Chapter 7: Segmentation, Targeting and...
Transcript of Chapter 7: Segmentation, Targeting and...
Chapter 7: Segmentation, Targeting and Positioning
Segmentation – identifying meaningfully different groups of customers.Targeting – selecting which segment(s) to serve.Positioning – implementing chosen image and appeal to chosen segment.
Market Segment – a group of customers who share a similar set of needs and wants within an overall market.Market Segmentation – the process of identifying and categorizing the overall market into groups of customers with similar needs and wants.Target Market – the qualified available market segment that the company pursues.
Step 1: Establish Overall Strategy or Objectives Articulate the mission and the objectives of the company’s marketing strategy
clearly. Derived from its strengths, weaknesses, opportunities and threats (SWOT).
Step 2: Segmentation Bases Formal approach to segment the market. Develops descriptions of the different segments, their needs, wants and
characteristics.
Geographic Segmentation: organizes consumers into groups of where they live.
Demographic Segmentation: groups consumers according to easily measured objective characteristics (mentioned in graph).
Psychographic Segmentation: explores into how consumers describe themselves by using characteristics that help them choose how they occupy their time (behaviour) and what reasons determine their choices.
Selfvalues life goals Selfconcept how one sees oneself in the context of the goalsLifestyles the ways that one lives
Behavioural Segmentation: groups consumers on the basis of the benefits they derive from products/services, their usage rates of products/services, their user status, and their loyalty.
Benefit Segmentation: based on the benefits consumers derive from products/services.
Step 3: Evaluate Segment Attractiveness Involves evaluating the attractiveness of the various segments.
Identifiable who is within their market to be able to design products or services to meet their needsReachable accessed through persuasive communications and product distributionResponsive consumers in the segment must react similarly and positively to offerings through distinctive competenciesSubstantial and Profitable measure the target market’s size and growth potential
Step 4: Select Target Market The marketer’s ability to pursue such an opportunity or target segment. Selecting which segment(s) to serve.
Undifferentiated Segmentation Strategy (Mass Marketing): if the product or service is perceived to provide the same benefits to everyone with no need to develop separate strategies for different groups.
Differentiated Segmentation Strategy: target several market segments with a different offering for each.
Concentrated (Niche) Segmentation Strategy: selecting a single, primary target market and focusing all energies on providing a product to fit that market’s needs.
Micromarketing (onetoone): extreme form of segmentation that tailors a product/service to suit an individual customer’s wants or needs.
Mass Customization: interacting onetoone basis with many people to create custommade products/services.
Step 5: Identify and Develop Positioning Strategy Positioning is the mental picture that people have about a company and its
products/services relative to competitors and involves a process of defining the marketing mix variables.
Positioning statement is how the company wants to be perceived, includes target market characteristics, customer need & benefit, point of differentiation or unique selling proposition (USP).
Types of Positioning Strategies:
Value Product Attributes Benefits and Symbolism Competition Market Leadership Perceptual Map
Brand Repositioning: refers to a strategy in which marketers change a brand’s focus to target new markets or realign the brand’s core emphasis with changing market preferences.
Chapter 8: Developing New Products
Product: anything that is of value to a consumer and can be offered through a marketing exchange.Innovation: the process by which ideas are transformed into new products and services that will help firms grow.
Changing consumer needs create and deliver value effectively by adding new products and satisfying the changing needs
Market Saturation the longer a product exists in the marketplace; the more likely the market will become saturated (the decline stage)
Innovation & Value First movers: product pioneers that are the first to create the market or product
category, making them recognizable to consumers = establishing a commanding and early market share.
Adoption of Innovation: The process by which the use of innovation, whether a product or service, spreads
throughout a market group.
Innovators: those buyers who want to be the first to have the new product or service.
Early Adopters: buyers that begin to use the product or service innovation.
Early Majority: 34% percent of the population; wait until all the bugs are worked out.
Late Majority: last group of buyers to enter a new product market; product has achieved its full market potential.
Laggards: consumers who like to avoid change and rely on traditional products until they are no longer available.
