadvertent "signaling" to get a positive consumer response such as smiling and frowning a little. In-depth interview costs: VERY HIGH

Income and price sensitivity

- Income and wealth are NOT reliable predictors of price sensitivity. - IMPORTANT: In order to be able to buy certain high priced items, a distinction!certain level of income or wealth is a necessary, but not sufficient, condition. ex. A book titled The Millionaire Next Door provides strong evidence that many wealthy people have developed wealth through (Saving) frugality rather than high incomes. -Wealthier individuals will NOT necessarily choose higher priced options. -Therefore, segmenting on price sensitivity rather than income or wealth makes more sense.

Types of Brands: Generics

- No brand name products - Typically lowest price - Quality tends to vary

The Product Life Cycle

- Products will generally be invented and start with low use. - With decreased costs and improved technology, more people tend to adopt. - With more consumer interest, competition increases, driving down prices and up quality, user friendliness, and features offered.

Scanner data REMINDER

- Scanner data is only useful for relatively frequently purchased products (i.e., something bought at least TEN times a year) • In order to observe the effect of variation in different variables (e.g., advertising exposure, sale status of different brands, coupon availability, and special display space status), we must compare purchase outcome under different combinations of these variables —> need for multiple purchases

Some influences on exchange rates:

- Trade deficit: imports exceed exports (demand for foreign currency to fund this reduces value) - Trade surplus: exports exceed imports (demand for country's currency by other countries drives up value) - Interest rates: Higher interest rates (real) attract foreign investors (especially for "stable" US bonds and equities), thus increasing demand for and the cost of currency - Inflation: Reduces the attractiveness of holding the currency

"Jump starting" Uber

- Uber must have drivers to attract riders, but recruiting drivers can be difficult if no riders have downloaded the app to hire them Uber was started in San Francisco - Through regulations promoted by cab firms and their drivers, the supply of taxi cabs in SF has historically been kept artificially lowfinding an available taxi is especially difficult and can take a longtime. This increased motivation to download. This could help persuade drivers to sign up. -SF is a heavy tourist destination. Once someone downloads the app for use there, he or she can use it elsewhere.

Specifying Segments

- Variables involve descriptors such as age, gender, income, price sensitivity, brand loyalty, geographic location, usage rate, and involvement Usually DOES NOT identify DEMOGRAPHIC characteristics of segments. Makes it impossible to position the product. - Levels involve the different categories within each variable. For example, for age, levels might be 0-20, 21-30, 31-40, 41-55, 56-65, and 66; for geographic location, Northeast, Southeast, Midwest, Southwest, West or urban, rural. - Segments are obtained by "crossing" the combinations—e.g., crossing usage rate (high, medium, low) with brand loyalty (high, medium, low) gives nine combinations (e.g., low usage, low loyalty; medium usage, low loyalty; high usage, medium loyalty). Note: There may be a large number of variables that can be used to differentiate consumers of a given product category; yet, in practice, it becomes impossibly cumbersome to work with more than a few at a time. Thus, we need to determine which variables will be most useful in distinguishing different groups of consumers ex. We might thus decide, for example, that the variables that are most relevant in separating different kinds of soft drink consumers are (1) preference for taste vs. low calories, (2) preference for Cola vs. non-cola taste, (3) price sensitivity—willingness to pay for brand names; and (4) heavy vs. light consumers

Focus Groups: Caveats

- bc of social influence, the opinions expressed by different members are not independent - Issues identified in focus groups should be examined with more powerful methods using larger sample sizes (ex. surveys, scanner, data)

Focus Group: Composition

- members of each focus group should generally be similar to each other in terms of factors affecting comfort in speaking openly (ex. age, gender, socio-economic class) - if the target market crosses such variables, different focus groups should be run - It may be helpful to run focus groups - even with customers otherwise demographically similar-in different cities

Physiological measures

-Consumer bodily responses are watched at various phases of advertisement or other marketing exposure -Tracking of: eye movements for areas of focus, for attention & involvement, Heart rate, skin conductivity, brain waves for state of mind and attention ex. advertisers may want to measure a consumers' level of arousal during various parts of an advertisement Physiological methods cost: HIGH

Collecting the data

-Shopping occasion: each time a customer has his or her card swiped in a participating store and buys anything - Purchase occasion: Each time the customer makes a purchase in the relevant product category - variables such as price paid, sale status of available brands, coupon availability for each brand, special display status of any brands, advertisements seen, price paid on last purchase occasion, time since last purchase occasion may be considered *Scanner data at the present time is not available for most non-grocer product items bc electronic products would be purchases infrequently for instance

Focus groups: potential uses

-identifying possible issues of concern with a new product - probing complex issues where different factors and issues may affect opinions - probing differences in perspectives among different groups - very preliminary pilot testing of ideas - identifying the actual language used by customers Note: follow-up with more precise research methods is essential before firm conclusions can be made

The role of government activity in an Economy

-some countries have high taxes, with the government covering certain costs like healthcare & education - although some costs are covered, a lesser part of income is available to be spent: - much higher taxes will limit the ability to buy discretionary items Some policies will influence disposable income for consumers: - certain expenses will be eliminated or reduced, and and consumers are less likely to experience catastrophic losses from unemployment or major illness - Wealth is transferred from higher income to lower income consumers - Consumer choice may be reduced as the decision power is assumer by the government

