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The following table shows data from a fictional cohort study of industrial workers followed over 30 years to see if exposure to industrial organic solvent affects cognitive function adversely. Use the information below for the following question. Organic Solvent Exposure Number of Participants Impaired Function Yes 28654 818 No 71346 649 Total 100000 1467 Calculate and interpret the risk of impaired function in participants exposed to organic solvents and those who were not. 1 COM5111 Product Policy Week 5 SemB 2019-20 2 Learning Objectives 1. What are the characteristics of products, and how do marketers classify product? 2. How can companies differentiate products? 3. Why is product design important, and what are the different approaches taken? 4. How can a company build and manage its product mix and product lines? 5. How can marketers best manage luxury brands? 6. What environmental issues must marketers consider in their product strategies? 7. How can companies combine products to create strong co-brands or ingredient brands? 8. How can companies use packaging, labeling, warranties, and guarantees as marketing tools? 3 Components Of The Market Offering Marketing planning begins with formulating an offering to meet target customers’ needs or wants customer will judge the offering on three basic elements Slide 15 & 16 Slide 17 4 Product Characteristics and Classifications • Product – Anything that can be offered to a market to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas https://www.youtube.com/watch?v=xYjoBAUOjTk 5 Characteristics of Winning Products A unique superior product— a differentiated product that delivers unique benefits and a compelling value proposition to the customer or user— is the number one driver of new-product profitability Source: Robert G. Cooper, Winning at New Products: Creating Value through Innovation (New York: Basic Books, 2011), p. 32. How about your individual assignment? 6 Unique and superior products tend to have the followings in common 1. are superior to competitors’ products in terms of meeting users’ needs 2. solve a problem the customer has with a competitive product 3. feature good value for the money and excellent price and performance characteristics 4. provide excellent product quality, according to customers’ way of defining quality 5. offer features easily perceived as useful by the customer 6. offer benefits that are highly visible to the customer Source: Robert G. Cooper, Winning at New Products: Creating Value through Innovation (New York: Basic Books, 2011), p. 33. 7 Product Levels: The Customer-Value Hierarchy • The Five Product Levels The service or benefit the customer is really buying e.g. rest & sleep The marketer must turn the core benefit into a basic product e.g. bed, bathroom … A set of attributes and c.

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The following table shows data from a fictional cohort study of industrial workers followed over 30 years to see if exposure to industrial organic solvent affects cognitive function adversely. Use the information below for the following question. Organic Solvent Exposure Number of Participants Impaired Function Yes 28654 818 No 71346 649 Total 100000 1467 Calculate and interpret the risk of impaired function in participants exposed to organic solvents and those who were not. 1 COM5111 Product Policy Week 5 SemB 2019-20
2 Learning Objectives 1. What are the characteristics of products, and how do marketers classify product? 2. How can companies differentiate products? 3. Why is product design important, and what are the different approaches taken? 4. How can a company build and manage its product mix and product lines? 5. How can marketers best manage luxury brands? 6. What environmental issues must marketers consider in their product strategies? 7. How can companies combine products to create strong co- brands or ingredient brands? 8. How can companies use packaging, labeling, warranties, and guarantees as marketing tools? 3 Components Of The Market Offering Marketing planning begins with formulating an offering to meet target customers’ needs or wants
customer will judge the offering on three basic elements Slide 15 & 16 Slide 17 4 Product Characteristics and Classifications • Product – Anything that can be offered to a market to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas https://www.youtube.com/watch?v=xYjoBAUOjTk 5 Characteristics of Winning Products A unique superior product— a differentiated product that delivers unique benefits and a compelling value proposition to the customer or user— is the number one driver of new-product profitability
Source: Robert G. Cooper, Winning at New Products: Creating Value through Innovation (New York: Basic Books, 2011), p. 32. How about your individual assignment? 6 Unique and superior products tend to have the followings in common 1. are superior to competitors’ products in terms of meeting users’ needs 2. solve a problem the customer has with a competitive product 3. feature good value for the money and excellent price and performance characteristics 4. provide excellent product quality, according to customers’ way of defining quality 5. offer features easily perceived as useful by the customer 6. offer benefits that are highly visible to the customer Source: Robert G. Cooper, Winning at New Products: Creating Value through Innovation (New York: Basic Books, 2011), p. 33.
7 Product Levels: The Customer-Value Hierarchy • The Five Product Levels The service or benefit the customer is really buying e.g. rest & sleep The marketer must turn the core benefit into a basic product e.g. bed, bathroom … A set of attributes and conditions buyers normally expect e.g. clean bed … Exceeds customer Expectations e.g. brand position is here Encompasses all the possible
augmentations and transformations the product or offering might undergo in the future e.g. new ways to satisfy and dis 8 Product Classifications Durability Tangibility Use Each type has an appropriate marketing-mix strategy consumer or industrial 9 Durability and Tangibility Nondurable goods
Durable goods Services one or a few uses, e.g. beer and shampoo. Available in many locations, a small markup, and advertise heavily to induce trial and build preference. survive many uses, e.g. refrigerators and clothing. More personal selling and service, command a higher margin, and require more seller guarantees intangible, inseparable, variable, and perishable products => more quality control, supplier credibility, and adaptability. E.g. haircuts, legal advice, and appliance repairs 10 Consumer-Goods Classification Convenience Unsought Shopping
Specialty Purchases frequently, immediately, and with minimal effort. E.g. soft drinks, soaps, and newspapers. Staples goods: purchase on a regular basis, e.g. Heinz ketchup. Impulse goods: without any planning or search effort, like candy bars and magazines. Emergency goods are purchased when a need is urgent—umbrellas during a rainstorm. Compares on suitability, quality, price, and style. E.g. furniture and clothing. Homogeneous: similar in quality but different enough in price to justify shopping comparisons. Heterogeneous: differ in product features and services that may be more important than price. Specialty: unique characteristics or brand identification for which enough buyers are willing to make a special purchasing effort. E.g. cars and audio-video components. Unsought: does not know about or normally think of buying, such
as smoke detectors. Other classic examples are life insurance, cemetery plots, and gravestones. Use Shopping habits 11 Industrial-Goods Classification: Materials and parts Capital items Supplies and business services In terms of their relative cost and the way they enter the production process Use 12 Materials and parts Industrial-Goods Classification
raw materials manufactured materials and parts farm products (wheat, cotton, livestock, fruits, and vegetables) natural products (fish, lumber, crude petroleum, iron ore). component materials (iron, yarn, cement, wires) component parts (small motors, tires, castings) key purchase factors: price and supplier reliability
enter the manufacturer’s product completely Use 13 Capital items Industrial-Goods Classification long-lasting goods that facilitate developing or managing the finished product Installations Equipment Buildings (factories, offices) and heavy equipment (generators, drill presses, mainframe computers, elevators) Portable factory equipment and tools (hand tools, lift trucks) and office equipment (desktop computers, desks) These types of equipment don’t become part of a finished product Use
14 Supplies and business services Industrial-Goods Classification Short-term goods and services that facilitate developing or managing the finished product Supplies (MRO goods): 1. maintenance and repair items (paint, nails, brooms) 2. operating supplies (lubricants, coal, writing paper, pencils) Business services: 1. maintenance and repair services (window cleaning, copier repair) 2. business advisory services (legal, management consulting, advertising) Use 15 Product Differentiation • Form – size, shape, or physical structure of a product
• Features – varying features that supplement their basic function • Performance quality – low, average, high, or superior (at which the product’s primary characteristics operate) • Conformance quality – High conformance quality; all produced units are identical and meet promised specifications • Durability – operating life under natural or stressful conditions, is a valued attribute • Reliability – probability that a product will not malfunction or fail within a specified time period • Reparability – ease of fixing a product when it malfunctions or fails • Style – product’s look and feel to the buyer and creates distinctiveness that is hard to copy • Customization – customized products (what a person wants— and doesn’t want—and deliver) 16 Services Differentiation Main service differentiators: ✓Ordering ease
✓ Delivery ✓ Installation ✓ Customer training ✓ Customer consulting ✓ Maintenance and repair ✓ Returns 17 Design • Design – The totality of features that affect the way a product looks, feels, and functions to a consumer 18
Design ✓ Is emotionally powerful ✓ Transmits brand meaning/positioning ✓ Is important with durable goods ✓ Makes brand experiences rewarding ✓ Can transform an entire enterprise ✓ Facilitates manufacturing/distribution ✓ Can take on various approaches 19 THE PRODUCT HIERARCHY The product hierarchy stretches from basic needs to particular items that satisfy those needs Six levels Need family
Product family Product class Product line Product type Item 20 THE PRODUCT HIERARCHY Using life insurance as an example: 1. Need family—The core need that underlies the existence of a product family. Example: security 2. Product family—All the product classes that can satisfy a core need with reasonable effectiveness. Example: savings and income 3. Product class—A group of products within the product family recognized as having a certain functional coherence, also known as a product category. Example: financial instruments 4. Product line—A group of products within a product class that are closely related because they perform a similar function, are sold to the same customer groups, are marketed through the same outlets or channels, or fall within given price ranges – A product line may consist of different brands, a single family
brand, or an individual brand that has been line extended Example: life insurance 5. Product type—A group of items within a product line that share one of several possible forms of the product Example: term life insurance 6. Item (also called stock-keeping unit or product variant)—A distinct unit within a brand or product line distinguishable by size, price, appearance, or some other attribute Example: Prudential renewable term life insurance 21 Product Systems and Mixes • Product system – A group of diverse but related items that function in a compatible manner • Product mix (product assortment) – The set of all products and items for sale – Various product lines – Width – Length – Depth
– Consistency - how closely related the various product lines are in end use, production requirements, distribution channels, or some other way 22 Product Width And Length For Procter & Gamble Products 23 To Expand The Number Of Product Lines: Three Ways (1/2) 1. Undertaking a business whose profit stream will probably correlate negatively with the profit stream of existing businesses—thereby reducing the overall risk of the enterprise – For example, a beverage company developing a strong position in the water market helps offset risk of decline in the soda market if hydration habits move heavily to water 24
To Expand The Number Of Product Lines: Three Ways (2/2) 2. Leveraging a key asset of the company that underlies the current product offerings – For example, Procter & Gamble (P&G) has a wide variety of products across four sectors that the company claims “share common technologies”: beauty, hair, and personal care; baby, feminine, and family care; health and grooming; and fabric and home care – Because many of these products also share the same distribution system, P&G is able to leverage its established retailer relationships to market and sell its products 3. Tapping into complementary-in-use products and thus enabling the firm to be a “total solution supplier.” – For example, Procter & Gamble explained the acquisition of the Gillette Company and its Oral-B toothbrush line by noting that the union of Oral-B and Crest placed P&G oral care as the market leader and the only major oral care company with a breadth of products across every category: toothpaste, toothbrushes, whitening, rinse, denture care, and floss
25 Product line length • Line stretching – Down-market stretch – Up-market stretch – Two-way stretch • Line filling • Line modernization • Line featuring • Line pruning 26 Options for Product Line Length 1. A downward stretch of the line, adding a lower-priced item still capable of satisfying the needs of some applications 2. An upward stretch of the product line, adding an item at a higher price and performance level, able to meet the performance requirements of more
demanding applications 3. A product line fill, inserting an item of a price and performance level that fills a gap between two existing items – Motives: reaching for incremental profits,, trying to become the leading full-line company, … 27Adapted from “Extend Profits, Not Product Lines” by John A. Quelch and David Kenny, Harvard Business Review, September/October 1994. Product Line Depth Considerations 28 Product Line Analysis • Sales and profits to meet different customer requirements and lower production costs carefully monitored and protected dropping
29 Product Line Analysis • Market profile and image positioned against competitors’ lines This product map shows which competitors’ items are competing against company X’s items. Another benefit of product mapping is that it identifies market segments. 30 Product Mix Pricing • The firm searches for a set of prices that maximizes profits on the total mix Product line pricing Optional- feature pricing Captive- product
pricing Two-part pricing By-product pricing Product- bundling pricing develop product lines rather than single products so they introduce price steps optional products with their main products require the use of ancillary or captive products be priced on their value Pure bundling - as a bundle.
