Session 2 Session 2 & 3& 3

Market, Segments & Customer Value

group3

2

Recap….

3

Market Market Segments Target Market Niche Market Mass Marketing Customization Mass Customization Forms of Competition

– Direct– Indirect

4

Markets &Competitive Space

5

Markets And Competitive Space

Markets and Strategies

Product-Market Scope and Structure

Describing and Analyzing End-Users

Analyzing Competition

Developing a Strategic Vision about the Future

Market Size Estimation

6

Markets And Competitive Space

The Challenges ―

Markets are increasingly complex, turbulent, and interrelated.

Importance of a broad view of the market.

Essential to develop a vision about how the market is likely to change in the future.

Continuous Monitoring is Necessary to:

Find promising opportunities

Identify shifts in value requirements

Understand competitors’ positioning

Guide targeting and positioning

decisions

7

Markets And Strategies

Markets and Strategies are

Interlinked

Forming a Shared

Vision

Value Migration Challenges

8

Market changes often require altering strategies

Forces of change create both market opportunities and threats

Inherent danger in faulty market sensing

Markets Impact Strategies

9

Customers shift purchasing to new business designs with enhanced value offering

Beware of disruptive technologies

Market sensing and organizational learning are essential

Value Migrations

10

Product-market Scope And Structure

Matching Needs with Product Benefits

Product-Market Boundaries and Structure

Forming Product-Markets for Analysis

The Changing Composition of Markets

11

Matching Needs with Product Benefits

A product – market matches people with needs to the product benefits that satisfy those needs

“A product – market is the set of products judged to be substitutes within those usage situations in which similar patterns of benefits are sought by groups of customers.”*

12

Product – Market Boundaries and

Structure Determining Product-Market Structure

• Start with the generic need satisfied by the product category of interest to management

• Identify the product categories (types) that can satisfy the generic need

• Form the specific product – markets within the generic product – market

Generic Product-type Product Variants

13

SUPER MARKETS

MICROWAVEOVENS

CONVENIENCESTORES

TRADITIONAL RESTAURANTS

Illustrative Fast-Food Product-Market

Structure

FAST-FOOD MARKET

14

Forming Product – Markets for Analysis

Factors influencing product – market boundaries:

Purpose of analysis

Changing composition of markets

Extent of market complexity

15

The Changing Composition of Markets

Change due to new technologies and emerging competition

Consider existing and emerging markets

Identify alternative ways to meet needs

Extend product-market analysis beyond industry boundaries (e.g. Fast-foods)

16

Extent of Market Complexity

Three characteristics of markets:

– 1. Functions or uses of the product

– 2. The enabling technology of the product

– 3. Customer segments in the product-market

17

Illustrative Product – Market Structure

•Generic Product Class

•Product Type

•Variant A

Regular•Variant B

•Brands

Food and beveragesfor breakfast meal

Cereals

Ready to eat

NaturalPre-sweetened

Life

Nutritional

Special KProduct 19

18

Defining And Analyzing MarketsDefine Product-Market

Boundaries and Structures

Identify and Describe End-Users

Analyze Industry and Value Added Chain

Evaluate Key Competitors

Forecast Market Size and Growth Trends

19

Identifying andDescribing Buyers

HowBuyersMake

Choices

BuildingCustomerProfiles

EnvironmentalInfluences

DESCRIBINGAND

ANALYZINGEND-USERS

20

Identifying and Describing End-Users Illustrative buyer

characteristics in consumer markets: Family size, age,

income, geographical location, sex, and occupation

Illustrative factors in organizational markets: Type of industry Company size Location Type of products

21

How Buyers Make Choices

BUYING DECISION PROCESS:

– Problem recognition

– Information search

– Alternative evaluation

– Purchase decision

– Post-purchase behavior

22

Environmental Influences

External factors influencing buyers’ needs and wants: Government, social

change, economic shifts, technology etc.

