MKTG3001 Exam 2
Step 1: Group Potential Buyers into Segments
"Would segmentation be worth doing"
business products
(also called B2B products or industrial products) are products organizations buy that assist in providing other products for resale. computers bought for office use bought through a firm's purchasing department often a result of derived demand, that is, sales of business products frequently result from the sale of consumer products for example, as consumer demand for Ford cars (a consumer product) increases, the company may increase its demand for paint spraying equipment (a business product)
components
(business products) items that become a part of the final product include raw materials such as steel as well as assemblies such as a Ford car engine
Step 2: Group Products to be Sold Into Categories
1) individual products 2) groupings of individual products
Steps in Segmenting and Targeting Markets
1. Group potential buyers into segments 2. Group products to be sold into categories 3. Develop a market-product grid and estimate size of markets 4. Select target markets 5. Take marketing actions to reach target markets
Two Approaches to Product Positioning
1. Head to head positioning- involves competing directly with competitors on similar product attributes in the same target market 2. Differentiation positioning- involves seeking a less-competitive, smaller market niche in which to locate a brand ex. McDonalds tried to appeal to the health conscious segment with its low-fat McLean Deluxe hamburger to avoid competing with Wendys and Burger King
Product Positioning using Perceptual Maps
1. Identify the important attributes for a product or brand class. 2. Discover how target customers rate competing products or brands with respect to these attributes. 3. Discover where the company's product or brand is on these attributes in the minds of potential customers. 4. Reposition the company's product or brand in the minds of potential customers.
Four types of consumer products
1. convenience product 2. shopping product 3. specialty product 4. unsought product
Ways to Segment Organizational (Business) Markets
1. geographic segmentation: statistical area 2. demographic segmentation: NAICS code 3. Demographic segmentation: number of employees 4. behavioral segmentation: usage rate
Criteria to use in selecting the target segments
1. market size 2. expected growth 3. competitive position 4. cost of reaching the segment 5. compatibility with the organization's objectives and resources
When and How to Segment Markets
A business foes to the trouble and expense of segmenting its markets when it expects that this extra effort will increase its sales, profit, and return on investment. When expenses are greater than the potentially increased sales from segmentation, a firm should not attempt to segment its market. Three specific segmentation strategies: - one product and multiple market segments - multiple products and multiple market segments - segments of one, or mass customization
Step 4: Select Target Markets
A firm must take care to choose its target market segments carefully. If too narrow may fail to reach volume of sales, too broad and it may spread the marketing effors so thin that the extra expense exceeds the increased sales and profits
Cost of reaching the segment
A segment that is inaccessible to a firm's marketing actions should not be pursued.
Segments of One: Mass Customization
American marketers are rediscovering today what their ancestors running the corner general store knew a century ago: Each customer has unique needs and wants, and desires special tender loving care. Economies of scale in manufacturing and marketing during the past century made mass-produced goods so affordable that most customers were willing to compromise their individual tastes and settle for standardized products. Today's Internet ordering and flexible manufacturing and marketing processes have made mass customization possible, which means tailoring goods or services to the tastes of individual customers on a high-volume scale. Mass customization is the next step beyond build-to-order (BTO), manufacturing a product only when there is an order from a customer. Dell uses BTO systems that trim work-in-progress inventories and shorten delivery times to customers. To do this, Dell restricts its computer manufacturing line to only a few basic models that can be assembled in four minutes. This gives customers a good choice with quick delivery.
What is the commercialization of a new product?
Commercialization, the most expensive stage for most new products, is the last stage of the new-product process that involves positioning and launching a new product in full-scale production and sales.
What is the difference between the demographic and behavioral bases of market segmentation?
Demographic segmentation is based on some objective physical {(gender, race), measurable (age, income), or other classification attribute (birth era, occupation) of prospective customers Behavioral segmentation is based on some other observable actions or attitudes by prospective customers- such as where they buy, what benefits they seek, how frequently they buy, and why they buy
Chapter 9
Developing New Products and Services
Demographic segmentation: NAICS code
Firms categorized by the North American Industry Classification System code as manufacturers that deal with customers throughout the world might have different document printing needs than retailers or lawyers serving local customers
Geographic segmentation: statistical area
Firms located in a metropolitan statistical area might receive a personal sales call, whereas those in a micropolitan statistical area might be contacted by telephone.