Using the Adoption Cycle Predict the types of customers who will buy their new product or service. Develop effective promotion, pricing.
Relative Advantage if a product is perceived as better than substitutes, the diffusion will be quick
Compatibility make decisions in a timely manner and to able to communicate their decisions
Observability when products are easily observed, their benefits and uses are easily communicated to others = enhancing the diffusion process
Complexity and Trialability products are that relatively less complex are easy to try
Product Development Process
Idea Generation: Internal Research & Development Collaborating with other firms & institutions Licensing Brainstorming Competitors’ Products & Services (Reverse engineering: take apart competitor’s
product, analyze it, and create an improved product) Customer Input: successful, must analyze lead users (innovative product users
who modify existing products to suit their needs)
Concept Testing:
Concepts: brief written descriptions of product or service; its technology, working principles, and forms; and what customer needs it would satisfy.
Concept testing: refers to the process in which a concept statement is presented to potential buyers to obtain their reactions.
Product Development: Entails a process of balancing various engineering, manufacturing, marketing, and
economic considerations to develop a product’s form and features or a service’s features.
Prototype: the first physical form or service description of a new product that has the same properties as a new product through different manufacturing processes.
Alpha testing: an attempt by the firm to determine whether a product will perform according to its design and whether it satisfies the need for which it was intended; at the R&D.
Beta testing: having potential consumers examine a product prototype in realuse setting to determine its functionality, performance, potential problems.
Market Testing: Test the market for the new product with a trial batch of products. Premarket Tests: conducted before a product or service is brought to market to
determine how many customers will try and then continue to use it. Test marketing: introduces a new product or service to a limited geographical
area prior to a national launch.
Product Launch: Introduce new product to market. Promotion: determine appropriate integrated marketing communications
strategies; provide for more consumer education about the product’s benefits for more complex products.
Place: have adequate quantity of products available. Price: ensure the price is right. Timing: depending on the product, time is key – seasonal products.
The Product Life Cycle: The product life cycle defines the stages that new products move through as they
enter, get established and leave the marketplace.
Introduction Stage: stage of the product life cycle when innovators start buying the product; define their own product category and industry.
Growth Stage: stage of the product life cycle when the product gains acceptance, demand and sales increases, and competitors emerge in the product category.
Maturity Stage: stage of the product life cycle when industry sales reach their peak; firms may add new features or reposition them.
Decline Stage: stage of the product life cycle when sales decline and product leaves the market.
Chapter 9: Product, Branding and Packaging Decisions
Complexity of Products and Types of Products
Complexity of Products There’s more to the product than just its physical characteristics or its basic
service function. Core customer value: the basic problemsolving benefits that consumers are
seeking. Associated services: aka augmented product, includes the nonphysical attributes
of the product such as warranties, financing, service, support.
Types of Products Consider the types of products that is designed and being sold because it impacts
how it is promoted, priced and distributed. Consumer products: products and services used by people for their personal use.
Specialty Products/Services: products and services that customers show a strong preference that they will expend considerable effort to search for the best suppliers.
Shopping Products/Services: products and services such as furniture, apparel, fragrances, appliances and travel alternatives, that consumers will spend a fair amount of time comparing alternatives.
Convenience Products/Services: products and services that consumers are not willing to spend any effort to evaluate prior to purchase.
Unsought Products/Services: products and services that consumers either do not normally think of buying or do not know about.
Product Mix and Product Line Decisions
Product Mix: complete set of all products offered by a firm.
Product Lines: groups of associated items that consumers use together or think of as part of a group of similar products.
Product Category: an assortment of items that the customer sees as a reasonable substitute for one another.
Brand: the name, term, design, symbol, or any other feature that identify a seller’s good or service as distinct from others.
Product Mix Breadth: the number of product lines or variety offered by a firm.
Product Line Depth: the number of categories within a product line.
Stock Keeping Units (SKUs): individual items within each product category; the smallest unit available for inventory control.
Change in Product Mix Breadth Add or delete entire product line. Increase Breadth: add new product lines to capture new or evolving markets,
increase sales and compete in new venues. Decrease Breadth: delete entire product line to address changing market
conditions or meet internal strategic priorities.