These factors are often non-controllable but can have a major impact on purchasing decisions

23

Building Customer Profiles

Start with generic product – market

Move next to product- type and variant profiles >> increasingly more

specific

Customer profiles guide decision making (e.g. targeting, positioning, market segmentation etc.)

24

Analyzing Competition

1.1. Define Industry Structure and

Characteristics

2. Identify and

Describe Key

Competitors

5. IdentifyNew

Competitors

3. Evaluate Key

Competitors

PRODUCT-MARKET

STRUCTUREAND

MARKETSEGMENTS4. Anticipate

Actions byCompetitors

25

Examples of Levels of Competition

Diet-RiteCola

Diet Pepsi

Diet Coke

Product from competition:

diet colas

Regular colas

Diet lemonlimes

Lemon limes

Fruitflavored

colas

Product categorycompetition:soft drinks

Bottlewater

Wine

Beer

Coffee

Juices

Generic competition:beverages

Baseballcards

FastFood

VideoGames

IceCream

Budget competition:food & entertainment

26

Industry Analysis

Industry size, growth, and composition

Typical marketing practices

Industry changes that are anticipated (e.g. consolidation trends)

Industry strengths and weaknesses

Strategic alliances among competitors

27

Defining Industry Structure &

Characteristics

Industry FormIndustry EnvironmentCompetitive Forces

ValueAddedChain

SUPPLIERS

PRODUCERS

WHOLESALERS/ DISTRIBUTORS

RETAILERS/DEALERS

CONSUMER/ ORGANIZATIONAL

END USERS

28

Competitive Forces

Porter’s 5 competitive forces:

Rivalry among existing firms.

Threat of new entrants.

Threat of substitute products.

Bargaining power of suppliers.

Bargaining power of buyers.

29

Key Competitor Analysis

Business scope and objectives

Management experience, capabilities, and weaknesses

Market position and trends Market target(s) and

customer base Marketing program

positioning strategy Financial, technical, and

operating capabilities Key competitive advantages

(e.g., access to resources, patents)

Also via Perceptual Mapping

30

Extent of Market Coverage

CustomerSatisfaction

CurrentCapabilities

PastPerformance

Competitor Evaluation

31

Developing A Strategic Vision About The Future

Industry Boundaries Blurring and Evolving

Competitive Structure and Players Changing

Value Migration Paths

Product Versus Business Design Competition

Firms are Collaborating to Influence Industry Standards

32

Market Size Estimation

UnrealizedPotential

CompanySales

Forecast

IndustrySales

Forecast

Market PotentialEstimate

Product-Market Forecast Relationships (area denotes sales in $’s)

33

0

100

200

300

400

500

600

700

800

900

Sales (in 1000sof units)

2001 2002 2003 2004 2005 2006 2007 2008

MarketPotentia

l

Sales Forecast

Company XYZ Sales Forecast

Product-Market Forecast Relationships for Industrial Painting

Units

34

Review: Appendix 3AForecasting Guidelines

35

Strategic MarketSegmentation

36

Strategic Market Segmentation

Segmentation and market-driven strategy

Identifying market segments Forming segments Finer segmentation strategies Selecting the segmentation

strategy

37Segmentation and Market-Driven StrategySEGMENTS

VALUE OPPORTUNITIES

CAPABILITIES/ SEGMENT MATCH

TARGET(S)

POSITIONING STRATEGY

38From Mass Markets to Micro Markets

OLD NEW

CONSUMERS Passively receive Empowered media userswhatever TV control and shape contentnetworks thanks to TiVo, iPod andbroadcast Internet

ASPIRATIONS To keep up with To standout from thethe crowd crowd

TV CHOICE Three networks Hundreds of channelsplus maybe a plus video on demand PBS station

MAGAZINES Age of the big Age of the special interestglossies: Time, magazine for every ageLife, Newsweek and affinity group

ADS Everyone hums Talking to a group of the Alka-Seltzer one, ads go everjingle narrower