Demographic segmentation:
Household size. More than half of all U.S households are made up of only one or two persons, so Campbell packages meals with only one or two servings for this market segment
Psychographic segmentation:
Lifestyle. Nielsen's lifestyle segmentation is based on the belief that "birds of a feather flock together." thus, people of similar lifestyles tend to live near one another, have similar lifestyle and buy similar offerings. this is of great value to marketers
Chapter 8
Market Segmentation, Targeting and Positioning
How are marketing and product synergies different in a market-product grid?
Marketing synergies run horizontally across a market-product grid. Each row represents an opportunity for efficiency in the marketing efforts to a market segment. Product synergies run vertically down the grid. Each column represents and opportunity for efficiency in research and development and production. Marketing synergies often come at the expense of product synergies because a single customer segment will have to be designed and manufactured. The company saves money on marketing but spends more on production. Conversely, if product synergies are emphasized, marketing will have to address the concerns of a wide variety of consumers which costs more time and money
Why do marketers use perceptual maps in product positioning decisions?
Perceptual maps are a means of displaying in two dimensions the location of products or brands in the minds of consumers. Marketers use perceptual maps to see how consumers perceive competing products or brands as well as their own product or brand. Then they can develop marketing actions to move their product or brand to the ideal position
Potential of a marketing action to reach a segment
Reaching a segment requires a simple but effective marketing action. If no such action exists, don't segment.
Geographic segmentation:
Region. Campbell Soup Company found that its canned nacho sauce was too spicy for people ing the east and not spicy enough for people in the West so they changed their recipe for the different regions
Market size
The estimated size of the market in the segment is an important factor in deciding whether it's worth going after.
What are the four I's of services?
The four I's of services are: (1) intangibility, which means that they can't be held, touched, or seen; (2) inconsistency, which means that their quality varies with each person's capabilities and day-to-day job performance; (3) inseparability, which means that the consumer cannot (and does not) separate the deliverer of the service from the service itself; and (4) inventory, which means that inventory carrying costs are more subjective and are related to idle production capacity—when the service provider is available but there is no demand for the service.
Market segmentation involves aggregating prospective buyers into groups that have two key characteristics, what are they?
The groups (1) should have common needs and (2) will respond similarly to a marketing action
In terms of market segments and products, what are the three market segmentations strategies?
The three market segmentation strategies are (1) one product and multiple market segments; (2) multiple products and multiple market segments and (3) "segments of one" or mass customization- the nest step beyond build-to-order
What are the four main types of consumer products?
They are (1) convenience products- items that the consumer purchases frequently, conveniently, and with a minimum of shopping effort; (2) shopping products- items for which the consumer compares several alternatives on criteria such as price, quality, or style; (3) specialty products- items that the consumer makes a special effort to search out and buy; and (4) unsought products- items that the consumer does not know about or knows about but does not initially want
The existence of different market segments has caused firms to use a marketing strategy of product differentiation
This strategy involves a firm using different marketing mix actions, such as product features and advertising, to help consumers perceive the product as being different than competing products. the perceived differences may involve physical features such as size or color, or nonphysical ones, such as image or price
Behavioral segmentation: product features
Understanding what features are important to different customers is a useful way to segment markets because it can lead directly to specific marketing actions, such as a new product, an ad campaign, or a distribution channel. For example, college dorm residents frequently want to keep and prepare their own food to save money or have a late-night snack. However, their dorm rooms are often woefully short of space. MicroFridge understands this and markets a combination microwave, refrigerator, freezer, and charging station appliance targeted to these students.
Behavioral segmentation: Usage rate
Usage rate is the quantity consumed or patronage—store visits—during a specific period. It varies significantly among different customer groups. Airlines have developed frequent-flyer programs to encourage passengers to use the same airline repeatedly to create loyal customers. This technique, sometimes called frequency marketing, focuses on usage rate. One key conclusion emerges about usage: In market segmentation studies, some measurement of usage by, or sales obtained from, various segments is central to the analysis.