In mixed bundling, both individually and in bundles 31 Product Life Cycle 32 Product Life Cycle Introduction • Marketing expenditures are high as awareness and knowledge of product features must be established in the target market • Trial may be hard to induce if customers are satisfied with current options • Distribution must be built up Growth • With awareness and trial achieved, the product’s performance is the dominant driver of sales • Success may induce the entry of new competitors and require promotional spending to defend against those competitors Maturity • All feasible market segments have been reached and distribution channels built up
• For nondurables, sales come from replenishment only, as household penetration has leveled off • For durables, population and income growth can be key drivers Decline • The rate of decline may still be a function of marketing efforts. A focus on hard-core loyal, who will make an effort to buy even at high prices and limited distribution, may be a profit opportunity • The discipline to phase out weak products is critical, however, lest the company and distribution channels become overwhelmed 33 Lessons From Product Life Cycles • Products (market offerings) have a limited life • Sales pass through distinct stages, each posing different challenges, opportunities and problems to the seller • Profits rise and fall at different stages of the product life cycle • Products require different marketing, financial, manufacturing, purchasing and human resource strategies at each stage
34 Strategies To Sustain Rapid Market Growth • Improve product quality and add new product features and improved styling • Add new models, accessory items and personalising options • Enter new market segments • Increase its distribution coverage and enters new distribution channels • Shift from product-awareness advertising to product-preference advertising • Lower prices to attract the next layer of price-sensitive buyers 35 Strategies To Increase Sales Volumes 36 Luxury brands The common denominators:
– Quality – Uniqueness A winning formula: – Craftsmanship – Heritage – Authenticity – History Design is often an important aspect https://www.bing.com/videos/search?q=tequla&view=detail&mi d=D9442DF79F05EFD67DD2D9442DF79F05EFD67DD2&FOR M=VIRE 37 Guidelines for Marketing Luxury Brands 38 Environmental Issues • Environmental issues are also playing an increasingly important role in product design and manufacturing – changing the manufacture of their products
or the ingredients that go into them https://www.c2ccertified.org/ 39 Co-Branding • Two or more well-known brands are combined into a joint product or marketed together in some fashion ✓ Same-company ✓ Joint-venture ✓ Multiple-sponsor ✓ Retail 40 INGREDIENT BRANDING • Co-branding that creates brand equity for parts that are necessarily contained within other branded products ingredient brands can provide differentiation and important signals of quality 41
Packaging • All the activities of designing and producing the container for a product Used as a marketing tool • Self-service: (attract attention, describe the product’s features, create consumer confidence, and make a favorable overall impression) • Consumer affluence: (for the convenience, appearance, dependability, and prestige for better …) • Company and brand image: (instant recognition, billboard effect) • Innovation opportunity: (make their products more convenient and easier to use) 42 Packaging Packaging objectives • Identify the brand • Convey descriptive and persuasive information
• Facilitate product transportation and protection • Assist at-home storage • Aid product consumption To achieve these objectives listed here and satisfy consumers’ desires: marketers must choose the functional and aesthetic components of packaging correctly’ 43 The Color Wheel of Branding and Packaging Color is a particularly important aspect of packaging and carries different meanings in different cultures and market segments 44 Labeling, Warranties, and Guarantees
• Labeling – Identifies, grades, describes, and promotes the product • Warranties – Formal statements of expected product performance by the manufacturer • Guarantees – Promise of general or complete satisfaction 45 BACK 46 REFERENCES Cooper, R.G. (2011). Winning at New Products: Creating Value through Innovation. New York: Basic Books. Dolan, R. J. (2019). Marketing Reading: Product Policy. Harvard Business School.
Elberse, A. (2006). Principles of Product Policy – Module Note. Harvard Business School. Kotler, P. & Keller, K. L.(2016). A Framework for Marketing Management (5th ed.). Boston : Pearson. Back to LO COM5111 Fundamentals of Marketing Communication Week 4 Sem B 2019-20 Segmentation and Targeting COM5111 SemB 2019-20COM5111 SemB 2019-20 Learning Objectives for Week 4 1. What are the different levels of market segmentation? 2. In what ways can a company divide a market into segments? 3. What are the requirements for effective segmentation? 4. How should consumer and business markets be segmented?
5. How should a company choose the most attractive target markets? 6. Conclusion 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Importance of Market Segmentation • Companies cannot connect with all customers in large, broad, or diverse markets • A company then needs to identify which market segments it can serve effectively • This decision requires a keen understanding of consumer behavior and careful strategic thinking • To develop the best marketing plans, managers need to understand what makes each segment unique and different • Identifying and satisfying the right market segments is often the key to
marketing success 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Target Marketing • To compete more effectively, many companies are now embracing target marketing • Effective target marketing requires that marketers: a. Identify and profile distinct groups of buyers who differ in their needs and Preference (market Segmentation) b. Select one or more market segments to enter (market Targeting) c. For each target segment, establish and communicate the distinctive benefit(s) of the company’s market offering (market Positioning) 4
COM5111 SemB 2019-20 CONSUMER MARKETS Geographic Segmentation Demographic Segmentation Psychographic Segmentation Behavioral Segmentation 5 COM5111 SemB 2019-20COM5111 SemB 2019-20 Bases for Segmenting Consumer Markets (up to slide number 40) • Market segmentation divides a market into well-defined groups • A market segment consists of a group of customers who share a similar set of needs and wants • The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target • There are two broad groups of variables are used to segment consumer markets
a. Descriptive characteristics: geographic, demographics, and psychographic (slide number 6 - 25) b. Behavioral considerations: consumer responses to benefits, usage occasions, or brands (slide number 26 - 40) • Regardless of which type of segmentation scheme we use, the key is adjusting the marketing program to recognize customer differences 6 COM5111 SemB 2019-20COM5111 SemB 2019-20 Major Segment Variables for Consumer Markets 7 COM5111 SemB 2019-20COM5111 SemB 2019-20 Major Segment Variables for Consumer Markets (cont’d) 8
COM5111 SemB 2019-20COM5111 SemB 2019-20 Geographic Segmentation • Geographic segmentation calls for dividing the market into different geographical units such as nations, states, regions, counties, cities, or neighborhoods • The company can operate in one or a few areas, or operate in all but pay attention to local variations • In that way, it can tailor marketing programs to the needs and wants of local customer groups in trading areas, neighborhoods, and even individual stores 9 COM5111 SemB 2019-20COM5111 SemB 2019-20 Kit Kat 2016 Japan 10 https://www.youtube.com/watch?v=di9mbJlwCM0&feature=emb _title
COM5111 SemB 2019-209 Geographic Segmentation Procter & Gamble—In China, P&G’s customer research managers discovered that while low prices help sales in villages, it is also important to develop products that are consistent with cultural traditions. Thus, urban Chinese pay more than $1 for Crest toothpaste with exotic flavors such as Icy Mountain Spring and Morning Lotus Fragrance; while those in the villages prefer 50-cent Crest Salt White since many rural Chinese believe that salt whitens teeth. Such geographic segmentation is also practiced for its Olay moisturizing cream, Tide detergent, Rejoice shampoo, and Pampers diapers. 11 COM5111 SemB 2019-20COM5111 SemB 2019-20
Geographic Segmentation: Grassroots Marketing In a growing trend called grassroots marketing, such activities concentrate on getting as close and personally relevant to individual customers as possible Hewlett-Packard—Hewlett-Packard positions itself as a company implementing “e-inclusion,”— the attempt to help bring the benefits of technology to the poor. Toward that end, HP began a three-year project designed to create jobs, improve education, and provide better access to government services in the Indian state of Kuppam. Working with the local government, as well as a branch of HP Labs based in India, the company, through grassroots marketing, provides the rural poor with access to government records, schools, health information, crop prices, and so on. Its hope is to stimulate small, tech-based businesses. Not only does this build goodwill and the HP brand in India, it also helps the company discover new, profitable lines of business. 12
COM5111 SemB 2019-20COM5111 SemB 2019-20 Geographic Segmentation: Regional Marketing • More and more, regional marketing means marketing right down to a specific district • Some companies use mapping software to show the geographic locations of their customers • By mapping the densest areas, the retailer can resort to customer cloning, assuming that the best prospects live where most of his customers come from • Some approaches combine geographic data with demographic data to yield even richer descriptions of consumers and neighborhoods • Called geo-clustering, it captures the increasing diversity of the population 13 COM5111 SemB 2019-20COM5111 SemB 2019-20
Demographic Segmentation In demographic segmentation, we divide the market by variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class Reasons for Popularity of Demographic Segmentation • First, consumer needs, wants, usage rates, and product and brand preferences are often associated with demographic variables • Second, demographic variables are easier to measure • Even when the target market is described in non-demographic terms (say, a personality type), the link back to demographic characteristics is needed to estimate the size of the market and the media that should be used to reach it efficiently 14 COM5111 SemB 2019-20COM5111 SemB 2019-20
Age and Life-Cycle Stage • Consumer wants and abilities change with age • Nevertheless, age and life cycle can be tricky variables • The target market for some products may be the psychologically young 15 COM5111 SemB 2019-209 Life Stage • People in the same part of the life cycle may differ in their life stage • Life stage defines a person’s major concern, such as going through a divorce, going into a second marriage, taking care of an older parent, deciding to cohabit with another person, deciding to buy a new home, and so on