Experimentation

1. Subjects in different groups are usually treated differently 2. Can help isolate causes (ex. does a product sell more if the packaging is red rather blue) 3. Subject is not biased by questions-does not know how others are treated Experiment costs: HIGH EX. Assessing whether consumers would be more likely to buy a product in cardboard or plastic packaging Testing what people actually of rather than what they say or think they will do - involves an attempt to determine causality (). The idea is to systematically vary either (1) the way that different groups of people are treated or (2) the way that the same person is treated at different times ex. Are those who hear german (vs French) music more likely to buy beer? Possible to: 1. Control for factors that are not equal in real life 2. test and rule out competing explanations

US Laws of interest

1. Anti-trust: it is illegal for US firms to participate in collusion and other anti-competitive activities abroad. Most countries have such laws; not all enforce these. 2. Foreign corrupt influences Act: It is illegal for US firms to pay bribes abroad 3. Anti-boycott laws: It is illegal for US firms to participate in a boycott of Israel or even certify that one's firm does not do business with Israel. Technically, it is illegal to participate in all non-US government sanctioned boycotts, but the emphasis is on Israel. 4. Trading with the enemy: - It is illegal to trade at all (with few exceptions) with enemy certain states (ex. north korea, iran , libya) - exports of certain technologies (mostly with potential for military use) is heavily restricted 5. Extra-territoriality: US courts will often take jurisdiction over cases of violations of US law that occurred entirely abroad

Reasons for standardization

1. Avoiding high costs of customization, if applicable 2. Technological intensity: Reduced confusion, International compatibility among product group components , faster spread of rapid life cycle products 3. Convergence of global consumer tastes/needs 4. Country of origin positioning

Problem questions

1. Difficult to answer- respondent may not have knowledge needed 2. Sensitive (embarrassing) 3. Two in one (ex. on a scale from 1-10, how fast and reliable are Microsoft programs?" 4. Leading Questions- giving the feeling of the "desired" response (ex. Do you agree that..) 5. Non-exhaustive question- answers do not cover all possibilities (ex. If lowest answer is high school, people with less education will not answer accurately) 6. Non-mutually exclusive answers- answers may overlap (ex. 18-25 or 25-30, what would the 25 yr old choose?)

Primary research methods

1. Exploratory methods: Observation, in-depth interviews, focus groups, projective techniques 2. Precision methods: Experiments, surveys, panel, scanner data

Focus group KEY

1. Focus groups are most useful for identifying issues that should be studied in more detail with more precise methods 2. due to small sample size and social influence on individual responses, it is difficult to generalize much from focus groups

Surveys

1. Forms - Mail (self-administered, single time) - Mail panel (self-administered, multiple surveys administered over time) - Telephone (from central location) - Mall Intercept - Computer/Internet 2. Planned questions (open ended-fill in answer, closed ended-have certain number of options) Need large sample sized for precise conclusions - Small samples will have very large standard errors and thus large margins of error Survey Costs: Usually Low

Mandatory Adaptation issues

1. Infrastructure differences (ex. electricity supplies vary among countries in voltage & frequency & plugs) 2. Conflicting rules between countries- it may mot be possible to make a product that would be simultaneously legal in both of two countries

Scanner Panel Data Results

1. reflects ACTUAL behavior-not just what people think they will do 2. predicts purchase likelihood under different circumstances (regular price, competitors price is discounted, coupon is available) 3. Can help DISENTANGLE a large number of variables at the same time (price, advertising, coupon availability, in-store display) 4. Does NOT identify attitudes- we only observe BEHAVIOR (purchase or non purchase), NOT what is going on the consumers brain 5. can only be used for frequently purchased items (ex. something bought at least ten times a year) 6. very efficient and precise predictor since large amounts of data are used LIMITATIONS: - Only TV advertising (and not radio, print, billboard, or online) is considered—although online advertising may come about in the near future - Walmart—which accounts for a large share of total sales in many categories—does not participate - Purchases made outside the community and online purchases are not included (although purchases from select online vendors such as Amazon could potentially be added)

Types of Innovations

A continuum of "newness:" - Continuous—same product, just small improvements over time—e.g., automobiles - Dynamically continuous—product form changed, but function and usage are roughly similar—e.g., cell phones, HDTV, video streaming, Blu-ray, digital watches, ball point pen - Discontinuous—entirely new product; usage approach changes— e.g., fax, GPS, microwave The more "new" a product category is, the greater the need to educate the customer on benefits and basic idea of how the product works

Floating exchange rates

A regime where the currency price of a nation is set by the supply and demand relative to other currencies. - When a country imports (buys goods from abroad), it must sell its currency (causing an increase in supply) to be able to buy the currency of the country from which it is importing (whose currency will experience an increase in demand) ex. If the US imports more from Japan than it exports there, there will be less demand for US dollars (increasing dollar supply) and more demand for Japanese yen. This means that the price of yen in dollars, will increase, so you will get fewer yen for a dollar.

Standardization- advantages vs disadvantages

Advantages: 1. economies of scale- when larger firms are able to lower the unit cost of advertising and promotion perhaps through access to more effective marketing media 2. More resources available for development- better quality possible 3. Rapid product life cycles may make extensive adaptation infeasible- more feasible to establish a global brand as less confusion will occur when consumers travel across countries and see the same product Disadvantages: 1. Unnecessary features 2. Vulnerability to trade barriers 3. Strong local competitors

Segments- examples

Air Travel - Business/Executive: Inflexible; relatively price insensitive (Small number of people, but travel often) - Leisure Traveler/Student: Relatively flexible; very price sensitive (other methods of travel-- e.g., bus, car, train--are feasible; travel may not be essential) (Very large segment) - Comfort Travelers: Comfort (e.g., space, food) important; willing to pay (Small segment)

Culture

Behavior vs shared meanings (focuses more on the reasons why behaviors and customs occur rather than on the specifics of these in their own right) ex. Advertisement featuring man and dog failed in Africa- dogs were not seen as man's best friend.