One product and Multiple Market Segments
When an organization produces only a single product or service and attempts to sell it to two or more market segments it avoids extra costs of developing and producing additional versions of the product. in this case, the incremental costs of taking the product into new segments are typically those of a separate promotional campaign or a new channel of distribution Example: Magazines (esp. their covers), books, movies, and many services (ex Disney resorts) Ex: Disney resorts offer the same basic experience to at least three distinct segments, children, parents and grandparents. although separate advertising, promotion, and distribution for these offerings can be expensive, these expenses are minor compared with the costs of producing a different version of the offerings for each segment
80/20 rule
a concept that suggests 80 percent of a firm's sales are obtained from 20 percent of its customers
product line
a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges
Using Market Product Grids
a market-product grid is a framework to relate the market segments of potential buyers to products offered or potential marketing actions EXAMPLE: Types of sleepers vs. types of pillows
Simplicity and cost-effectiveness of assigning potential buyers to segments
a marketing manager must be able to put a market segmentation plan into effect this means identifying the characteristics of potential buyers in a market and then cost-effectively assigning them to a segment
gap analysis
a marketing research method that measures the difference between a customer's expectation of a service quality and what actually occurred the analysis asks consumers to assess their expectations and experiences on dimensions of service quality example- airline customers three dimensions of service quality and kinds of questions airline customers might ask to evaluate them -reliability: is my flight on time? -tangibility: are the gate, the plane, and the baggage area clean? -responsiveness: are the flight attendants willing to answer my questions?
What is the difference between a product line and a product mix?
a product line is a group of product or service items that are closely related because they satisfy a class of needs, are used together, are sold to the same customer group, are distributed through the same outlets, or fall within a given price range. The product mix consists of all the product lines offered by an organization
Cannibalization
a situation that occurs when sales of a new product cut into sales of a firm's existing products When the increased customer value involves adding new products or a new chain of stores, the product differentiation-market segmentation trade-off raises a critical issue: are the new products or new chain supply simply stealing customers and sales from the older, existing ones? Ex. offering a Tiffany/Walmart strategy
product item
a specific product that has a unique brand, size, or price
positioning statement
a statement that summarizes company or brand positioning using this form: to (target segment and need) our (brand) is (concept) that (point of difference). directs the marketing strategy and focuses its product development efforts written statement that is used internally for the marketing department but also outside of it such as research and development engineers or advertising agencies
Expected growth
although the size of the market in the segment may be small now, perhaps it is growing significantly or is expected to grow in the future. ex: speed and convenience of a drive thru
nondurable good
an item consumed in one or a few uses, such as food products or fuel rely heavily on consumer advertising
services
are intangible activities or benefits that an organization provides to satisfy consumers' needs in exchange for money or something else of value
equipment-based services
automated (self-service), operated by relatively unskilled operators, operated by skilled operators do not have the marketing concern of inconsistent quality because employees do not have direct contact when providing the service to customers automated (self service)-ATMs, online brokerages, automated car washes operated by relatively unskilled operators- motion picture theaters, cry cleaners, taxis operated by skilled operators- electric utilities, airlines, computer networks
Product repositioning
changing the place a product occupies in a consumer's mind relative to competitive products
Multiple Products and Multiple Market Segments
common in the automobile industry where auto makers produce different lines of cars, trucks, and SUV's...each targeted to a different market. Producing these different vehicles is clearly more expensive than producing only a single vehicle, but it is very effective IF it meets customers needs better, doesn't reduct quality or increase price, and adds to Ford's sales revenues and profits downside: can reduct quality and raise prices- especially in relation to foreign imports
What kind of innovation would an improved electric toothbrush be?
continuous innovation- no new learning is required by consumers
How does the development stage of the new-product process involve testing the product inside and outside the firm?
development is the stage of the new-product process that turns the idea on paper into a prototype, in a demonstrable, producible product that can be efficiently manufactured. Internally, laboratory tests are done to see if the product achieves the physical, quality, and safety standards set for it. Externally, market testing is done to expose the actual products to prospective consumers under realistic purchase conditions to see if they will buy.
What factor is estimated or measured for each of the cells in a market-product grid
each cell in the grid can show the estimated size of a given product sold to a specific market segment
The Uniqueness of Services
four unique elements distinguish services from goods- intangibility, inconsistency, inseparability, and inventory four i's of service
Ways to segment consumer markets
geographic, demographic, psychographic, behavioral
good
has tangible attributes that a consumer's five senses can perceive
The process of segmenting and targeting markets is a bridge between which two marketing activities?
identifying market needs and executing the marketing program
Compatibility with the organization's objectives and resources
if the Wendy's restaurant doesn't have the cooking equipment to make breakfasts and has a policy against spending more money on restaurant equipment, then don't try to reach the breakfast segment
Difference of needs of buyers among segments
if the needs of the various segments aren't very different, combine them into fewer segments. a different segment usually requires a different marketing action that, in turn, means greater costs. if increased sales don't offset extra costs, combine segments and reduce the number of marketing actions
How do internal and external screening and evaluation approaches differ?