16 COM5111 SemB 2019-20COM5111 SemB 2019-20 Gender • Gender differentiation has long been applied in clothing, hairstyling, cosmetics, and magazines • Men and women tend to have different attitudinal and behavioral orientations, based partly on genetic make-up and partly on socialization • Examples: – Women tend to be more communal-minded and men tend to be more self-expressive and goal-directed – Men often like to read product information; women may relate to a product on a more personal level 17 COM5111 SemB 2019-20COM5111 SemB 2019-20 Gender Segmentation
The beauty industry in Japan—Japanese women continue to sustain the beauty business. Tokyo’s fashionable Marunouchi business district has seen beauty outlets sprouting. One such outlet, Café de Make-up, specifically targets office ladies. It offers them an orange seat, a cup of coffee, a choice of five colors of nail polish or lipstick, the services of a beauty advisor, and a chance to apply make-up at leisure at a vanity table for a low price of 500 yen. Men are also a fast-growing segment in the beauty market. Mandom, one of Japan’s leading makers of men’s cosmetics, says that sales of face care products like cleansing gels, toning lotions, and mud packs are strong and growing. One explanation for this is the slew of boyish, clean-cut actors and pop singers who have become the rage among young Japanese women. These celebrities have been engaged as endorsers of more and more beauty products. 18 https://www.mandom.co.jp/ COM5111 SemB 2019-20COM5111 SemB 2019-20
Income • Income segmentation is a long-standing practice in product and service categories • Increasingly, companies are finding their markets are hourglass-shaped as middle-market consumers migrate toward both discount and premium products Banyan Tree—Singapore’s Banyan Tree, famous for its upmarket pampering with a distinctive Asian touch, runs a multimillion dollar spa resort in Bahrain, where money is no object to guests. Set in a lush oasis, next to Bahrain’s Formula One motor-racing circuit and a wildlife reserve, the spa resort has been billed as the ultimate in exclusivity and luxury. Catering to the “blank check” segment, the spa resort has 78 villas with traditional Middle Eastern design, private open-air swimming pools, oversized infinity bathtubs, and sprawling master bedrooms. To deliver the ultimate level of
privacy, guests, if they wish, can be kept away from view of other guests. Besides the high-end Banyan Tree resorts, it also has the Angsana Hotels and Resorts that are more affordable. 19 http://banyan-tree-desert-spa-resort-al-areen.manama- hotels.net/en/ COM5111 SemB 2019-20COM5111 SemB 2019-20 Example of Income Segmentation: Kraft in Rural Indonesia Kraft—In Indonesia, consumer goods companies are adapting their marketing strategies to target this group of consumers. Although tastes are becoming more Westernized, rural consumers are still extremely price sensitive. Television ads are thus adapted to make the products more approachable and affordable. These ads are increasingly peppered with rural scenes and down-to-earth-looking characters peddling products in small-pack sizes. Kraft’s confectionery and cheese products are sold by 1 million outlets throughout Indonesia. Its Bisquat milk biscuits sells more than 200 million packets each month. The small
packets costs 500 rupiah (6 cents) and are also available in a softcake version called bolu. Kraft has researched on the Indonesian rural consumers. A typical young Indonesian boy’s dietary and personal preferences meant he requires snacks four times a day, of which two may be served outside the home. Hence, Kraft offers products in biscuit and softcake forms, and in smaller packages to be sold at snack kiosks in towns and villages. 20 http://www.kraftheinzcompany.com/ https://www.youtube.com/watch?v=OX5hbTHToFM COM5111 SemB 2019-20COM5111 SemB 2019-20 Generation • Each generation or cohort is profoundly influenced by the times in which it grows up • Demographers call these groups cohorts • They share similar outlooks and values
• Marketers often advertise to a cohort by using the icons and images prominent in their experiences 21 COM5111 SemB 2019-20COM5111 SemB 2019-20 Gen Y • A generation group of interest to marketers is the Gen Y • Because Gen Y members are often turned off by overt branding practices and “hard sell,” marketers use different approaches to reach and persuade them • These include online buzz, student ambassadors, product placements in computer games, and sponsoring cool events China’s Gen Y are more entrepreneurial, more Internet connected, and know more about Westerners than Westerners know about them
22 COM5111 SemB 2019-20COM5111 SemB 2019-20 Psychographic Segmentation • Psychographics is the science of using psychology and demographics to better understand consumers • In psychographic segmentation, buyers are divided into different groups on the basis of psychological/personality traits, lifestyle, or values • People within the same demographic group can exhibit very different psychographic profiles • One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insights’ VALSTM framework • VALS classifies adults into eight primary groups based on personality traits and key demographics
• The segmentation system is based on responses to a questionnaire featuring four demographic and 35 attitudinal questions 23 COM5111 SemB 2019-20COM5111 SemB 2019-20 Four groups with HIGHER resources 1. Innovators—Successful, sophisticated, active, and “take- charge” people with high self-esteem. Purchases often reflect cultivated tastes for relatively upscale, niche- oriented products and services 2. Thinkers—Mature, satisfied, and reflective people who are motivated by ideals and value order, knowledge, and responsibility. Favor durability, functionality, and value in products (guided by knowledge and principles) 3. Achievers—Successful career- and work-oriented people who value consensus and stability. They favor established and prestige products that demonstrate success to their
peers (look for p/s->success) 4. Experiencers—Young, enthusiastic, and impulsive people who seek variety and excitement. Spend a comparatively high proportion of income on fashion, entertainment, and socializing (social/physical activity; risk) Consumer motivation Consumer resources Diff levels of resources enhance or constraint a person’s expression of his or her primary motivation 24 COM5111 SemB 2019-20COM5111 SemB 2019-20 Four groups with LOWER resources 1. Believers—These consumers are conservative, conventional, and traditional. They prefer familiar, established brands and staying loyal to them 2. Strivers—These consumers are trendy and fun-loving. They seek the approval of others. However, because they have fewer resources, they emulate the purchases of those
with more wealth by buying stylish products 3. Makers—Focusing on their work and home, these consumers are pragmatic, self-sufficient, traditional, and family-oriented. As such, they favor functional products 4. Strugglers—Loyal to their favorite brands, these elderly consumers are passive and display a sense of resignation. They are concerned about change 25 COM5111 SemB 2019-20COM5111 SemB 2019-20 Behavioral Segmentation In behavioral segmentation, buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product 26 COM5111 SemB 2019-20COM5111 SemB 2019-20 Needs and Benefits
• Not everyone who buys a product has the same needs or wants the same benefits from it • Needs-based or benefits-based segmentation is a widely used approach because it identifies distinct market segments with clear marketing implications 27 COM5111 SemB 2019-20COM5111 SemB 2019-20 Needs and Benefits Segmentation – P&G Procter & Gamble, for instance, has different shampoo brands according to the needs of each segment • Head & Shoulders is for those who need to control their dandruff problem • Pantene is for those who want to protect their hair from environmental damage from the sun • Rejoice is for those who want a mild
shampoo for everyday use Procter & Gamble offers a range of shampoo brands that satisfies different hair care needs 28 COM5111 SemB 2019-20COM5111 SemB 2019-20 Decision Roles • It is easy to identify the buyer for many products • People play five roles in a buying decision: initiator, influencer, decider, buyer, and user • Different people are playing different roles, but all are crucial in the decision process and ultimate consumer satisfaction 29 COM5111 SemB 2019-20COM5111 SemB 2019-20 User and Usage—Real User and Usage-related Variables Many marketers believe that behavioral variables—occasions,
benefits, user status, usage rate, loyalty status, buyer- readiness stage, and attitude—are the best starting points for constructing market segments 30 COM5111 SemB 2019-20COM5111 SemB 2019-20 Occasions • Occasions are determined by a time of day, week, month, year or other well- defined temporal aspects of a consumer’s life • Buyers can be distinguished according to the occasions when they develop a need, purchase a product, or use a product • For example, air travel is triggered by occasions related to business, vacation, or family
• Occasion segmentation can help firms expand product usage Occasions are another way to segment the market. In Japan, marketers celebrate different occasions with appropriate promotions. 31 COM5111 SemB 2019-20COM5111 SemB 2019-20 User Status • Markets can be segmented into non-users, ex-users, potential users, first-time users, and regular users of a product • Each will require a different marketing strategy • The key to attracting potential users, or even possibly nonusers, is understanding the reasons they are not using • Market-share leaders tend to focus on attracting potential users because they have the most to gain • Smaller firms focus on trying to attract current users away from the
market leader 32 COM5111 SemB 2019-20COM5111 SemB 2019-20 Usage Rate • Markets can be segmented into light, medium, and heavy product users • Heavy users are often a small percentage of the market but account for a high percentage of total consumption • Marketers would rather attract one heavy user than several light users • A potential problem is that heavy users are often either extremely loyal to one brand, or never stay loyal to a brand and are always looking for the lowest price 33 COM5111 SemB 2019-209 Usage Rate—The Chinese Internet Market
The Digital Junkies are the most intensive Internet users among the Chinese. They spend more than 34 hours a week with digital media compared to the average of 15.8 hours. Chinese Internet market—Consulting firm McKinsey found seven consumer segments among Internet users in China. The Traditionalists spend a large portion of their media time on traditional forms such as television and are less likely to own or want to own other digital devices. They are less educated than the rest of the Internet users and many live in smaller cities. The Digital Junkies are the most intensive Internet users. They spend more than 34 hours a week with digital media compared with an average of 15.8 hours for all users. They are young and are always on the lookout for the latest gadget. Another segment is the Gamers who spend most of their time on PC games and are