Brand Value and Image

Brand equity: Value added to product based on brand name - Choice likelihood - Ability to charge higher price - For HIGH consumer goods: Use of product as loss leader (a pricing strategy where a product is sold at a price below its market cost to stimulate other sales of more profitable goods or service) - Benefit in market share, temporary revenue (Coca Cola) - Possible damage to long term brand image (Louis Vuitton suitcases in Japan) • Brand "personality:" Human associations with product

Types of Brands: Lower tier brands

Brands that are usually national in scope, but are less regarded and have been developed less than the major ones E.g., Shasta (soda) - Quality tends to vary - May emphasize specific tastes or needs

Benefits of reducing discrepancies

Consolidation: Customers can buy a large variety in the same store - Large discount store (e.g., Target or Walmart) - Supermarket (large assortment of both food and other items) NOTE: Wholesalers consolidate(COMBINE) products from different manufacturers so that a large number of different products can be received in one shipment. This reduces costs by increasing the efficiency with which products can be (1) delivered and (2) received. Quantity: Customers can buy products in quantities desired - Those who want to buy can save - Products are available in smaller quantities if desired Timing: Customers can buy products when these are needed rather than when they are produced

Approaches to Product Introduction

Customization: Completely new product made for each country Adaptation: Adjustments are made in regions or countries to accommodate infrastructure, cultural, economic, or other differences Standardization: Products sold across the world are identical *Complete customization or standardization are rare - modest adjustments are usually made

Revitalization (PLC)

DURING MATURITY (before decline) or AFTER DECLINE has already begun - a new use for the product emerges (or renewed interest develops) (e.g., cranberry juice; car cigarette lighters) For example, consumption of cranberry juice increased dramatically once research showed that drinking this beverage could help combat urinary tract infections. EX. Car manufacturers stopped including cigarette lighters in their cars as a standard feature (with a declining percentage of smokers in the population), these became more popular as technology that needed to be recharged (e.g., MP3 players and cell phones) took off.

The product life cycle involves _______ over time

Demand for the product Awareness of the product Competition in supplying the product - Price - Features - Differentiation Profitability - Higher during growth - Shrinking at maturity - Possibly negative during decline—only some producers survive • Alternatives available to the product—e.g., a DVD player competes with smart phones and other devices • Investment opportunities: Should you reinvest in creating more capacity or focus on new products? • Appropriate strategies

Demographics

Demographics essentially refers to statistical characteristics that an individual or a household can take on: -Age - Gender - Income—not generally a reliable predictor (willingness to spend is more useful) - Income ≠ willingness to spend! - Ethnicity - Family lifecycle stage

Discrepancies

Differences between the way products emerge from protection and the needs of end customers Manufacturers: -Generally produce in large quantities -Not usually in the business of distribution (not their specialty) - Often need to produce steady quantities End Customers: -Generally consume in modest quantities - Want to buy in a convenient manner • Local retail store • Online • Will often seek products during concentrated periods - Holiday gifts - Seasonal foods - Back to school - Seasonal fashions Wholesalers and other intermediaries help overcome these discrepancies - Breaking bulk—the consumer can buy small quantities at a time. Small and modest scale retailers (e.g., the USC bookstore) can buy modest quantities. This service reducesquantity discrepancy in the supply-demand relationship between manufacturers and end customers. -Consolidation and Distribution.

Chicken-and-egg problems

For some innovations to work, two conditions must be met, but each requires the other to happen first - E.g., drivers will be reluctant to buy electric cars before charging stations are available, but parking facility operators will not want to invest in putting these in until more people have electric cars - E.g., Uber: must have drivers before riders will sign up, but will need riders before drivers can be recruited Most two-sided platforms face chicken-and egg problems, but not all innovations that have chicken-and-egg problems are two- sided platforms - E.g., electric cars, cell phone systems (apps are needed before users will adopt the system), - Social media sites tend to require a certain "critical mass" before they can attract users. (1) You will not be particularly interested in joining a new social media site before your friends do, but (2) your friends will have limited interest in joining before you do. Similarly, (1) for a potential competitor to Netflix to attract customers, it must offer a strong recommendation database but (2) developing the recommendation database requires input from a large number of customers. - If a new cell phone operating system (OS) is introduced to compete with the iPhone iOS, Android, or Windows, (1)customers will have limited interest in adopting until there is a sufficient number of apps available but (2) software developers will have limited interest in investing in creating apps for the OS until there are sufficient numbers of users to provide a profitable market. IMPORTANT: If support from third parties, need for critical mass, and past data is needed, more likely to be a chicken and egg problem bc those conditions must be met before the product or exchange is possible

Brand extensions

IMPORTANT: when a brand is known for one type of product starts selling a different type of product - Brand extensions may allow a firm to use an existing brand for a product category that is new to the firm Ex. Some example of brand extension are: Apple: from personal computers into MP3 players May lower cost of launching new product line - allows the firm to "hit the ground running" by using an existing, strong brand name that would otherwise take time to develop regardless of the resources available. Considerations: - Perception of ability to make product well - Extension should not be exploitative—making a "trivial" product by high image brand (e.g., one should not use a premium brand name like Heineken to make a trivially easy product like popcorn] - Congruence: Are products seen by customers as "sensible" creations by the same brand? Apple iPod made sense as a "mini computer" with hard drive based music files; iPhone made sense as an extension of the iPod Would apple "stylish" Apple furniture make sense? OVERALL: consumers are more receptive to brand extensions when (1) the company appears to have the expertise to make the product [McDonald's was not thought as credible as a photo- finishing service], (2) the products are congruent (compatible), and (3) the brand extension is not seen as being exploitative of a high quality brand name