Change in Product Line Depth Add or delete from their product line depth. Increase Depth: add new products within a line to address changing consumer
preferences or preempt competitors while boosting sales. Decrease Depth: delete product categories to realign resources.
Change in SKUs Common to add or delete of SKUs in existing categories to stimulate sales or
react to consumer demand.
Branding: Provides a way for a firm to differentiate its product offerings from competitors.
What makes a brand? Brand name URLs Logos and symbols Characters Slogans Jingles
Value of Branding for Consumers and Marketers Brands add value to merchandises and services beyond physical and functional
characteristics or the act of service.
Brands Facilitate Purchasing: brands are often easily recognizable by customers, and signify certain quality level and contain familiar attributes = help consumers make decisions quickly.
Brands Establish Loyalty: over time, consumers learn to trust certain brands; maintain great depth in product lines.
Brands Protect from Competition: some strong brands are protected from competition; more established in the market and a more loyal customer base.
Brands Reduce Marketing Costs: wellknown brands can spend less on marketing costs.
Brands are Assets: brands can be legally protected through trademarks and copyrights; constitute a unique ownership.
Brands Impact Market Value: wellknown brands have direct impact on the company’s bottom line.
Brand Equity The set of assets and liability linked to a brand that add or subtract from the value
provided by the product/service. Brand awareness: measures how many consumers in a market are familiar with
the brand and what it stands for, have an opinion about that brand. Perceived value: the relationship between a product or service’s benefits and its
costs. Brand associations: reflect the mental links that consumers make between a
brand and its key attributes, such as logo, slogan or famous personality. Brand personality: refers to set of human characteristics associated with the
brand, which has symbolic or selfexpressive meaning to consumers. Brand loyalty: occurs when consumers buy the same product/service repeatedly
over time.
Branding Strategies: Introduce a variety of brandrelated strategies to create and manage key brand
assets, such as decision to own brands, establish a brand policy, extend brand name to other products and markets, cooperatively use brand name with others and licensing brands to others.
Brand Ownership Strategies Any firm in supply chain; manufacturers, wholesalers, and retailers can own
brands. Manufacturer/national brands: owned and managed by the manufacturer; have
more control over marketing strategy, choose market segments and position the brand and build brand loyalty.
Private labels/store brands: brands that are owned and managed by retailers; common in supermarkets, discount stores, and drugstores.
Generic: products without brand.
Brand Name Strategies Corporate or Family Brand: the use of a firm’s corporate name to brand all of
its product lines and products.
Corporate and Product Line Brands: the use of a combination of family brand name and individual brand name to distinguish a firm’s product.
Individual Brands: the use of individual brand names for each of its product.
Brand Extension Refers to the use of the same brand name for new products being introduced to
the same or new markets. Brand dilution: occurs when the brand extension negatively affects consumer
perceptions about the attributes the core brand holds.
Cobranding The practice of marketing two or more brands together, on the same package or
promotion.
Brand Licensing A contractual arrangement between firms where one is allowed to use another
brand name, logo, symbols, etc. for a fee. Common for toys, apparel, video games, accessories, entertainment.
Packaging Important brand element with more tangible or physical benefits; offers a variety
of benefits to consumers, who seek for convenience in terms of storage, use and consumption.
Labeling Provides information the consumer needs for their decision and consumption of
the product. Important element for branding and promotion.
Chapter 11: Pricing Concepts and Strategies: Establishing Value
The Five Cs of Pricing
Company Objectives Profit orientation: focus on target profit pricing (pricing strategy, particular
profit goal), maximizing profits (captures all the factors required to explain and predict sales and profits) or tax return pricing (pricing strategy, less concerned with absolute level of profits, produce a return on investment).
Sales orientation: increasing sales to increase profits. Competitor orientation: measure itself against its competition. Competitive parity: set prices that are similar to major competitors. Customer orientation: explicitly invokes the concept of consumer expectations.