heavy users of social networks. Mobile Mavens are heavy mobile- Internet users, preferring listening to music and reading. Info- centrics look for information to increase productivity at work. Basic Users spend the least amount of time online, and play games on mobile phones. Finally, the Traditionalists are light users of the Internet. They have little interest in high-tech devices and spend more time watching television. 34 COM5111 SemB 2019-20COM5111 SemB 2019-20 Buyer Readiness Stage • Some people are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy • To help characterize how many people are at different stages and how well they have converted people from one stage to another, some marketers employ a marketing funnel
• See Figure 1: The Brand Funnel 35 COM5111 SemB 2019-209 Figure 1: The Brand Funnel The relative numbers of consumers at different stages make a big difference in designing the marketing program 36 COM5111 SemB 2019-20 Loyalty Status Buyers can be divided into four groups according to brand loyalty status: 1. Hard-core loyals—Consumers who buy only one brand all the time 2. Split loyals—Consumers who are loyal to two or three brands 3. Shifting loyals—Consumers who shift loyalty from one
brand to another 4. Switchers—Consumers who show no loyalty to any brand COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Applications A company can learn a great deal by analyzing the degrees of brand loyalty: i. By studying its hard-core loyals, the company can identify its products’ strengths ii. By studying its split loyals, the company can pinpoint which brands are most competitive with its own iii. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses and attempt to correct them 38
COM5111 SemB 2019-20COM5111 SemB 2019-20 Attitude Five attitude groups can be found in a market: 1. enthusiastic 2. positive 3. indifferent 4. negative 5. and hostile 39 COM5111 SemB 2019-20COM5111 SemB 2019-20 Behavioral Segmentation Breakdown Combining different behavioral bases can help to provide a more comprehensive and cohesive view of a market and its segments Figure 2 depicts one possible
way to break down a target market by various behavioral segmentation bases 40 COM5111 SemB 2019-20 BUSINESS MARKETS Segmentation variables and marketing applications 41 COM5111 SemB 2019-20COM5111 SemB 2019-20 Bases for Segmenting Business Markets (up to slide number 48) • Business markets can be segmented with some of the same variables used in consumer market segmentation, such as geography, benefits sought, and usage rate, but business marketers also use other variables 42
COM5111 SemB 2019-20COM5111 SemB 2019-20 Major Segmentation Variables for Business Markets • This table shows one set of these. The demographic variables are the most important, followed by the operating variables 43 COM5111 SemB 2019-20COM5111 SemB 2019-20 Major Segmentation Variables for Business Markets (cont…) 44 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Applications of Business Segmentation • The table lists major questions that business marketers should ask in determining which segments and customers to serve • Within a chosen target industry, a company can further segment by company size. The company might set up
separate operations for selling to large and small customers • Within a given target market industry and customer size, a company can segment further by purchase criteria 45 COM5111 SemB 2019-20COM5111 SemB 2019-20 Segmenting Business Markets • Business marketers generally identify segments through a sequential process • The company first undertook macrosegmentation • It looked at which end-use market to serve: automobile, residential, or beverage containers • It chose the residential market, and it needed to determine the most attractive product application: semi-finished material, building components, or aluminum mobile homes • Deciding to focus on building components, it considered the best customer size and chose large customers
46 COM5111 SemB 2019-20COM5111 SemB 2019-20 Segmenting Business Markets • The second stage consisted of microsegmentation • The company distinguished among customers buying on price, service, or quality • Because it had a high-service profile, the firm decided to concentrate on the service-motivated segment of the market 47 COM5111 SemB 2019-20COM5111 SemB 2019-20 Segmenting Business Markets • Business-to-business marketing experts Anderson and Narus have urged marketers to present flexible market offerings to all members of a segment • A flexible market offering consists of two parts: a naked solution containing the product and service elements that all
segment members value, and discretionary options that some segment members value • Each option might carry an additional charge 48 COM5111 SemB 2019-20 MARKET TARGETING Effective Segmentation Criteria Evaluating and Selecting the Market Segments Possible Levels of Segmentation Full Market Coverage Multiple-Segment Specialization Single-Segment Specialization Individual Marketing Legal and Ethical Issue with Market Targets 49 COM5111 SemB 2019-20COM5111 SemB 2019-20
Market Targeting • Once the firm has identified its market-segment opportunities, it has to decide how many and which ones to target • Marketers are increasingly combining several variables in an effort to identify smaller, better-defined target groups • This has lead some researchers to advocate a needs-based market segmentation approach 50 COM5111 SemB 2019-20COM5111 SemB 2019-20 Steps in the Segmentation Process 51 COM5111 SemB 2019-20COM5111 SemB 2019-20 Effective Segmentation Criteria 1. Measurable—The size, purchasing power, and characteristics of the
segments can be measured 2. Substantial—The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program 3. Accessible—The segments can be effectively reached and served 4. Differentiable—The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs 5. Actionable—Effective programs can be formulated for attracting and serving the segments 52 COM5111 SemB 2019-20COM5111 SemB 2019-20 Porter’s Five Forces Model and Segment Attractiveness Michael Porter has identified five forces that determine the
intrinsic long-run attractiveness of a market or market segment: • industry competitors • potential entrants • substitutes • buyers • suppliers 53 COM5111 SemB 2019-20COM5111 SemB 2019-20 Porter’s Five Forces Model and Segment Attractiveness 1. Threat of intense segment rivalry—A segment is unattractive if it already contains numerous, strong, or aggressive competitors 2. Threat of new entrants—The most attractive segment is one in which entry barriers are high and exit barriers are low
3. Threat of substitute products—A segment is unattractive when there are actual or potential substitutes for the product. Substitutes place a limit on prices and on profits 4. Threat of buyers’ growing bargaining power—A segment is unattractive if buyers possess strong or growing bargaining power 5. Threat of suppliers’ growing bargaining power—A segment is unattractive if the company’s suppliers are able to raise prices or reduce quantity supplied 54 COM5111 SemB 2019-20COM5111 SemB 2019-20 Evaluating and Selecting the Market Segments • In evaluating different market segments, the firm must look at two factors: – The segment’s overall attractiveness and – The company’s objectives and resources • Does a potential segment have characteristics that make it
generally attractive, such as size, growth, profitability, scale economies, and low risk? • Does investing in the segment make sense given the firm’s objectives, competencies, and resources? 55 COM5111 SemB 2019-20COM5111 SemB 2019-20 Possible Levels of Segmentation • Marketers have a range or continuum of possible levels of segmentation that can guide their target market decisions • As this figure shows, at one end is a mass market of essentially one segment; at the other are individuals or segments of one person • Between lie multiple segments and single segments 56 COM5111 SemB 2019-20COM5111 SemB 2019-20 Full Market Coverage
• The firm attempts to serve all customer groups with all the products they might need • In undifferentiated marketing, the firm ignores segment differences and goes after the whole market with one offer • In differentiated marketing, the firm operates in several market segments and designs different products for each segment 57 COM5111 SemB 2019-209 Full Market Coverage Samsung identified six segments of mobile phone users based on their need for style, infotainment, business, multimedia, connection, and basic necessities. It has a slew of mobile phones for full market coverage. Samsung—Its climb to be the second largest mobile phone maker is grounded on understanding customer needs. Samsung realized
that it needed to design more products for people in India, China, and other emerging markets that are providing most of the industry’s growth. Its research showed that there are six segments of users based on their needs: style, infotainment, business, multimedia, connected, and basic. The latter two are most relevant in emerging markets. The “connected” segment consists of people whose main concern is communicating with family, friends, and business associates; while people in the “basic” segment just want a low-cost device that allows them to talk and text message. 58 COM5111 SemB 2019-20COM5111 SemB 2019-20 Undifferentiated Marketing • In undifferentiated marketing or mass marketing, the firm ignores segment
differences and goes after the whole market with one offer • It designs a product and a marketing program that will appeal to the broadest number of buyers • It relies on mass distribution and advertising • It aims to endow the product with a superior image • Undifferentiated marketing is “the marketing counterpart to standardization and mass production in manufacturing” • The narrow product line keeps down costs of research and development, production, inventory, transportation, marketing research, advertising, and product management • The undifferentiated advertising program also reduces costs • Presumably, the company can turn its lower costs into lower prices to win the price-sensitive segment of the market 59 COM5111 SemB 2019-20COM5111 SemB 2019-20
Differentiated Marketing • In differentiated marketing, the firm operates in several market segments and designs different products for each segment • Differentiated marketing typically creates more total sales than undifferentiated marketing. However, it also increases the costs of doing business • Because differentiated marketing leads to both higher sales and higher costs, nothing general can be said about the profitability of this strategy 60 COM5111 SemB 2019-20COM5111 SemB 2019-20 Differentiated Marketing – Lenovo Lenovo practices differentiated marketing to reach out more effectively to consumer and business customers
Lenovo—China’s IT service market is estimated to grow by leaps and bounds. To capitalize on this, Lenovo differentiated its retail channel to reach consumer and business customers. It doubled its chain of 1+1 Special Shops to more than 500 stores aimed at consumers. It also established a chain of about 400 commercial IT specialty shops, aimed at business customers. In so doing, Lenovo can sell bundled products like Internet services with hardware. It can also identify those customers, especially small- and mid-sized businesses, who might buy additional services. Lenovo has two departments working on its service business—one on bundling, the other offering after-sale services such as systems integration.