Identifiability and reachability

Identifiability: the extent to which it is possible to separate individuals who belong to a segment from those who do not. Reachability: the extent that there is a cost-effective way to communicate with the segment members in question. • Members of a segment need to be identified either individually or as a group with characteristics and to be reachable (i.e., targeted with advertising and reached with stores or other sales outlets) • Lists of very specific segments—to whom catalogs and other materials can be sent—can be bought from brokers. Examples of lists available: - Occupation (especially if licensed or listed in Yellow pages) - Organizational membership - Medical condition • Reach through specialized media

Distribution: Intermediaries

Intermediaries (wholesalers, retailers, and others) generally increase efficiency and reduce costs through - Specialization of labor - Economies of scale - Allowing the customer to do some of the work under self service conditions Intermediaries help reduce discrepancies between what is produced and what the customer wants -discrepancy of quantity -discrepancy of assortment -discrepancy of time IMPORTANT: intermediaries tend to add efficiency because they can do specialized tasks better than the consumer or the manufacturer.

Types of Brands: International

International: gain part of the mystique and value from being ubiquitous across the world - adaptations may be made across countries (ex. artificial sweeteners permitted will often vary across countries for Coke) - large investment has usually been put into extensive brand building—including advertising, distribution and, if needed, infrastructure support

Scanner data question examples

Is one advertising theme (e.g., low price) more effective than another (e.g., nutritiousness)? What is the effect of the number of times an ad has been seen? (Likely a non-linear relationship) What is the impact of seeing only part of an ad (usually while fast forwarding on pre-recorded content)? Based on historical frequency of purchase and time since the last purchase occasion, what is the customer's likely "inventory" of the product at home? If a customer buys when inventory is estimated to be low, other factors are less likely to be impactful; if inventory is estimated to be larger, factors such as sale prices, coupon availability, and special display are more likely to be involved Impact of demographics (e.g., income, home ownership, occupation, presence of children in household, geographic region, education) on choice "Purchase acceleration:" Do customers "stock up" during sales? Many do not; higher income consumers are more likely to buy ahead (lower income consumers may not have cash to spend and may not have space to store purchases)

Observation

Looking at consumers in the field - searching for product category area - number of products inspected and time spent on each - apparent scrutiny of labels or other information -involvement of others - behavior under limiting circumstances (ex. time constraints) Observation costs: LOW TO HIGH (depending on coding and analysis needed)

Product Adaptations

Mandatory: required by laws (legal requirements, infrastructure) ex. Appliances made for the US and Europe must run on different voltages Discretionary: Not required by human laws but often not really "optional" in practice (needed to compete with brands that do offer adaptations) - local tastes - fit into cultural environments ex. There is nothing to prevent an American firm from producing an overly sweet drink in Japan but it may face poor sales if changes are not made

The product service continuum

Most offerings have at least some element of both a tangible and service component. Some people insist on drawing a rigid distinction between tangible goods and services. In practice, this is not useful. Most products contain at least some element of both. It is more useful to examine where, on the continuum from a pure tangible good to a pure service a given offering lies. A computer, for example, is a tangible product, but it often comes with a warranty and software updates. Although surgery is primarily a service, it involves pain medication and sutures.

Brand Specificity

NARROW: Product or product line specific brands/ Very specific brands—each product category by the same firm has its own brand name. (P&G) even goes as far as maintaining different brands of laundry detergent which actively compete against each other (e.g., Tide, Ariel, Bold, Era) - Tide (one kind of detergent only) - Snickers (one candy bar only) - Subway (one type of restaurant only) CONTINUUM: Broader brands with common "themes" - Samsung, Apple, Sony, Canon, Virgin, Microsoft, Disney (Disney uses its brands for amusement parks, movies, TV programming, and a cruise line.) WIDE: "Umbrella Brands" (cover a number of different product categories.) - 3M, for example, focuses on different types of products that involve bonding materials to surfaces in some way—thus, we have glue, tape, and recordable DVDs

the product service continuum pt 2

NOTE: This Product-Service Continuum is NOT a question of whether the product can be used by the customer to perform a service (e.g., a washing machine can be used to wash clothes). What it identifies is the relative value of what is being provided by the seller: The tangible product component (e.g., the washing machine) and the service component (e.g., delivery and installation, instruction manual, phone and online support, warranty service). IN OTHER WORDS: the product-service continuum is understood in terms of what the customer receives. - A washing machine is what the customer receives. - The fact that the customer might be able to use this to offer a service to others is not relevant here.