Customers Understanding consumers’ reactions to different prices. Consumers want value; price is half the value equation. Demand Curve: shows how many units of a product of service consumers will
demand during a specific period at different prices. Prestige products or services: those that consumers purchase for status rather
than functuality. Price Elasticity of Demand: measures how changes in a price affect the quantity
of the product demanded, the ratio of the percentage change in quantity demanded to the percentage change in price.
Elastic: refers to a market for a product/service that is price sensitive. Inelastic: refers to a market for a product/service that is price insensitive.
Factors Influencing Price Elasticity of Demand: Income Effect: refers to the change in quantity of a product demanded by
consumers because of a change in their income. Substitution Effect: refers to consumers’ ability to substitute other products for
the focal brand, thus increasing the price elasticity of demand for the focal brand. Crossprice elasticity: the percentage change in demand for Product A that occurs
in response to a percentage change in price of Product B. Complementary products: products who demand curves are positively related,
rise or fall together; a percentage increase in demand for one results in a percentage increase in demand for the other.
Substitute products: products which changes in demand are negatively related; a percentage increase in the quantity demanded for Product A results in a percentage decrease in the quantity demanded for Product B.
Costs For effective pricing decisions, firms must understand their cost structures to
determine the degree where their products/services will be profitable at different prices.
Variable costs: those costs, such as labour and materials, that vary with production volume.
Fixed costs: those costs that remain essentially the same, regardless of changes in product volume.
Total cost: the sum of variable and fixed costs.
Breakeven point: the point at which the number of units sold generates just enough revenue to equal the total costs; profits are zero.
Contribution per unit: equals the price less the variable cost per unit; variable used to determine the breakeven point in units.
Competition Focus on its effect and how competitors react to certain pricing strategies. Monopoly: occurs when only one firm provides the product/service in a
particular industry. Oligopolistic competition: occurs when only few firms dominate a market. Price war: occurs when two or more firms compete by lowering their prices. Monopolistic competition: occur when many firms sell closely related but
homogeneous products; products may be viewed as (not perfect) substitutes. Pure competition: occurs when different companies sell commodity products
that consumers perceive as substitutable; price is set according to the laws of supply and demand.
Channel Members Are the manufacturers, wholesales and retailers; each has a different perspective
on pricing strategies. Difficult to mange and distribution outside normal channels occur. Grey market: employs irregular but not necessarily illegal methods; legally
avoids authorized channels of distribution to sell goods at prices lower than intended by the manufacturers.
Other Influences on Pricing The Internet: online shopping makes consumers more price sensitive; opens new
categories of products that they may not have access to before.
Economic Factors: two interrelated trends that have merged to impact pricing decisions are the increase in consumers’ disposable income and status consciousness.
Crossshopping: the pattern of buying the premium and lowpriced merchandise or condescending both expensive, statusoriented relations and priceoriented retailers.
Pricing Strategies
Costbased Methods: Determines the final price to charge by starting with the cost. Does not recognize the role that consumers or competitors’ prices play in the
marketplace.
Competitorbased Methods: Competitorbased pricing method: an approach that attempts to reflect how the
firm wants consumers to interpret its products relative to the competitors’ offerings.
Premium pricing: the firm deliberately prices a product above prices set for competing products to capture those consumers who shop for the best or where price does not matter.
Valuebased Methods: Valuebased pricing method: focuses on the overall value of the product
offering as perceived by consumers, who determine value by comparing the benefits they expect the product to deliver with the sacrifice they make.
Improvement value method: represents an estimate of how much more (or less) consumers are willing to pay for a product or relative to other products.
Cost of Ownership method: setting prices that determines the total cost of owning the product over its useful life.
New Product Pricing Strategies
Price Skimming: Strategy that appeals to consumers who are willing to pay the premium price for
new products/services. After the market is saturated and sales slow down, prices are lowered to capture
pricesensitive consumers.
Market Penetration Pricing: Pricing strategy of setting the initial price low for the introduction of new
products/services. Objective is to build sales, market share and profits quickly.