61 COM5111 SemB 2019-20COM5111 SemB 2019-20 Multiple Segment Specialization • With selective specialization, a firm selects a subset of all the possible segments, each objectively attractive and appropriate • There may be little or no synergy among the segments, but each promises to be a moneymaker • Keeping synergies in mind, companies can try to operate in super segments rather than in isolated segments. A super segment is a set of segments sharing some exploitable similarity 62 COM5111 SemB 2019-20COM5111 SemB 2019-20 Multiple Segment Specialization • With product specialization, the firm sells a certain product to
several different market segments • This leads to a strong reputation in the specific product area • The downside/risk is that the product may be supplanted by an entirely new technology • With market specialization, the firm concentrates on serving many needs of a particular customer group, such as by selling an assortment of products only to university laboratories • The firm gains a strong reputation among this customer group and becomes a channel for additional products its members can use • The downside/risk is that the customer group may suffer budget cuts or shrink in size 63 COM5111 SemB 2019-20COM5111 SemB 2019-20 Single-segment Concentration • With single-segment concentration, the firm markets to only
one particular segment • Through concentrated marketing, the firm gains deep knowledge of the segment’s needs and achieves a strong market presence • Further, the firm enjoys operating economies through specializing its production, distribution, and promotion • If it captures segment leadership, the firm can earn a high return on its investment 64 COM5111 SemB 2019-20COM5111 SemB 2019-20 Niche Marketing • A niche is a more narrowly defined customer group seeking a distinctive mix of benefits within a segment. Marketers usually identify niches by dividing a segment into sub- segments • Niche marketers aim to understand their customers’ needs so well that customers willingly pay a premium
65 COM5111 SemB 2019-20COM5111 SemB 2019-20 Individual Marketing • The ultimate level of segmentation leads to “segments of one,” “customized marketing,” or “one-to-one marketing” • As companies have grown more proficient at gathering information about individual customers and business partners (suppliers, distributors, retailers) • Consumers increasingly value self-expression and the ability to capitalize on user- generated products as well as user-generated content • Customization is not for every company. It may be very difficult to implement for complex products such as automobiles 66 COM5111 SemB 2019-20COM5111 SemB 2019-20
Legal and Ethical Issue with Market Targets • Market targeting sometimes generates public controversy (Make a hit? fun? good? bad? offended?) • The public is concerned when marketers take unfair advantage of vulnerable groups (such as children) or disadvantaged groups (such as rural poor people), or promote potentially harmful products • Example, the fast-food industry has been heavily criticized for marketing efforts directed toward children Ethical Choice of Market Targets • Socially responsible marketing calls for targeting that serves not only the company’s interests, but also the
interests of those targeted 67 https://jingdaily.com/burberry-altered-campaign/ https://uk.style.yahoo.com/post/142348521319/gucci-ad- banned-for-gaunt-model https://www.theguardian.com/world/2004/apr/21/china.jonathan watts COM5111 SemB 2019-20COM5111 SemB 2019-20 Conclusion 1. Target marketing includes three activities: market segmentation, market targeting, and market positioning. Market segments are large, identifiable groups within a market 2. Two bases for segmenting consumer markets are consumer characteristics and consumer responses. The major segmentation variables for consumer markets are geographic, demographic, psychographic, and behavioral. Marketers use them singly or in combination 3. Business marketers use all these variables along with operating variables, purchasing approaches, and situational factors 4. To be useful, market segments must be measurable, substantial, accessible, differentiable, and actionable
5. We can target markets at four main levels: mass, multiple segments, single (or niche) segment, and individuals 6. A mass market targeting approach is adopted only by the biggest companies. Many companies target multiple segments defined in various ways such as various demographic groups who seek the same product benefit 7. A niche is a more narrowly defined group. Globalization and the Internet have made niche marketing more feasible to many 8. More companies now practice individual and mass customization. The future is likely to see more individual consumers take the initiative in designing products and brands. Marketers must choose target markets in a socially responsible manner at all times 68 COM5111 SemB 2019-20COM5111 SemB 2019-20 References Kotler, P., Keller, K. L., Ang, S.H., Tan, C.T., Leong, S.M. (2018). Marketing Management: An Asian perspective
(7th ed.). Harlow, United Kingdom: Pearson Education Limited. 69 1Sources: Getty Images COM5111 Pricing strategy COM5111 Semester B 2019-20 Week 6 27th February 2020 2 Critical questions 1. How do consumers process and evaluate prices? 2. How should a company initially set prices for products and/or services? 3. How should a company adapt prices to meet varying
circumstances and opportunities? 4. When should a company initiate a price change? 5. How should a company respond to a competitor’s price change? 3 • Rent • Tuition • Fee • Fare • Rate • Toll • Premium • Honorarium • Special assessment • Bribe • Dues • Salary
• Commission • Wage • Tax Not just a number on a tag … Many forms; performs many functions; and made up of many components A major determinant of buyer choice Synonyms for price 4 Understanding Pricing • Pricing in a digital world ✓ Get instant vendor price comparisons ✓ Name your price and have it met ✓ Get products free ✓ Monitor customer behavior & tailor offers ✓ Give customers access to special prices
✓ Let customers decide the price ✓ Negotiate prices in online auctions and exchanges B__ S_____ 5 Understanding Pricing • A changing pricing environment – Sharing economy – Bartering • Florida Barter • www.swap.com – Renting A severe recession in 2008–2009 New millennial generation (new attitudes and values to consumption) It is about a brand’s luxury connotation
6 Understanding Pricing • How companies price – Small companies: (boss) – Large companies: (division/product line managers) • How companies should price – Understanding of consumer pricing psychology – a systematic approach to setting, adapting, and changing prices Common mistakes • Calculate and add • Not revising often enough - make change • Set independently • Not varying: e.g. purchase occasions 7 Consumer psychology and pricing ( how consumers perceive prices ) How they consider the actual but not the state price
Interpret price in different ways Reference prices Price-quality inferences Price endings Comparing an observed price to an internal reference price they remember or an external frame of reference Many consumers use price as an indicator of quality Many sellers believe prices should end in an odd number Imaging pricing Ego-sensitive products “Left to right” 9 - discount 8 Possible consumer reference prices sellers often attempt to manipulate them e.g. products among expensive competitors Source: Adapted Winer, R. S. (1988). Behavioral perspectives on pricing: buyers’ subjective perceptions of price revisited. In T. Devinney, T. M. (Eds.), Issues in Pricing: Theory
and Research, (pp. 35-57). Lexington, MA: Lexington Books. 9 Price cues • ‘Left-to-right’ pricing (€299 versus €300) €34 to €39; €34 to €44 • Odd number discount perceptions • Even number value perceptions • Ending prices with 0 or 5 (easy to process and retrieve) • ‘Sale’ written next to price (spur demands) 10 Sales signs and prices that end in 9 become less effective the more they employed. They are more influential when consumers’ price knowledge is poor when … When to use price cues • Customers purchase item infrequently • Customers are new • Product designs vary over time
• Prices vary seasonally • Quality or sizes vary across stores • How about Limited availability? (e.g. three days only) 11 Watch this video for tips on pricing from a marketing executive: www.youtube.com/watch?v=4phxRH6vk-I Pricing a new product must take into account the conditions of the market and competitors’ prices Setting the right price http://www.youtube.com/watch?v=4phxRH6vk-I 12 Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price Where to position its market offering (e.g. product) on quality
and price Steps in setting price (slide #14 - #36) 13 Step 1: selecting the price objective 1. Survival 2. Maximum current profit 3. Maximum market share (e.g. TI. Slide #14) 4. Maximum market skimming (e.g. Sony, Apple. Slide #15) 5. Product-quality leadership “affordable luxuries” • Other objectives (e.g. university, nonprofit hospital, social service agency) 14 Conditions favouring a market- penetration pricing strategy Market-penetration pricing involves setting a low price for a new product in order to attract a large number of buyers and a large market share. So lead to lower unit costs and higher long-run profit
• Market is highly price sensitive and low prices stimulate market growth • Production and distribution costs fall with accumulated production experience • Low price discourages actual and potential competition 15 Conditions favouring a market-skimming pricing strategy Market-skimming pricing (or price skimming) strategy sets high initial prices to “skim” revenue layers from the market. Certain conditions: • A sufficient number of buyers have high demand • Unit costs of producing a small volume are not so high as to cancel advantage of charging what traffic will bear • High initial price does not attract more competitors to the market • High price communicates superior product image
16 Price sensitivity Estimating demand curves Price elasticity of demand What affects price sensitivity? attempt to measure their demand curves using several different methods Step 2: determining demand 17 normally a inverse relationship between price and demand So when the demand curse slopes upward? Inelastic and elastic demand Each price will lead to a different level of demand and have a different impact on a company’s marketing objectives
18 Source: Adapted from T. T. Nagle and R. K. Holden (2001) The Strategy and Tactics of Pricing , 3rd edn, Chapter 4. Copyright © 2001. Reprinted by permission of Pearson Education, Inc., Upper Saddle River, NJ. Æ +Y PHONE Companies prefer customers who are less price-sensitive!! Agree, or not? Factors leading to less price sensitivity No Google, no GPS, no camera... so why such a huge price tag for the Æ sir Æ +Y £37,000 a phone to be seen with 19 Surveys Price experiments Statistical analysis
How can companies estimate demand curves? 20 Price elasticity of demand • If demand hardly changes with a small change in price, the demand is inelastic; if demand changes considerably, it is elastic • The higher the elasticity, the greater the volume growth resulting from a 1% price reduction • If demand is elastic, sellers consider lowering price • There may be a price indifference band within which there is little or no effect 21 Types of costs Target costing Accumulated production
Step 3: estimating costs 22 Cost per unit at different levels of production per period Cost terms and production • Fixed costs • Variable costs • Total costs • Average cost • Cost at different levels of production • Activity-based cost accounting (the key is to define and judge activities properly) 23 Cost per unit as a function of accumulated production: the experience curve Experience curve - also known as the learning curve, is the decline in the average cost with accumulated production experience. Accumulated production
24 Target costing • Price less desired profit margin 25 Step 4: analyse competitor’s costs, prices and offers • Firm must take competitors’ costs, prices, & reactions into account • Evaluate worth to customer for differentiated features • Anticipate response from competition 26 The three Cs model for price setting • Three major considerations in price – Customers’ assessment of unique features = price ceiling – Competitors’ prices = orienting point
– Costs = price floor Step 5: selecting a pricing method 27 Six pricing setting methods 1. Markup pricing 2. Target-return pricing 3. Perceived-value pricing 4. Value pricing 5. Going-rate pricing 6. Auction-type pricing 28 1. Markup pricing • Add a standard markup to the product’s cost 29 2. Target-return pricing
• Price that yields its target rate of return on investment 30 Break-even chart for determining target-return price and break-even volume (what would happen at other sales levels) Variable costs, not shown in the figure, rise with volume 31 Companies must deliver the value promised key to perceived-value pricing is to deliver more unique value than competitors and to demonstrate this to prospective buyers managerial judgments, value of similar products, focus groups, surveys • Buyer’s image of product performance • Ability to deliver on time • Warranty quality
• Customer support • Supplier reputation • Trustworthiness • Esteem 3. The components of perceived-value pricing? 32 Value pricing (not just low price) refers to re-engineering the company’s operations to become a low-cost producer without sacrificing quality, to attract a large number of value-conscious customers. For a video on how to negotiate value go to: www.youtube.com/watch?v=Y-iH1dDp6-8&feature=related Everyday low pricing (EDLP) High-low pricing 4. What is value pricing?
http://www.youtube.com/watch?v=Y-iH1dDp6- 8&feature=related 33 5. What is going-rate pricing? In going-rate pricing, firms base prices on competitors’ prices, charging the same, more or less than major competitors Smaller firms ‘follow the leader’ 34 English auctions Dutch auctions Sealed-bid auctions one seller and many buyers one seller and many buyers orone buyer and many sellers would-be suppliers submit only one bid; they cannot know the other bids 6. Auction type pricing
35 Step 6: selecting the final price Pricing methods narrow the range from which the company must select its final price • Additional factors to select final price: • Impact of other marketing activities • Company pricing policies • Gain-and-risk sharing pricing – Buyer resist … The seller then has the option of offering to absorb part or all the risk • Impact of price on other parties – distributors and dealers; sales force; government? 36 Geographical pricing Discounts/allowances Differentiated pricing Promotional pricing Price adaption strategies
37 Geographical pricing Countertrade • Barter • Compensation deal • Seller receive some percentage of payment in cash and the rest in products • Buyback arrangement • The seller sells a plant, or technology to another country and • agrees to accept partial payment using products manufactured with the supplied equipment • Offset • The seller receive full amount in cash but • agrees to spend a substantial amount of money in that country within a stated time period 38
Price discounts and allowances • Cash discount • Quantity discount • Functional discount • Seasonal discount • Allowance 39 Promotional pricing tactics • Loss-leader pricing (supermarket drops prices) • Special-event pricing • Cash rebates • Low-interest financing • Longer payment terms • Warranties and service contracts (adding low cost or free contracts) • Psychological discounting (was $459, now $359) 40
Differentiated pricing • Customer-segment pricing (diff groups pay differently) • Product-form pricing (diff version priced diff) • Image pricing (same product in two diff levels. Price differently) • Channel pricing (fast-food, where you get it?) • Location pricing (theatre) • Time pricing (tickets, restaurants) 41 Critical question for debate 42 Initiating and Responding to Price Changes • Initiating price cuts – Excess plant capacity – Domination of market • Price-cutting traps – Price concessions
– Low-quality – Fragile market share (A low price buys market share but not market loyalty) – Shallow pockets – Price war 43 Initiating price increases Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts does not set a final price until the product is finished or delivered pay today’s price plus all or part of any inflation increase that takes place before delivery maintains its price but removes or prices separately one or more elements not to offer its normal cash and quantity discounts
44 if sales volume is unaffected Profits before and after a price increase If the company’s profit margin is 3 percent of sales 45 Ways to avoid price increases • Shrink the product • Substitute cheaper materials • Reduce or remove product features • Remove or reduce product services • Use less expensive packaging • Reduce the sizes and models offered • Create new economy brands 46 Responding to competitors’ price changes
• Anticipating competitive responses • Responding to competitors’ price changes 47Source: Kumar, N. (2006). Strategies to fight low-cost rivals. December 2006, Harvard Business Review. • Design ‘cool’ product • Continually innovate • Offer unique product mix • Sell experience 48 Critical question for discussion Is the right price a fair price? Take a position: • Prices should reflect the value that consumers are willing to pay. or Prices should primarily just reflect the cost involved in making a product.