Types of Brands: National vs Regional

National brands - Generally available across the U.S. - Usually have a longer history - Have usually been built with extensive advertising - Often described as "major" brands - Typically more expensive than regional brands - Large investment has usually been put into extensive brand building—including advertising, distribution and, if needed, infrastructure support Regional brands -Usually brands that have started in and are available only in some region - Regional entry may have occurred because the manufacturer did not have the investment capital to start a national one - Typically do not have a long history of elaborate advertisingMay be adapted for regional tastes - Typically sell for lower prices than national brands - May eventually go national with sufficient success and resources

Taste Tests & "Triangle Test"

Not experiments unless: 1. Two or more groups of people are treated differently (get different food version) 2. The same person is being treated differently at separate times (half the participants receive new formulation, then current; half the participants receive in the opposite order) "triangle" measure: Each respondent is given three items: one current, one new, and one duplicate of either old or new - asked to identify the one that is different and explain why - tests if people can taste the difference

Diffusion Themes

Observability: Products that can be seen being used advantageously by others tend to spread faster ex. iPhones were readily observable as were Uber and Lyft cars and riders. In contrast, nutritional supplements are often consumed in private and are thus not as visible Imitation: Later adopters follow the lead of earlier adopters whose adoption has been shown to be successful - smartphones are expensive but people buy them as they see others have them "Chicken-and-egg" problem: A certain infrastructure is needed to make adoption attractive, but motivation to provide the infrastructure depends on market size—e.g., - Coupons and clearinghouses - Hydrogen/electric cars- HDTV- Social networks ex. electric cars to be widely adopted, charging stations need to be conveniently available. However, hotel and parking facility operators may be unwilling to invest in these until a sufficient number of potential customers have these. may be necessary to "jump start" the innovation Trialability: People tend to prefer "trying out" a potentially costly innovation on a smaller scale rather than having to commit before trial - GPS systems were quite expensive when they were first introduced, those renting cars often got a chance to try out the device and realize its usefulness. - In contrast, solar panels are not readily triable Network economies (the inverse of the chicken- and-egg problem): Some innovations become more valuable when more people have that innovation—e.g., - Peer-to-peer payment systems (Venmo) - E-mail - Online personals sites - Other online communities ex. Large businesses immediately found it useful to have at least one fax machine in each building, thus allowing these organizations to fax each other.

Diffusion examples

Product diffusion is the acceptance of a product or service by a target market. It is a process of communication whereby consumers first hear about a product, try it and share their impressions with others ex. Ride sharing (Uber, Lyft) (*) - Chicken and egg problem - Observability- Imitation Uber and Lyft logos on cars have increased awareness. MP3 players (*) - Observable observation - iPod users became "walking advertisements" MP3s before were bulkier, the iPod featured white earbuds, in contrast to most other audio devices which, at the time, mostly came in black. Thus, even if the user kept the iPad in a pocket, the earbuds alone turned the user into a walking advertisement. GPS systems (*) - Initially expensive - Trial through rental cars GPS systems were expensive. However, users could try these out when renting cars, and thus the risk was greatly reduced.

Sentiment analysis

Sentiment analysis involves computerized gathering and analysis of SOCIAL MEDIA postings. - Tracking of massive amounts of data by computer (for large sample size and powerful predictions) Machine (Computer) Interpretation of postings based on- Specific words and combinations of words used: - Language use (pronouns, active vs. passive voice) ,Context- Indicators of sarcasm, irony - Hashtags as brand identifier and emotion/evaluation - Heavily proprietary specific methods (firms develop methods and keep these secret)

Discrepancies between Producers and End Customers

Quantity: Delivering products in quantities desired - By end consumer (e.g., 1 pen instead of 100,000) - By retailers (e.g., 500 pens instead of 100,000) NOTE: The manufacturer prefers to sell in large quantities so that it can focus on manufacturing rather than selling • Assortment: Wholesalers and retailers can combine products from several manufacturers for convenience of - Retailers - Consumers NOTE: Manufacturers make only a limited number of different products, often confined to a few product categories, but the customer likes to be able to buy many different products in one location. • Temporal: Having products available at the right time—e.g. Thanksgiving Turkeys Summer fashions, intermediaries cooperate to stock items such that plenty of turkeys will be available when they are needed. NOTE: Consumers like to buy a large number of turkeys around Thanksgiving—much larger numbers than the manufacturer can produce within that time period.

Continuum questions VS Binary

Questions rating the degree of a characteristic, tend to be MORE effective than BINARY yes/no questions which would result in people with very little interest in answering yes Areas suited for continuum ratings: - Interest, Purchase likelihood, satisfaction, brand loyalty, price sensitivity, knowledge, experience, involvement, decision control, level of use awareness Ex. "On a scale from 1-10, with 1 being 'Not all interested' and 10 being 'Extremely Interested,' how interested are you in fashion? - Asking simply "Yes" or "No" on "Are you interested in fashion?" would result in people with very little actual interest potentially answering affirmatively

Geographic

Residents of different areas will experience difference climates and other conditions affecting their lifestyle options challenges faced: Regional differences: Climate and physical environment -Tastes - Campbell's Soup - Lifestyle and values - Urban vs. rural areas - Micro-segmentation Adaptation of retail store assortment to the specific area based on: - Residential demographics - Other characteristics (e.g., vicinity of a beach) - May be largely data-driven based on past sales (scanner data)

Conditional Branching

Respondent will be taken to appropriate question according to answer(make surveys more efficient) ex. consumer lists three brands -> subsequent questions ask about these specific brands by name Quality of response: - time pressures - willingness to write out answers or respond to multiple close-ended questions - willingness to read and follow instructions is limited reliability and browser compatibility issues Traditional surveys: Have you bought a new car during the last six months? If not, please skip to Question 11. - more vague

Merge-Purge: Identifying Potential Buyers of Baby Clothes

See Chart* Name and addresses from all sources combines-> REMOVE DUPLICATES (Merge + purge process) -> Non-refundant final list The merge-purge process increases the number of individuals in the database but does not necessarily add more information about each individual.