BRANDS Rise of the big, Niche brands, productubiquitous brands extensions and massfrom Coca-Cola customization mean manyto Tide product variations

39

Identifying the Health & Beauty Supplies Market Segments

Level ofLevel ofCompetitionCompetition

Generic

ProductType

ProductVariant

Product Product DefinitionDefinition

Health &Beauty

Aids

ShavingEquipment

ElectricRazors

IllustrativeIllustrativeCompetitorsCompetitors

ConsumerProduct

Companies

Gillette, Remington,

Bic

Braun,Norelco,

Remington,Panasonic

Need/WantNeed/WantSatisfiedSatisfied

Enhancement

of Health & Beauty

Shaving

ElectricShaving

40

Market Segmentation Activities and

Decisions

Market to beSegmented

Decide Howto Segment

FormSegments

FinerSegmentation

Strategies

StrategicAnalysis

of Segments

41

Product Variant Segmentation

Product Type Segmentation

Generic Segmentation

42

PurchaseBehavior

Characteristicsof People/

Organizations

UseSituation

Buyers’ Needs/

Preferences

Segmentation Variables

43

Illustrative Segmentation Variables

Characteristicsof people/organizations

ConsumerMarkets

Industrial/OrganizationalMarkets

Age, gender,income,family size,lifecycle stage,geographiclocation,lifestyle

Type of industry,size, geographiclocation, corporateculture, stage ofdevelopment, producer/intermediary

Use situation Occasion, importance ofpurchase, priorexperience withproduct, userstatus

Application, purchasingprocedure(new task, modifiedrebuy, straightrebuy

Buyers’ needs/preferences

Brand loyaltystatus, brandpreference, benefits sought,quality, pronenessto make a deal

Performancerequirements, brandpreferences, desiredfeatures, servicerequirements

Purchasebehavior

Size of purchase,frequency ofpurchase

Volume, frequencyof purchase

44

Requirements for Segmentation

SegmentationRequirements

Responsedifferences

Identifiablesegments

Actionablesegments

Favorablecost/benefit

Stabilityover time

45Approaches to Segment

IdentificationIDENTIFIERS

OF CUSTOMER GROUPS

CUSTOMER RESPONSEPROFILE

Characteristics of People and Organizations

Use Situation

Buyers Needs and Preferences

Purchase Behavior and Loyalty

Can use:

•Experience & Available information

•Cross classification analysis

•Database segmentation

Can use:

•Cluster Analysis

•Perceptual Maps

46

Segment Dimensions for Hotel Lodging

Services

47Illustrative Consumer

Perception Map

LowQuality

HighQuality

Expensive

Inexpensive

GROUPI

GROUPV

GROUPIII

GROUPII

GROUPIV

• Brand E

• Brand D

• Brand C

• Brand B

• Brand A

48

Finer Segmentation Strategies

Logic of finer segments– customized offerings– diverse customer base– close customer relationships

Finer segmentation strategies– microsegmentation– mass customization– variety-seeking strategy

49

Selecting The Segmentation

Strategy Deciding how to segment Strategic analysis of market

segments– Customer analysis– Competitor analysis– Positioning analysis– Estimating segment attractiveness– Segmentation “fit” and implementation

50

CustomerAnalysis

PositioningAnalysis

Financial andMarket

Attractiveness

CompetitorAnalysis

Strategic Analysis of Market Segments

51Segment Financial and Market

Attractiveness

Estimated($ million)

Segment

X Y Z

Sales* 10 16 5

Variable costs* 4 9 3

Contribution margin* 6 7 2

Market share ~ 60% 30% 10%

Total segment sales 17 53 50

Segment position:

Business strength High Medium Low

Attractiveness # Medium Low High

*For a two-year period.~Percent of total sales in the segment.#Based upon a five-year projection.