49 Recap: can you explain 1. How do consumers process and evaluate prices? 2. How should a company initially set prices? 3. How should a company adapt prices to meet varying circumstances and opportunities? 4. When should a company initiate a price change? 5. How should a company respond to a competitor’s price change? 50 Your main goal is to pull people into the funnel in hopes of turning a fraction of them into paying customers Estée Lauder Gillette & HP Ryanair (seat, pay) Marketing insight: giving it all away • Stick to the free offer (Freemium Strategy) • Have a product that truly stands out • Make sure the product works
• Keep improving the product • Make access to product within one click (easy access) • Know your up-selling plan from the beginning • Identify a range of revenue sources 51 Further readings • Bertini, M., & Wathieu, L. (2010). How to Stop Customers from Fixating on Price. Harvard Business Review. • Gourville, J., & Soman, D. (2002). Pricing and the Psychology of Consumption. Harvard Business Review. • Mohammed, R. (2018). The Good-Better-Best Approach to Pricing. Harvard Business Review. • Nagle, T., Hogan, J., & Zale, H. (2018). The strategy and tactics of pricing: A guide to growing more profitably (6th ed.). New York, NY ; Abingdon, Oxon : Routledge. • Siggelkow, N., & Terwiesch, C. (2019). 5 questions to consider when pricing smart products. Harvard Business Review.
52 Watson (2018) Retail information technology “Virtual makeup” 53 Watson (2018) Retail information technology Change price tag within 10 to 12 seconds 54 Hey you, it’s time to start your Individual Assignment (40%) Due on 19th March 2020 • Haven’t you? • A quick review? – Can someone do it? • Someone has already started, am I right? – Which stage are you now? COM5111 SemB 2019-20
COM5111 Fundamentals of Marketing Communication Week 3 Marketing Information & Customer Insights Photo source: www.scmp.com COM5111 SemB 2019-20COM5111 SemB 2019-20 Learning Objectives 3-1 Describe the environmental forces that affect the company’s ability to serve its customers 3-2 Explain how changes in the demographic and economic environments affect marketing decisions 3-3 Identify the major trends in the firm’s natural and technological environments 3-4 Explain the key changes in the political and cultural environments 3-5 Discuss how companies can react to the marketing environment 2
COM5111 SemB 2019-20COM5111 SemB 2019-20 A Company’s Marketing Environment The marketing environment includes the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers Microenvironment consists of the actors close to the company that affect its ability to serve its customers—the company, suppliers, marketing intermediaries, customer markets, competitors, and publics Macroenvironment consists of the larger societal forces that affect the microenvironment—demographic, economic, natural, technological, political, and cultural forces Learning Objective 1 3 Study Seek COM5111 SemB 2019-20COM5111 SemB 2019-20 The Microenvironment
Learning Objective 1 4 Marketing management’s job is to build relationships with customers by creating customer value and satisfaction COM5111 SemB 2019-20COM5111 SemB 2019-20 The Microenvironment The Company In designing marketing plans, marketing management takes other company groups into account • Top management • Finance • R&D • Purchasing • Operations • Accounting Learning Objective 1 • Provide the resources to produce goods and services
• Treat as partners to provide customer value Suppliers 5 Critical Questions • What type of collaboration does there need to be between the departments? • How might projects be integrated between marketing and finance? • How might projects be integrated between marketing and information systems? $, Availability, quality shortage, delay … COM5111 SemB 2019-20COM5111 SemB 2019-20 The Microenvironment Marketing Intermediaries Marketing intermediaries are firms that help the company to promote, sell, and distribute its goods to final buyers Learning Objective 1
Resellers Physical distribution firms Marketing services agencies Financial intermediaries 6 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Microenvironment Competitors Firms must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers Learning Objective 1 7 Own size and industry position
COM5111 SemB 2019-20COM5111 SemB 2019-20 The Microenvironment Publics Any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives: • Financial publics • Media publics • Government publics • Citizen-action publics • Local publics • General public • Internal publics Learning Objective 1 Customers • Consumer markets • Business markets • Reseller markets
• Government markets • International markets 8 Seller needs to study these COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macro environment Learning Objective 2 9 vulnerable to the often turbulent and changing forces COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Demographic Environment • Demography is the study of human populations—size, density, location, age, gender, race, occupation, and other statistics • Demographic environment involves people, and people make up markets • Demographic trends include changing age and family
structures, geographic population shifts, educational characteristics, and population diversity Learning Objective 2 10 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Demographic Environment • Baby Boomers – born 1946 to 1964 (spending more carefully) • Generation X – born between 1965 and 1976 (overlooked, research, quality) • Millennials – born between 1977 and 2000 (filled with devices, social media, financially strapped) • Generation Z – born after 2000 (kids, tweens and teens) Learning Objective 2 11 COM5111 SemB 2019-20COM5111 SemB 2019-20
The Macroenvironment Demographic Environment Generational marketing is important in segmenting people by lifestyle or life stage instead of age Learning Objective 2 12 Critical Question Do marketers need to create separate products and marketing programs for each generation? COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Demographic Environment • Changing (American) family • What kind of changes? • Changes in the workforce • What kind of changes? Learning Objective 2 13
COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Demographic Environment Geographic Shifts in Population • Growth in U.S. West and South and decline in Midwest and Northeast • How about China or Europe or any place (e.g. Hong Kong) you would like to discuss? • Change in where people work • Telecommuting • Home Office Learning Objective 2 14 Critical Questions • Why do you think these geographic shifts in population are happening? • Where will you choose to live
when you finish your education? Why? COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Demographic Environment Markets are becoming more diverse • International • National • Ethnicity • Gay and lesbian • Disabled Learning Objective 2 15 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Economic Environment
Learning Objective 2 16 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Economic Environment Changes in Consumer Spending Value marketing involves offering financially cautious buyers greater value—the right combination of quality and service at a fair price Learning Objective 2 17 What changes might there be in U.S. vs. China? Any thoughts? COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Economic Environment Income Distribution
Over the past several decades, the rich have grown richer, the middle class has shrunk, and the poor have remained poor Learning Objective 2 18 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment The Natural Environment The natural environment is the physical environment and the natural resources that are needed as inputs by marketers or that are affected by marketing activities Learning Objective 3 19 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment The Natural Environment Trends in the Natural Environment
• Growing shortages of raw materials • Increased pollution • Increased government intervention • Developing strategies that support environmental sustainability Learning Objective 3 20 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Natural Environment Environmental sustainability involves developing strategies and practices that create a world economy that the planet can support indefinitely Learning Objective 3 21 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment
Technological Environment • Most dramatic force in changing the marketplace • New products, opportunities • Concern for the safety of new products Learning Objective 3 22 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Political and Social Environment Legislation regulating business is intended to protect • companies from each other • consumers from unfair business practices • the interests of society against unrestrained business behavior Learning Objective 4 23 COM5111 SemB 2019-20COM5111 SemB 2019-20
The Macroenvironment Political and Social Environment • Increased emphasis on ethics • Socially responsible behavior • Cause-related marketing Learning Objective 4 24 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Cultural Environment The cultural environment consists of institutions and other forces that affect a society’s basic values, perceptions, and behaviors Why? Learning Objective 4 25 How they think and consume?
COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Cultural Environment Core beliefs and values are persistent and are passed on from parents to children and are reinforced by schools, churches, businesses, and government Secondary beliefs and values are more open to change and include people’s views of themselves, others, organizations, society, nature, and the universe Learning Objective 4 26 COM5111 SemB 2019-20COM5111 SemB 2019-20 Responding to the Marketing Environment Views on Responding Uncontrollable • React and adapt to forces in the
environment Proactive • Take aggressive actions to affect forces in the environment Reactive • Watch and react to forces in the environment Learning Objective 5 27 “There are three kinds of companies: those who make things happen, those who watch things happen, and those who wonder what’s happened.” COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information to gain Customer Insights Learning Objectives 4-1 Explain the importance of information in gaining insights about
the marketplace and customers 4-2 Define the marketing information system and discuss its parts 4-3 Outline the steps in the marketing research process 4-4 Explain how companies analyze and use marketing information 4-5 Discuss the special issues some marketing researchers face, including public policy and ethics issues 28 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information and Customer Insights Customer insights are fresh marketing information-based understandings of customers and the marketplace that become the basis for creating customer value, engagement, and relationships 29 Learning Objective 1
COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information and Customer Insights Customer insights • Fresh and deep insights into customer needs and wants • Important but difficult to obtain ▪ Needs and buying motives not obvious ▪ Customers usually can’t tell you what and why • Better information and more effective use of existing information 30 Learning Objective 1 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information and Customer Insights Managing Marketing Information • Companies are forming customer insights teams ▪ Include all company functional areas ▪ Collect information from a wide variety of sources
▪ Use insights to create more value for their customers 31 Learning Objective 1 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information and Customer Insights Managing Marketing Information Marketing information system (MIS) refers to the people and procedures dedicated to assessing information needs, developing the needed information, and helping decision makers to use the information to generate and validate actionable customer and market insights 32 Learning Objective 1 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information and Customer Insights 33 Learning Objective 1 Marketing Information System - to develop customer insights, make marketing decisions, and manage customer relationships
1 2 3 0 COM5111 SemB 2019-20COM5111 SemB 2019-20 Assessing Marketing Information Needs A marketing information system (MIS) provides information to the company’s marketing and other managers and external partners such as suppliers, resellers, and marketing service agencies 34 Learning Objective 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Assessing Marketing Information Needs Characteristics of a Good MIS Balancing the information users would like to have against what they need and what is feasible to offer
User’s Needs MIS Offerings 35 Learning Objective 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Developing Marketing Information Marketers obtain information from: Internal data Marketing intelligence Marketing research 36 Learning Objective 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Developing Marketing Information Internal Data
Internal databases are collections of consumer and market information obtained from data sources within the company network 37 Learning Objective 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Developing Marketing Information Competitive Marketing Intelligence Competitive marketing intelligence is the systematic collection and analysis of publicly available information about consumers, competitors, and developments in the marketing environment 38 Learning Objective 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Marketing research is the systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation
facing an organization 39 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Defining the Problem and Research Objectives - guides the entire research process Exploratory research Descriptive research Causal research 40 Learning Objective 3 to gather preliminary information that will help define the problem and suggest hypothesesdescribes marketing problems, situations, or markets , such as
the market potential for a product or the demographics and attitudes of consumer research tests hypothesis about cause-and-effect relationships COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Developing the Research Plan • Outlines sources of existing data • Spells out the specific research approaches, contact methods, sampling plans, and instruments to gather data present the plan to management 41 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research
Developing the Research Plan Management problem Research objectives Information needed How the results will help management decisions Budget 42 Learning Objective 3 presented in a written proposal COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Developing the Research Plan Secondary data is information that already exists somewhere, having been collected for another purpose Primary data is information collected for the specific purpose at hand
43 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Gathering Secondary Data Advantages Lower cost Obtained quickly Cannot collect otherwise Disadvantages - data may not be Relevant Accurate Current Impartial 44
Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection Research Approaches Contact Methods Sampling Plan Research Instruments 45 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research 46 Learning Objective 3 Planning Primary Data Collection
COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection Research Approaches • Observational research involves gathering primary data by observing relevant people, actions, and situations • Ethnographic research involves sending trained observers to watch and interact with consumers in their “natural environments.” 47 Learning Objective 3 https://www.kaltura.com/index.php/extwidget/preview/partner_i d/506471/uiconf_id/9952721/entry_id/0_7z04f86l/embed/auto? &flashvars%5bstreamerType%5d=auto COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection Research Approaches • Survey research involves gathering primary data by asking people
questions about their knowledge, attitudes, preferences, and buying behavior • Experimental research involves gathering primary data by selecting matched groups of subjects, giving them different treatments, controlling related factors, and checking for differences in group responses 48 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Focus Group—Personal Contact Method • Six to 10 people • Trained moderator • Challenges ▪ Expensive ▪ Difficult to generalize from small group ▪ Consumers not always open and honest
49 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Online Contact Methods Advantages • Low cost • Speed • Higher response rates • Good for hard to reach groups 50 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection
Sampling Plan A sample is a segment of the population selected for marketing research to represent the population as a whole • Who is to be studied? • How many people should be studied? • How should the people be chosen? 51 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research 52 Learning Objective 3 Types of samples COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection
Research Instruments--Questionnaires • Most common • In person, by phone, or online • Flexible • Researchers must be careful with wording and ordering of questions ▪ Closed-ended ▪ Open-ended • Useful in exploratory research 53 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection Mechanical Research Instruments Mechanical devices People meters
Checkout scanners Neuro- marketing 54 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Implementing the Research Plan • Collecting the information • Processing the information • Analyzing the information Interpreting and Reporting Findings • Interpret findings • Draw conclusions • Report to management 55 Learning Objective 3
COM5111 SemB 2019-20COM5111 SemB 2019-20 Analyzing and Using Marketing Information Customer Relationship Management (CRM) CRM involves managing detailed information about individual customers and carefully managing customer touch points to maximize customer loyalty 56 Learning Objective 4 COM5111 SemB 2019-20COM5111 SemB 2019-20 Analyzing and Using Marketing Information Customer Relationship Management CRM Touchpoints Customer purchases Sales force contacts Service and support
calls Web and social media sites Satisfaction surveys Credit and payment interactions Marketing research studies 57 Learning Objective 4 COM5111 SemB 2019-20COM5111 SemB 2019-20 Analyzing and Using Marketing Information Distributing and Using Marketing Information Information distribution involves making information available in a timely, user-friendly way • Intranet
• Extranet 58 Learning Objective 4 COM5111 SemB 2019-20COM5111 SemB 2019-20 Other Marketing Information Considerations Marketing Research in Small Businesses and Nonprofit Organizations International Market Research Public Policy and Ethics • Customer privacy • Misuse of research findings 59 Learning Objective 5 COM5111 SemB 2019-20COM5111 SemB 2019-20 60 Coronavirus Free
Good Health COM5111 Fundamentals of Marketing Communication Week 2 DEVELOPING MARKETING STRATEGIES AND PLANS SemB 2019-20 Outlines 1. Recap – previous lecture and assignments 2. How does marketing affect customer value? 3. How is strategic planning carried out at different levels of the organization? 4. What does a marketing plan include? COM5111 Week 2 SemB 2019-202 Traditional View of Marketing • The traditional view of marketing is that the firm makes something and then sells it (sellers’ point of view)
• The traditional view will not work, however, in economies where people face abundant choices • New belief: marketing begins with the planning process COM5111 Week 2 SemB 2019-203 Marketing and Customer Value • The task of any business is to deliver customer value at a profit • A company can win only by fine-tuning the value delivery process and choosing, providing, and communicating superior value COM5111 Week 2 SemB 2019-204 Value creation and delivery consists of three parts: 1. Choosing the value (segment the market, select target market, develop “offering”) 2. Providing the value (product features, prices, and distribution channels) 3. Communicating the value (sales force, internet,
advertising, and communication tools) COM5111 Week 2 SemB 2019-205 Value Delivery Network (also called a supply chain) • To be successful, a firm also needs to look for competitive advantages beyond its own operations, into the value chains of suppliers, distributors, and customers COM5111 Week 2 SemB 2019-206 The Value Chain (Porter) • Michael Porter’s Value Chain identifies nine strategically relevant activities that create value and costs in a specific business (five primary and four support activities) • The primary activities cover the sequence of bringing materials into the business (inbound logistics), converting them into final products (operations), shipping out final products (
outbound logistics), marketing them (marketing and sales), and servicing them (service) • The support activities—procurement, technology development, human resource management, and firm infrastructure—are handled in certain specialized departments, as well as elsewhere COM5111 Week 2 SemB 2019-207 The firm’s success depends not only on how well each department performs its work but also on how well the various departmental activities are coordinated to conduct core business processes Application of the Value Chain Model • The firm’s task is to examine its costs and performance in each value-creating activity and look for ways to improve it • The firm should estimate its competitors’ costs and performances as benchmarks against which to compare its own costs and performance • It should go further and study the “best of class” practices
of the world’s best companies COM5111 Week 2 SemB 2019-208 Core Business Processes 1. The market sensing process (marketing intelligence) 2. The new offering realization process (research and development) 3. The customer acquisition process (defining target markets and consumers) 4. The customer relationship management process (deeper understanding of consumers) 5. The fulfillment management process (receiving, shipping, and collecting payments) COM5111 Week 2 SemB 2019-209 Finding capabilities inside and outside the organization (profit or non-profit) • Strong companies develop superior capabilities in these core business processes (also slide #38 from Lecture 1)
• Strong companies also re-engineer the workflows and build cross-functional teams responsible for each process • Many companies have partnered with suppliers and distributors to create a superior value delivery network COM5111 Week 2 SemB 2019-2010 Core Competencies • The key, then, is to own or nurture the resources and competencies that make up the essence of the business— outsource if competency is cheaper and available. (E.g Nike uses Asian manufacturers) • A core competency has three characteristics 1. Makes a significant contribution to perceived customer benefits 2. Has applications in a wide variety of markets 3. It is difficult for competitors to imitate Companies own and control most of the resources that entered their businesses
COM5111 Week 2 SemB 2019-2011 Maximizing Core Competencies • Business realignment (case study: Kodak, 2004, 2011) may be necessary to maximize core competencies. It has three steps: 1. (re) defining the business concept or “big idea”; 2. (re) shaping the business scope; and 3. (re) positioning the company’s brand identity CA ultimately derives from how well the company has fitted its core competencies and distinctive capabilities into tightly interlocking activity systems COM5111 Week 2 SemB 2019-2012 Competitive Advantage • Competitive advantage also accrues to companies that possess distinctive capabilities or excellence in broader business processes • Three distinctive capabilities:
1. market sensing 2. customer linking 3. channel bonding COM5111 Week 2 SemB 2019-2013 Asian Companies Adopt three Main Strategies (McKinsey) to harness their core competence • Expand quickly to capture global market opportunities • Become atomizers • Become asset light by using intangibles • Fostering human capital, exploiting network effects, creating synergies on reputation COM5111 Week 2 SemB 2019-2014 The Central Role of Strategic Planning Companies focus on the customer and are organized to respond effectively to changing customer needs. They have well-staffed marketing departments, and their other departments also accept the concept that the customer is king
COM5111 Week 2 SemB 2019-2015 The Strategic Planning, Implementation, and Control Processes COM5111 Week 2 SemB 2019-2016 Corporate and Division Strategic Planning All corporate headquarters undertake four planning activities: i. Defining the corporate mission ii. Establishing strategic business units (SBUs) iii. Assign resources to each SBU iv. Assessing growth opportunities COM5111 Week 2 SemB 2019-2017 Defining the Market • A target market definition tends to focus on selling a product or service • Pepsi could define its target market as everyone who drinks a
cola beverage and competitors would therefore be other cola companies • A strategic market definition could be everyone who might drink something to quench his or her thirst COM5111 Week 2 SemB 2019-2018 Establishing Strategic Business Units (SBUs) • Companies often define themselves in terms of products: They are in the “auto business” or the “clothing business.” • Market definitions of a business, however, describe the business are superior to product definitions • A business must be viewed as a customer-satisfying process, not a goods-producing process • Basic needs and customer groups endure forever. Transportation is a need: the bicycle, the automobile, the railroad, the airline, and
the truck are products that meet that need COM5111 Week 2 SemB 2019-2019 Strategic Business Units (SBUs) The purpose of identifying the company’s strategic business units is to develop separate strategies and assign appropriate funding • A business can define itself in terms of three dimensions: customer groups, customer needs, and technology • An SBU has three characteristics: i. It is a single business, or a collection of related businesses, that can be planned separately from the rest of the company ii. It has its own set of competitors iii. It has a manager responsible for strategic planning and profit performance, who controls most of the factors affecting profit COM5111 Week 2 SemB 2019-2020 Assigning Resources to Each SBU
• Once it has defined SBUs, management must decide how to allocate corporate resources to each • Several portfolio-planning models introduced to provide an analytical means for making investment decisions • The GE/McKinsey Matrix classifies each SBU according to the extent of its competitive advantage and the attractiveness of its industry • Management would want to grow, “harvest” or draw cash from, or hold on to the business • Another model, from Boston Consulting Group, called the BCG’s Growth-Share Matrix, uses relative market share and annual rate of market growth as criteria to make investment decisions COM5111 Week 2 SemB 2019-2021 Assessing Growth Opportunities • Assessing growth opportunities involves planning new businesses,
downsizing, and terminating older businesses. If there is a gap between future desired sales and projected sales, corporate management will need to develop or acquire new businesses to fill it COM5111 Week 2 SemB 2019-2022 The Strategic-Planning Gap COM5111 Week 2 SemB 2019-2023 Strategic Options • The first option is to identify opportunities for growth within current businesses (intensive opportunities). Improving current business • The second is to identify opportunities to build or acquire businesses related to current businesses (integrative opportunities). Thru backward, forward or horizontal integration • Third is to identify opportunities to add attractive unrelated
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx
The following table shows data from a fictional cohort study of in.docx

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  • 1. The following table shows data from a fictional cohort study of industrial workers followed over 30 years to see if exposure to industrial organic solvent affects cognitive function adversely. Use the information below for the following question. Organic Solvent Exposure Number of Participants Impaired Function Yes 28654 818 No 71346 649 Total 100000 1467 Calculate and interpret the risk of impaired function in participants exposed to organic solvents and those who were not. 1 COM5111 Product Policy Week 5 SemB 2019-20
  • 2. 2 Learning Objectives 1. What are the characteristics of products, and how do marketers classify product? 2. How can companies differentiate products? 3. Why is product design important, and what are the different approaches taken? 4. How can a company build and manage its product mix and product lines? 5. How can marketers best manage luxury brands? 6. What environmental issues must marketers consider in their product strategies? 7. How can companies combine products to create strong co- brands or ingredient brands? 8. How can companies use packaging, labeling, warranties, and guarantees as marketing tools? 3 Components Of The Market Offering Marketing planning begins with formulating an offering to meet target customers’ needs or wants
  • 3. customer will judge the offering on three basic elements Slide 15 & 16 Slide 17 4 Product Characteristics and Classifications • Product – Anything that can be offered to a market to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas https://www.youtube.com/watch?v=xYjoBAUOjTk 5 Characteristics of Winning Products A unique superior product— a differentiated product that delivers unique benefits and a compelling value proposition to the customer or user— is the number one driver of new-product profitability
  • 4. Source: Robert G. Cooper, Winning at New Products: Creating Value through Innovation (New York: Basic Books, 2011), p. 32. How about your individual assignment? 6 Unique and superior products tend to have the followings in common 1. are superior to competitors’ products in terms of meeting users’ needs 2. solve a problem the customer has with a competitive product 3. feature good value for the money and excellent price and performance characteristics 4. provide excellent product quality, according to customers’ way of defining quality 5. offer features easily perceived as useful by the customer 6. offer benefits that are highly visible to the customer Source: Robert G. Cooper, Winning at New Products: Creating Value through Innovation (New York: Basic Books, 2011), p. 33.