POSITIONING: Text, Exhibit 9.8: The Value Proposition

See Chart* Value Proposition: Desired benefits for a particular customer not readily available from competitors - In between consumer needs/wants and firm offerings

Benifits Sought

Segmentation on benefits sought involves identifying different groups of customers looking for various types of products—e.g., "exotic" vs. "safe" foods Based on: - Differences in arbitrary tastes—a matter of preference rather than significant tradeoffs (e.g., cola vs. non-cola drink) - Tradeoffs (e.g., taste vs. calories; price vs. performance) - Usage situation (e.g., coffee for camping (instant) vs. higher quality for home brewing) Note: May be less efficient because it may not be possible to identify "efficient" media where a large proportion of viewers, readers, or listeners has a specific preference here

Types of Brands: Main and Subbrands

Some brand names may consist of a main brand and a subbrand: - Mainbrand: Apple Subbrand: iPhone - Toyota Prius These brands may be referred to by the combination or by the subbrand Even when the main brand is not mentioned, it is usually understood and adds value In some cases, the subbrand may become deemphasized. - For example, today many people refer simply to Apple computers rather than Apple Macintosh.

Types of Brands: Corporate (Owner) vs. Product Brands

Some corporations do not find value in associating their corporate brands with more specific brands: -Conglomerates may hold numerous brands - The brand owner may or may not want to emphasize corporate brand EX. Procter & Gamble does not want to risk damage to the main brand by unsuccessful brands IMPORTANT: Brand owners may not feel that their corporate identity adds value to brands that have been built over decades

Norwegian Cruise Lines and "freestyle cruising"

The George Foreman Grill—infomercial initially featured footage of his boxing career, which was not of interest to much of his target market (women). Instead, a subsequent version featured pictures with his family. • "Free Style Cruising" at Norwegian Cruise Lines: Do what you want when you want. Cruises had historically been more regimented, and catered in large part to "the newly wed and the nearly dead"—honeymooning couples and senior citizens. In attempting to appeal to families, the experience was made more flexible.

Focus Groups: Dynamics

The facilitator should: - allow the focus group members to talk as much as possible to get at their views and perceptions - gently attempt to steer the group in the desired direction - Probe and ask for elaboration when interesting ideas are raised The focus group may involve an activity (ex. cooking a meal or sampling a product)

Fixed exchange rate

The government entirely or predominantly determines the rate

Types of Brands: Trademarks and "Genericide"

To retain trade marks, owners must "vigorously protect" them BUT trademark protection can be lost of if the brand name comes to be used as synonymous with the product category— uncommon in practice - known as Genericide: where a brand name, in the informal day-to-day speech of consumers, comes to be synonymous with the product category. EX. Kleenex, Xerox, "FedEx" (verb)—to send overnight, chapstick, Googling for any search engine

Projective techniques- embarrassing stories

Used when a consumer may feel embarrassed to admit to certain opinions, feelings, or preferences. ex. How often does the general population brush their teeth? - not talk about themselves but talk about someone very much like themselves(project onto a stranger) - getting at motivations that may not be consciously known-"tell a story about this picture" - Measurement of attitudes consumers are unwilling to express - it is easier to admit something embarrassing about someone else - consumer discusses what other consumers might think, feel, or do Projective Methods costs: usually HIGH if personal interviews or extensive interpretation is needed - projective techniques are inherently inefficient to use because the elaborate context that has to be put into place takes time and energy away from the main question

Focus Groups

Useful when the marketer wants to launch a new product or modify an existing one - most appropriate as early stage method - not the best approach and should NOT be chosen as default research method - Focus group costs: HIGH Involves groups of 5-12 people together in a room to discuss their consumption preferences and experiences - led by a moderator who will start out talking broadly about topics related to the product without mentioning the product CANNOT TELL US: - the proportion of the population likely to buy the product - what price consumers are willing to pay - consumers will say things that make them look good

Intermediaries: Adding Value

Value added: •Breaking bulk (quantity discrepancy reduced) •Consolidating supplies (assortment discrepancy reduced) •Holding inventory (temporal discrepancy reduced)

Segmentation

What types of customers exist "Aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action." -emphasizes the pragmatics of selecting customers who have similar needs and respond similarly to marketing action. That is, in some product categories, some customers will tend to be quite brand loyal while others will frequently switch brands, whether for the sake of variety or to take advantage of sales and other promotions. There is little benefit in offering a coupon or other discount to a brand loyal segment. It would not make sense to target a price discount or other promotion to this segment. Those who are not loyal customers for our brand would not switch, and those who already buy our brand now get a discount not needed to secure their purchases. Therefore, there would be no incremental sale. "The process of dividing a market into meaningful, relatively similar, and identifiable segments or groups." - involves issue of selecting segments that we can work with in practice. The differences in segments should be actionable in the sense that one can provide different value to each group, or choose to focus on one of the segments that one can serve well. Members of each segment should be relatively similar to each other so that they will respond similarly to the offerings made. Segments should be identifiable, or reachable, so that we can actually communicate in offering our value proposition.