Experience curve effect: refers to the drop in unit cost as accumulated volume sold increases; sales continue to grow, the costs continue to drop, which allows further reductions in price.
Psychological Factors Affecting ValueBased Pricing Strategies Understanding the psychology underlying the way consumers arrive at their
perceptions, make judgments and finally invoke a choice is critical at effective pricing strategies.
Consumers’ Use of Reference Prices Reference price: the price against which buyers compare the actual selling price
of the product and that facilitates their evaluation process. External reference price: a higher price to which the consumers can compare the
selling price to evaluate the purchase. Internal reference price: price information stored in the consumer’s memory
that the person uses to assess a current price offering; last price what they expect to pay.
Everyday Low Pricing (EDLP) Versus High/Low Pricing: Everyday Low Pricing: strategy that companies use to emphasize the continuity
of their retail prices at a level somewhere between the regular, nonsale price and the deepdiscount sale prices that their competitors may offer.
High/low pricing: a pricing strategy that relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases.
Odd Prices: Prices that end in odd numbers such as $3.99.
The PriceQuality Relationship Price is how consumers generally judge the quality of products. When consumers know the brand, experience the products, have considerable
knowledge about how to judge the quality of products, price is less important.
Pricing Tactics: Important to distinguish between pricing strategies and pricing tactics. Pricing Tactics: shortterm methods used to focus on any of the five Cs which are
company objectives, customers, costs, competition or channel members; a response to competitive threats; calculating a final price for the customer that is short term in nation.
BusinesstoBusiness Pricing Tactics and Discounts:
Seasonal Discounts: pricing tactic of offering an additional reduction as an incentive to retailers to order merchandise in advance of the normal buying season.
Cash Discounts: tactic of offering a reduction in the invoice cost if the buyer pays the invoice prior to the end of the discount period.
Allowances: tactic that lowers the final cost to channel members, offered in return for specific behaviours.
Advertising allowances: offers a price reduction to channel members if they agree to feature the manufacturer’s product in their advertising and promotional efforts.
Listing allowances: fees paid to retailers to get new products into stores or to gain more or better shelf space for their products.
Quantity Discounts: provides a reduced price according to the amount purchased; the more the buyer purchases, the higher the discount and the greater the value.
Cumulative quantity discount: uses the amount of purchased over a specified time period and involves several transactions.
Noncumulative quantity discount: pricing tactic that offers a discount based on only the amount purchased in a single order.
Uniform Delivered Versus Geographic Pricing: Uniform delivered pricing: the shipper charges one rate, no matter where the
buyer is located. Geographic pricing: the setting of different prices depending on a geographical
division of the delivery areas
Pricing Tactics Aimed at Consumers:
Price Lining: consumer market pricing tactic of establishing a price floor and a price ceiling for an entire line of similar products and then setting a few other price points in between to represent distinct differences in quality.
Price Bundling: consumer pricing tactic of selling more than one product for a single, lower price than what the items would cost separately; used for slowmoving items.
Leader Pricing: consumer pricing tactic that attempts to build store traffic by aggressively pricing and advertising a regularly purchased items; often priced at or just above store’s cost.
Consumer Price Reductions: The final price a customer pays for a product/service has been adjusted from the
original price; enhance value.
Markdowns: reductions retailers take on the initial selling price of the product/service.
Size Discounts: most common implementation of a quantity discount; the larger the quantity bought, the less the cost per unit.
Seasonal Discounts: price reductions offered on products and services to stimulate demand during offpeak seasons.
Coupons: provides a stated discount to consumers on the final selling price of a specific item; retailer handles the discount.
Rebates: consumer discount in which portion of the purchase price is returned to the buyer in cash; the manufacturer issues the refund.
Legal and Ethical Aspects of Pricing: Prices tend to fluctuate naturally and respond to varying market conditions. Pricing practices that unfairly reduce competitions or harm consumers directly
through fraud and deception.
Deceptive or Illegal Price Advertising: Loss leader pricing: takes the tactic of leader pricing one step further by
lowering the price below the store’s cost. Bait and Switch: a deceptive practice of luring customers into the store with a
very low price advertised on an item (the bait), only to aggressively pressure them into purchasing a higherpriced item (the switch).