52

Segmentation “Fit” for Implementation

Segment Attractivenessand Internal Compatibility

Internal Compatibility

Market SegmentAttractiveness

High Low

High

Low

Attractive segmentsthat match with

companycapabilities

Attractive segmentsbut with poor match

with companycapabilities

Unattractive segmentsthat do not match withcompany capabilities

Unattractive segmentsbut with match to

companycapabilities

53

Continuous Learning About

Markets

54

Continuous Learning About Markets

Market orientation and organizational learning

Marketing research information Information systems Marketing intelligence systems

and knowledge management Ethical issues in collecting and

using information

55

Market Orientation and Organizational

Learning

Market orientation perspective includes all relevant sources of knowledge and ideas

Characteristics of the learning organization

Learning and competitive advantage

56

Learning About Markets

Open-MindedInquiry

Keeping andGaining Access

to PriorLearning

SynergisticInformationDistribution

MutuallyInformed

Interpretations

57

A Framework for Market Sensing

Probability of the Event Occurring

Effect of theEvent on theCompany*

High LowMedium

1

2

3

4

5

6

7

* 1=Disaster, 2=Very bad, 3=Bad, 4=Neutral, 5=Good, 6=Very good, 7=Ideal

UtopiaField ofDreams

Things toWatch

DangerFutureRisks

58

Types of Marketing Information

Marketing research studies Standardized information

services Management information

systems Database systems Decision support systems Customer relationship

management (CRM) systems Competitor intelligence systems

59

Strategies for Obtaining Information

Strategyalternatives

Use standardizedresearch services

Collect existing information

Conduct research study

Internal Data

Published information

Subscription

Single purchase

Exploratory

Full-scale

60Advantages and Limitations

of Questioning Methods Advantages Limitations

Personal Interviews

Most versatile and High cost flexible Possibility of interviewer Long questionnaires bias handled more easily Possibility of cheating by Presence of interviewer interviewer due to lack allows more flexibility of supervision in procedure Project time often lengthy More enjoyable for respondents Fewer refusals

Telephone Interviews

Fewer interviewers needed More noncommittal Relatively inexpensive answers Rapid method of data Some households collection overrepresented Can reach large number of Lengthy and detailed households questions often not More control over interviewers feasible

Mail surveys

Higher-quality information Questionnaire cannot be Better for collecting changed information on possibly Complex embarrassing subjects Can be completed by Relatively cheaper to conduct person other than intended No interviewer bias Follow-up expensive

Response often slow in coming

61

Special Research StudiesProblem Definition

Information Required

Research Method

Sampling Plan

Questionnaire Design

Data Collection

Analysis and Report

62

1. Client Would you recommend this supplier?

2. Supplier Do you have sufficient funds for this project?

3. What parts of the project will be subcontracted, and how do you manage subcontractors?

4. May I see your interviewer’s manual and data entry manual?

5. How do you train and supervise interviewers?

6. What percentage of interviews are validated?

7. May I see a typical questionnaire?8. Who draws your samples?9. What percentage of your data entry is

verified?10. Ask Managers: What do you think

about this supplier?

Screening A NewResearch Supplier

63

Impact of the Internet on Marketing Costs &

Availability Online Surveys

– Fast– Inexpensive– Limitations in population coverage– Resistance to excessive Web communications

Customer feedback and peer-to-peer Web communications

Monitoring customer Web behavior

64

Marketing Decision-SupportSystem Components

Database

AnalysisCapabilities

Display

Models

65Marketing Intelligence

and Knowledge Management

Market sensing does not rely on hard data alone– intelligence from publications, sales

calls, customer visits, social contacts, Internet, rumor

Knowledge management Role of the Chief Knowledge Officer Leveraging customer knowledge

– creating “customer knowledge development dialogues”

– operating enterprise-wide “customer knowledge communities”

– capturing customer knowledge at the point of customer contact

– management commitment to customer knowledge

66Ethical Issues in Collectingand Using

Information

Invasion of customer privacy– e.g., use of medical databases to

sell healthcare products Information and ethics

– e.g., guidelines for sharing of confidential information

– e.g., collecting data from children