Technology Driven Consumer Innovation

Widespread smartphone diffusion has led to: - More people adopting digital photography (developed countries) • Someneverphotographedbefore • Some did not want or remember to carry a stand alone digital camera - Electronic payment systems • Currency shortage in India madee-payments attractive • Local street vendors in China started to accept mobile payments • Online banking in rural African towns not served by brick-and-mortar banks Increased Internet bandwidth- Movie streaming became feasible and was easier than renting movies

Types of Brands: Store (Private Label) Brands

brands that are owned by retail store chains - E.g., Sam's Choice (Walmart), Kirkland (Costco), Kroger (owner of regional chains such as Ralph's) Usually sell for lower prices than national brands More profitable—event though prices are lower, there are fewer brand building costs May be manufactured by the same firms that make the major brands, but with different brand name attached Retailers can put these next to national brands to emphasize savings More common in Europe, where there are more national grocery retail chains

Choosing a primary research method

helpful in deciding which method to use for a particular situation - we first identify whether the issue involves opinions or actual behavior - generally we get the most valid results if we can examine the customer in his or her natural habitat -ex in a supermarket

Conjoint Analysis: Determining the relative importance of product analysis

how people value different attributes that make up an individual product or service: - Used to determine the relative importance of various attributes of a product. - consumers rate several "profiles" (combinations of features) - statistical analysis is used to "decompose" ratings into preferences ex. how important is safety, repair record, mileage in a car? -consumers need to make tradeoffs between important attributes that may be negatively correlated with each other. - the different attributes are called PROFILES

Dynamic Pricing

involves adjusting a price based on previous behaviors of a customer The effective price may be set based on the past behavior of the customer - Customers who have not shopped at Staples or Staples.com recently may receive a coupon - Amazon.com may base the price offered on previous purchases. New customers may receive lower price offers. - Those who elect to pay for airline upgrades (e.g., to first class) may be less likely to get such upgrades as comps

Co-branding

involves firms using two or more brands together to maximize appeal to consumers. -by involving two or more brands, greater value can be created by consumers ex. Some ice cream makers, for example, use their own brand name in addition to naming the brands of ingredients contained such as M&Ms

Maturity Stage

little growth will be seen - Greatly increased competition—lower prices, more features, higher quality (capacity has reached its peak but the market is not growing much; any new capacity must take away market share from competitors) - Both increased manufacturing and design in less developed countries - Limited growth opportunities (in either domestic or world market) limited opportunities to reinvest profits in this category need to enter new product and/or country markets -Significantly lower prices (relative to inflation) IMPORTANT: Sales may be mostly for replacements and new population Examples: Microwave ovens; laser printers; durable products that don't require a frequent purchase

Decomposition in conjoint analysis

makes it possible to infer the relative importance of each attribute

Scanner panel data

panel members agree to swap card prior to each purchase and have purchases matched to: - demographic profiles - media/coupon exposure - promotional status of competing brands - past purchases Problems: - Aggregation over household - aggregation bias- averages of disparate segments obscure! - only available for grocery products - only gives meaningful ( accurate and useful) results for product bougt at least TEN times a year COSTS: HIGH - start up costs - low variable costs possible with developed algorithms usually low

decline stage

product category is being replaced by something better -Will usually eventually occur although the product category dominate last for a long time • Typically: - The product category is increasingly being replaced by other categories (which are often cheaper than the original category) -Competition causes some—if not most— of the manufacturers to exit the market - Product may be used as specialty product (e.g., typewriter to fill out "legacy" (old paper and carbon) forms Examples: Cassettetape players; typewriters; brick-and- mortar travel agents; print newspapers

Introductory Stage (PLC)

product is introduced, not well known and is usually expensive (e.g., as microwave ovens were in the late 1970s). products are often less reliable and clumsier than they are likely to be once production and design are improved, and features offered tend to be limited. Because the product is less well developed, it may also be more difficult to use. At this point, the interest is generally more in creating product category awareness than in brand awareness. Although prices tend to be high, expenses are also high and unit sales tend to be low, typically resulting in low profit levels (and often involve a negative cash flow as heavy investments in research, design, and production are needed.) Examples: Fuel cell battery technology (hydrogen converted to electricity for electric cars, allowing greater range than charged batteries); Internet of Things.

Scanner data panel research

refer to chart* - records past purchases, number of ads seen, demographic information into Household file -> analysis "split cable" technology allows researches to randomly select half the panel members in a given community to receive one advertising treatment and the other half another

Types of Scanner data

retail purchase information (such as price, brand, product size, amount purchased) gathered at the point of purchase: ex. supermarket membership cards that allow the supermarket to analyze purchase histories of each customer and print out special coupons based on past purchases. ONLY data within the chain is available ex. Scanner data panel MOST USEFUL- people can sign up to be part of a "panel" where purchases at all local retailers are included (supermarkets, gas stations, drug stores, convenience stores) ex. Aggregated retail sales records-records of sales volumes of products by UPC may be available from an assortment of retailers, and this data is available for more product categories. This information is NOT tied to individual customer data and purchase history. This means that we cannot relate these sales volumes to anything else (ex. price charged, advertising spending, type of display given in the store)

Growth Stage

sales increase dramatically Greater consumer awareness because products increase in quality and decrease in price - Higher sales volumes - Better and more user friendly products - Prices are lower, but not as low as they are likely to get (adjusted for inflation, at least) - Although there are more competitors, market growth is large enough to carry the available supply. - Greater interest in differentiation and brand awareness. Examples: Electric cars (battery powered); smart watches; consumer and business drones