in internal screening, company employees evaluate the technical feasibility of new-product ideas to determine whether they meet the objectives defined in the new-product strategy development stage. For services, employees are assessed to determine whether they have the commitment and skills to meet customer expectations and sustain customer loyalty. In external screening, evaluation consists of preliminary concept testing of the new-product idea (not the actual product itself) using written descriptions, sketches, mockups, or promotional literature with consumers
people-based services
include those offered by advertising agencies or medical doctors unskilled- lawn care, security guards, janitorial service skilled labor- appliance repair, plumbers, caterers professionals- management consultants, accountants, lawyers
Wendy's example
individual products- Dave's Hot N Juicy Hamburger groupings- hamburgers frostys salads could also be drive thru 99cents super value meals
idea
is a thought that leads to a product or action, such as a concept for a new invention or getting people out to vote
Competitive position
is there a lot of competition in the segment now or is there likely to be in the future? The less competition, the more attractive the segment is. ex. college dorms "no meals on weekends" offers for support to wendys
shopping product
items for which the consumer compares several alternatives on criteria such as price, quality, or style cameras, TVs, briefcases, airlines tickets fairly expensive large number of selective outlets promotion- differentiation from competitors stressed brand loyalty of consumers- prefer specific brands but will accept substitutes infrequent purchases, needs much comparison shopping time
unsought product
items that the consumer does not know about or knows about but does not initially want burial insurance, thesaurus price varies distribution often limited promotion- awareness is essential brand loyalty- will accept substitutes very infrequent purchases, some comparison shopping
specialty product
items that the consumer makes a special effort to search out and buy rolls-royce cars, rolex watches, heart surgery usually very expensive very limited promotion- uniqueness of brand and status stressed brand loyalty- very brand loyal, will not accept substitutions infrequent purchases, needs extensive search and decision time
convenience products
items that the consumer purchases frequently, conveniently, and with a minimum of shopping effort toothpaste, cake mix, hand soap, atm cash withdrawal relatively inexpensive widespread, many outlets promotion- price, availability, and awareness stressed brand loyalty of consumers- aware of brand but will accept substitutes frequent purchases; little time and effort spent shopping
support products
items uses to assist in producing other products and services. include: installations- such as buildings and fixed equipment accessory equipment- such as tools and office equipment supplies- such as stationary, paper clips, and brooms industrial services- such as maintenance, repair, and legal services
What are the main sources of new-product ideas?
many firms obtain ideas externally using open innovation which an organization finds an executes creative new product ideas by developing strategic relationships with outside individuals and organizations. Some of these sources include employee and co-worker suggestions, customer and supplier suggestions (either directly, through the firm's salesforce or purchasing department or through crowdsourcing- soliciting ideas via the Internet from large numbers of people), R&D laboratories (both internal to the firm and professional innovation firms such as IDEO), competitive products (analyzing their points of difference that lead to a competitive advantage fo them) and smaller, nontraditional technology firms, university technology transfer centers that partner with business firms to commercialize faculty inventions, and lone inventors or entrepreneurs
inventory
many goods have inventory handling costs that relate to their storage, perishable, and movement with services, these costs are more subjective and are related to idle production capacity- which is when the service provider is available but there is no demand for the service for a service, inventory cost involves paying the services provider along with any needed equipment example- if a physician's salary must be paid regardless of whether the service was performed pg. 234
inseparability
means that the consumer cannot distinguish the service provider from the service itself example- the quality of large lectures at your university may be excellent, but if you don't get your questions answered, find the counseling services poor, or do not receive adequate library assistance, you may not be satisfied with the entire educational experience delivered therefore you probably wont separate your perception of the "educational experience" the service itself- from all the people delivering the educational services for that institution
What is the new-product strategy development stage in the new-product process?
new-product strategy development is the first stage of the new-product process that defines the role for a new product in terms of the firm's overall objectives. During this stage the firm uses both a SWOT analysis and environmental scanning to assess its strengths and weaknesses relative to the trends it identifies as opportunities or threats. The outcome not only defines the vital "protocol" for each new-product idea but also identifies the strategic role it might serve in the firm's business portfolio
durable good
one that usually lasts over many uses such as appliances, cars, and smartphones generally emphasize personal selling
Discover how adults see various competing drinks
pg.221
What are some criteria used to decide which segments to choose for targets?