Predatory Pricing: a firm’s practice of setting a very low price for one or more of its products with the intent of driving its competition out of business; illegal under the Competition Act.
Price Discrimination: the practice of selling the same product to different resellers (wholesalers, distributors, or retailers) or the ultimate consumer at different prices.
Price Fixing: the practice of colluding with other firms to control prices.
Horizontal price fixing: occurs when competitors that produce and sell competing products collude, or work together, to control prices; taking price out of the decision process for consumers.
Vertical price fixing: occurs when parties at different levels of the same marketing channel scheme to control the prices passed on to consumers.
Chapter 12: Marketing Channels: Distribution Strategy
Distribution channel: the set of institutions that transfer the ownership of and move goods from the point of production to the point of consumption.
Supply chain management: refers to a set of approaches and techniques companies employ to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores and transportation intermediaries into a seamless value chain in which merchandise is produced and distributed in the right quantities, to the right locations, at the right time.
Wholesalers: firms that buy products from manufacturers and resell them to retailers.
Retailers: sell products directly to consumers.
Logistic management: the integration of two or more activities to plan, implement, and control the efficient flow of raw materials, inprocess inventory, and finished goods from the point of origin to the point of consumption.
Channel Structure Design the best distribution channel, choosing from whom it buys or to whom it
sells.
Direct Distribution: allows manufacturers to deal directly with consumers.
Indirect Distribution: one or more intermediaries work with manufacturers to provide goods and services to consumers.
Multichannel Distribution: using a combination of both direct and indirect distribution channels to better reach out to both consumers and business customers.
Distribution Intensity The number of channel members to use at each level of the supply chain.
Intensive Distribution: a strategy designed to get products into as many outlets as possible.
Exclusive Distribution: strategy of granting exclusive rights to sell to one or very few retail customers so no other customers can sell a particular brand.
Selective Distribution: lies between the intensive and exclusive distribution strategies; uses a few selected customers in a territory.
Managing Channels Through Vertical Marketing Systems Vertical marketing system: a supply chain in which members act as a unified
system. Administered vertical marketing system: a supply chain system in which there
is no common ownership and no contractual relationships, but the dominant channel member controls the channel relationship.
Contractual vertical marketing system: a system in which independent firms at different levels of the supple chain join together through contracts to obtain economies of scale and coordination and to reduce conflict.
Corporate vertical marketing system: a system in which the parent company has complete control and can dictate the priorities and objectives of the supply chain.
Managing Supply Chains Through Strategic Relationships Strategic relationship: aka partnering relationship, a supply chain relationship
that the members are committed to maintaining long term, investing in opportunities that are mutually beneficial; requires trust, open communication, common goals, and credible commitments.
Logistics Management: Making Merchandise Flow
Inbound Transportation Dispatcher: the person who coordinates deliveries to distribution centres.
Receiving and Checking Receiving refers to the process of recording the receipt of merchandise as it
arrives at a distribution centre or store. Checking is the process of going through the goods upon receipt to ensure they
arrived undamaged and that the merchandise ordered was the merchandise received.
Radio frequency identification (RFID) tags: tiny computer chip that automatically transmits to a special scanner all the information about a container’s contents or individual products.
Storing and CrossDocking Traditional: a warehouse in which merchandise is unloaded from trucks and
placed on racks or shelves for storage. Crossdocking: vendors ship merchandise prepackaged in the quantity required
for each store. Combination: combination of the two previous approaches.
Getting Merchandise FloorReady Merchandise that is ready to be placed on the selling floor immediately. Entails ticketing, marking and placing garments on hangers.
Inventory Management Through JustInTime Systems Justintime (JIT) inventory systems: designed to deliver less merchandise on a
more frequent basis than traditional inventory systems; merchandise is received “just in time” for it to be used to manufacture another product.
Lead time: the amount of time between the recognition that an order needs to be placed and the arrival of the needed merchandise at the seller’s store, ready for sale.