-Two-sided ( multi-sided) Platforms

services that connect two parties without providing the direct service themselves. - Firm adds value as intermediary between two parties EX. Uber connects passengers looking for a ride with drivers offering these. Although Uber does some additional work—e.g., screening potential drivers and collecting credit card payments—Uber's function is mostly as an intermediary that connects the two parties efficiently. EX. eBay (matching buyers and sellers), Airbnb, and OpenMenu—an online platform that allows diners to make reservations with a number of different restaurants depending on availability. -Most two-sided platforms face chicken-and egg problems, but not all innovations that have chicken-and-egg problems are two- sided platforms - E.g., electric cars, cell phone systems (apps are needed before users will adopt the system),

Exchange rates and trade imbalances

when exchange rates are allowed to fluctuate, the currency of a country that tends to run a trade deficit will tend to decline over time, since there will be less demand for that currency. - This reduced exchange rate will then tend to make exports more attractive in other countries, and imports less attractive at home

Brand vs Firm level assortment

• A firm may spread both its product lines and product mix across different brands - Different brand for each product (e.g., Procter & Gamble; Mars Candy) - Different brands for different product lines (e.g., Microsoft Bing [search engine]; Sam's Club) - Different tier brands in same product category (e.g., Courtyard by Marriott, Lexus [owned by Toyota]) - Brands acquired by a firm over time and maintained (e.g., Toblerone is owned by Kraft) - "Vestigial" brands (Rite Aid acquired Payless Drugs which had previously acquired Thrifty stores; the Thrifty brand name is still used on ice cream) • Separately operated divisions using the same brand name (e.g., Virgin Group: Virgin Mobile, Virgin Hotels, Virgin Railways) • Divisions sold off to a buyer who maintains the original brand name (e.g., Kit Kat brand name is owned by different firms in different parts of the World).

Clarification: Data enhancement vs. the merge-purge process

• Data enhancement: takes the information they have, matches it against a larger database of business data, allowing the desired missing data fields to be added. - Increases the amount of information available about each individual but not necessarily the total number of individuals in the database (individuals are matched across databases and their information is combined in a new, comprehensive one) - Combining information about the same customer from several different sources—e.g., real estate records, past purchases, vehicle registrations, magazine subscriptions. • Merge-purge - Increases the number of individuals in the database but does not necessarily add more information about each individual

Some Criteria in evaluating segment attractiveness

• Identifiability (and distinctiveness from other segments) • Reachability • Substantiality (segment size)— note that a large segment may attract heavy competition, however. • Profitability (can you actually serve that segment and get the consumers to pay the price) • Responsiveness (to what extent do brands switchers switch brands or loyals stay)

Product lines vs Product Mix

• Product Line: A number of similar or related products—e.g., - BIC writing utensils - Boeing Commercial Aircraft (aircraft and parts) - Nike shoes; Nike clothing - E.g., "KFC—we do chicken right!" (Only one product line) • Product Mix: Assortment of different products offered - Samsung: Computers, computer parts (e.g., RAM, SSDs), TVs, monitors, cell phones (numerous models for different markets), appliances

Direct Mail Catalogs "MERGE PURGE"

• Still used - Spam e-mail is technically illegal and viewed unfavorably - Catalogs get more attention - More elegant and higher resolution images • The "Merge-Purge" process: Combining different sources - Available sources include magazine subscription lists, competitors' customers (more catalogs are believed to increase the "pie" size rather allowing competitors to take away) - No one source contains all potential customers; thus, sources are added together (merge) - There will likely be some overlap between sources, so duplicates must be removed (purge) • Limited response rates - Typically 1-3% when highly relevant sources are used (e.g., past purchase) - Merely sending to everyone in the phone book would result in a much lower rate! - The 1-3% response rate is considerably greater than response to TV, newspaper, and magazine advertising

Reaching Target Markets

• TV network viewer demographics, lifestyles, and interests - Food network vs. ESPN vs. Bloomberg • Retail store level scanner data— e.g., drug store chain predicting pregnancy Data enhancement: Matching individuals across sources to combine comprehensive information—multiple variables • Direct mail lists - Previous purchases - Auto and real estate ownership - Medical conditions - Profession organization membership - Warranty registrations - Area of residence - Estimated income - Other demographics • Specialty media - Specialized TV programs addressing product of interest (e.g., food, travel) - Print or online specialty magazines (e.g., digital photography, home improvement, jogging, travel, hunting) • Search behavior - Paid search—"pay per click" - Products explored online - Sites frequented

Some positioning strategies

• The value proposition—some possible benefits - Unique product/service - Price • Low price as benefit • Good value compared to competitors - Quality - Prestige - Customer values (e.g., cruelty free foods and personal care items) • Customer communication and education needed

Predicting Pregnancy from Target Purchases

• Twenty-five variables used to predict—e.g., - Change to unscented lotions and cotton balls - Dramatic increase in purchases of • Hand sanitizers • Selected vitamins • Wash cloths • Cotton balls • Legal issues • Ethical and public relations issues

Approaches to Targeting

• Undifferentiated: Offering sold as a commodity by everyone to call customers (all consumers are treated as the same, with firms not making any specific efforts to satisfy particular groups. This may work when the product is a standard one where one competitor really can't offer much that another one can't. Usually, this is the case only for commodities.) • Differentiated: Firm makes different offerings to each of several different segments (e.g., auto manufacturers make different cars and trucks aimed at different customer groups) ex. They offer high priced tickets to those who are inflexible in that they cannot tell in advance when they need to fly and find it impractical to stay over a Saturday. • Concentrated: Firm focuses on serving one segment (or offering one benefit)—e.g., Tesla (electric cars) ex. Southwest Airlines focuses on price-sensitive consumers who will forego meals and assigned seating for low prices. • Micro-marketing (one-to-one): Unique offerings to each customer