possible criteria include market size, expected growth, competitive position, cost of reaching the segment, and compatibility with the organization's job objectives and resources
Similarity of needs of potential buyers within a segment
potential buyers within a segment should be similar in terms of common needs that, in turn, lead to common marketing actions, such as product features sought or advertising media used
What is the difference between product positioning and product repositioning
product positioning refers to the place a product occupies in consumer's minds based on important attributes relative to competitive products. Product repositioning involves changing the place a product occupies in a consumers' mind relative to competitive products
consumer products
products purchased by the ultimate consumer
Identify the important attributes (or scales) for adult drinks
research revels the key attributes adults use to judge various drinks are: low versus high nutrition and childrens drinks versus adult drinks
Marketing synergies
running horizontally across the grid, each row represents an opportunity for efficiency in terms of a market segment
Product synergies
running vertically down the market-product grid, each column represents an opportunity for efficiency in research and development and production pg. 219
intangibility
services cannot be touched or seen before the purchase decision pg. 233
inconsistency
services depend on the people who provide them. as a result, their quality varies with each person's capabilities and day-to-day job performance organizations attempt to reduce inconsistency through standardization and training
criteria to use in forming segments
simplicity and cost-effectiveness of assigning potential buyers to segments potential for increased profit similarity of needs of potential buyers within a segment difference of needs of buyers among segments potential of a marketing action to reach a segment
What is a test market, and what are the three kinds?
test marketing involves offering a product for sale on a limited basis in a defined area for a specific time period. the three main kinds of test markets are (1) standard, (2) controlled, (3) simulated. in a standard test market, a city (or cities) is selected that is viewed as being demographically representative of the markets targeted for the new product and has both cable TV systems that can deliver different ads to different homes and retailers with checkout counter scanners to measure sales results. in a controlled test market, the firm contracts the entire test program to an outside service, which pays retailers for shelf space to guarantee a specified percentage of the test product's potential distribution volume. In a simulated (or laboratory) market (STM), the firm attempts to replicate a full-scale test market by creating a fictitious storefront in a shopping mall and exposing prospective customers to the product (or concept) and ads from both it and its competitors to see if they will buy
Potential for increased profit
the best segmentation approach is the one that maximizes the opportunity for the future profit and return of investment (ROI) if this potential is maximized without segmentation, don't segment. for nonprofit organizations, the criterion is the potential for serving clients more effectively
The key to successful product differentiation and market segmentation strategies is finding the ideal balance between satisfying a customer's individual wants and achieving ORGANIZATIONAL SYNERGY
the increased customer value achieved through performing organizational functions such as marketing or manufacturing more efficiently the "increased customer value" can take many forms: more products, improved quality of existing products, lower prices, easier access to products through improved distribution, etc ULTIMATE CRITERION for an organization's marketing success is that customers should be better off as a result of the increased synergies
What marketing metric might you use in a marketing dashboard to discover which states have weak sales?
the marketing metric- annual percentage change in unit volume by state- will help identify those states that are underperforming
Product positioning
the place a product occupies in consumers' minds based on important attributes relative to competitive products
Segmentation
the process of segmenting a market and selecting specific segments as targets is the link between the various buyers' needs and the organization's marketing program IS ONLY A MEANS TO AN END: it leads to tangible marketing actions that can increase sales and profitability market segmentation first stresses the importance of grouping people or organizations in a market according to the similarity of their needs and the benefits they are looking for in making a purchase second, these needs and benefits must be related to specific marketing actions that the organization can take, such as a new product or special promotion EXAMPLE- Zappos pg. 204
Why can an "insignificant point of difference" lead to new-product failure?
the product must have superior characteristics that deliver unique benefits to the user compared to those of competitors that must be sufficient enough to motivate a change in consumption behavior. Without these points of difference, the product will probably fail
Step 5: Take Marketing Actions to Reach Target Markets
the purpose of developing a market-product grid is to trigger marketing actions to increase sales and profits. this means that someone must develop and execute an action plan in the form of a marketing program ex. Day commuters, Between meal snacks, dinners to night customers pg. 215
Demographic segmentation: number of employees
the size of the firm is related to the volume of digital documents produced, so firms with varying numbers of employees might be specific target markets for different Xerox MFPs