  • 5. 7 Product Levels: The Customer-Value Hierarchy • The Five Product Levels The service or benefit the customer is really buying e.g. rest & sleep The marketer must turn the core benefit into a basic product e.g. bed, bathroom … A set of attributes and conditions buyers normally expect e.g. clean bed … Exceeds customer Expectations e.g. brand position is here Encompasses all the possible
  • 6. augmentations and transformations the product or offering might undergo in the future e.g. new ways to satisfy and dis 8 Product Classifications Durability Tangibility Use Each type has an appropriate marketing-mix strategy consumer or industrial 9 Durability and Tangibility Nondurable goods
  • 7. Durable goods Services one or a few uses, e.g. beer and shampoo. Available in many locations, a small markup, and advertise heavily to induce trial and build preference. survive many uses, e.g. refrigerators and clothing. More personal selling and service, command a higher margin, and require more seller guarantees intangible, inseparable, variable, and perishable products => more quality control, supplier credibility, and adaptability. E.g. haircuts, legal advice, and appliance repairs 10 Consumer-Goods Classification Convenience Unsought Shopping
  • 8. Specialty Purchases frequently, immediately, and with minimal effort. E.g. soft drinks, soaps, and newspapers. Staples goods: purchase on a regular basis, e.g. Heinz ketchup. Impulse goods: without any planning or search effort, like candy bars and magazines. Emergency goods are purchased when a need is urgent—umbrellas during a rainstorm. Compares on suitability, quality, price, and style. E.g. furniture and clothing. Homogeneous: similar in quality but different enough in price to justify shopping comparisons. Heterogeneous: differ in product features and services that may be more important than price. Specialty: unique characteristics or brand identification for which enough buyers are willing to make a special purchasing effort. E.g. cars and audio-video components. Unsought: does not know about or normally think of buying, such
  • 9. as smoke detectors. Other classic examples are life insurance, cemetery plots, and gravestones. Use Shopping habits 11 Industrial-Goods Classification: Materials and parts Capital items Supplies and business services In terms of their relative cost and the way they enter the production process Use 12 Materials and parts Industrial-Goods Classification
  • 10. raw materials manufactured materials and parts farm products (wheat, cotton, livestock, fruits, and vegetables) natural products (fish, lumber, crude petroleum, iron ore). component materials (iron, yarn, cement, wires) component parts (small motors, tires, castings) key purchase factors: price and supplier reliability
  • 11. enter the manufacturer’s product completely Use 13 Capital items Industrial-Goods Classification long-lasting goods that facilitate developing or managing the finished product Installations Equipment Buildings (factories, offices) and heavy equipment (generators, drill presses, mainframe computers, elevators) Portable factory equipment and tools (hand tools, lift trucks) and office equipment (desktop computers, desks) These types of equipment don’t become part of a finished product Use
  • 12. 14 Supplies and business services Industrial-Goods Classification Short-term goods and services that facilitate developing or managing the finished product Supplies (MRO goods): 1. maintenance and repair items (paint, nails, brooms) 2. operating supplies (lubricants, coal, writing paper, pencils) Business services: 1. maintenance and repair services (window cleaning, copier repair) 2. business advisory services (legal, management consulting, advertising) Use 15 Product Differentiation • Form – size, shape, or physical structure of a product
  • 13. • Features – varying features that supplement their basic function • Performance quality – low, average, high, or superior (at which the product’s primary characteristics operate) • Conformance quality – High conformance quality; all produced units are identical and meet promised specifications • Durability – operating life under natural or stressful conditions, is a valued attribute • Reliability – probability that a product will not malfunction or fail within a specified time period • Reparability – ease of fixing a product when it malfunctions or fails • Style – product’s look and feel to the buyer and creates distinctiveness that is hard to copy • Customization – customized products (what a person wants— and doesn’t want—and deliver) 16 Services Differentiation Main service differentiators: ✓Ordering ease
  • 14. ✓ Delivery ✓ Installation ✓ Customer training ✓ Customer consulting ✓ Maintenance and repair ✓ Returns 17 Design • Design – The totality of features that affect the way a product looks, feels, and functions to a consumer 18
  • 15. Design ✓ Is emotionally powerful ✓ Transmits brand meaning/positioning ✓ Is important with durable goods ✓ Makes brand experiences rewarding ✓ Can transform an entire enterprise ✓ Facilitates manufacturing/distribution ✓ Can take on various approaches 19 THE PRODUCT HIERARCHY The product hierarchy stretches from basic needs to particular items that satisfy those needs Six levels Need family
  • 16. Product family Product class Product line Product type Item 20 THE PRODUCT HIERARCHY Using life insurance as an example: 1. Need family—The core need that underlies the existence of a product family. Example: security 2. Product family—All the product classes that can satisfy a core need with reasonable effectiveness. Example: savings and income 3. Product class—A group of products within the product family recognized as having a certain functional coherence, also known as a product category. Example: financial instruments 4. Product line—A group of products within a product class that are closely related because they perform a similar function, are sold to the same customer groups, are marketed through the same outlets or channels, or fall within given price ranges – A product line may consist of different brands, a single family
  • 17. brand, or an individual brand that has been line extended Example: life insurance 5. Product type—A group of items within a product line that share one of several possible forms of the product Example: term life insurance 6. Item (also called stock-keeping unit or product variant)—A distinct unit within a brand or product line distinguishable by size, price, appearance, or some other attribute Example: Prudential renewable term life insurance 21 Product Systems and Mixes • Product system – A group of diverse but related items that function in a compatible manner • Product mix (product assortment) – The set of all products and items for sale – Various product lines – Width – Length – Depth
  • 18. – Consistency - how closely related the various product lines are in end use, production requirements, distribution channels, or some other way 22 Product Width And Length For Procter & Gamble Products 23 To Expand The Number Of Product Lines: Three Ways (1/2) 1. Undertaking a business whose profit stream will probably correlate negatively with the profit stream of existing businesses—thereby reducing the overall risk of the enterprise – For example, a beverage company developing a strong position in the water market helps offset risk of decline in the soda market if hydration habits move heavily to water 24
  • 19. To Expand The Number Of Product Lines: Three Ways (2/2) 2. Leveraging a key asset of the company that underlies the current product offerings – For example, Procter & Gamble (P&G) has a wide variety of products across four sectors that the company claims “share common technologies”: beauty, hair, and personal care; baby, feminine, and family care; health and grooming; and fabric and home care – Because many of these products also share the same distribution system, P&G is able to leverage its established retailer relationships to market and sell its products 3. Tapping into complementary-in-use products and thus enabling the firm to be a “total solution supplier.” – For example, Procter & Gamble explained the acquisition of the Gillette Company and its Oral-B toothbrush line by noting that the union of Oral-B and Crest placed P&G oral care as the market leader and the only major oral care company with a breadth of products across every category: toothpaste, toothbrushes, whitening, rinse, denture care, and floss
  • 20. 25 Product line length • Line stretching – Down-market stretch – Up-market stretch – Two-way stretch • Line filling • Line modernization • Line featuring • Line pruning 26 Options for Product Line Length 1. A downward stretch of the line, adding a lower-priced item still capable of satisfying the needs of some applications 2. An upward stretch of the product line, adding an item at a higher price and performance level, able to meet the performance requirements of more
  • 21. demanding applications 3. A product line fill, inserting an item of a price and performance level that fills a gap between two existing items – Motives: reaching for incremental profits,, trying to become the leading full-line company, … 27Adapted from “Extend Profits, Not Product Lines” by John A. Quelch and David Kenny, Harvard Business Review, September/October 1994. Product Line Depth Considerations 28 Product Line Analysis • Sales and profits to meet different customer requirements and lower production costs carefully monitored and protected dropping
  • 22. 29 Product Line Analysis • Market profile and image positioned against competitors’ lines This product map shows which competitors’ items are competing against company X’s items. Another benefit of product mapping is that it identifies market segments. 30 Product Mix Pricing • The firm searches for a set of prices that maximizes profits on the total mix Product line pricing Optional- feature pricing Captive- product
  • 23. pricing Two-part pricing By-product pricing Product- bundling pricing develop product lines rather than single products so they introduce price steps optional products with their main products require the use of ancillary or captive products be priced on their value Pure bundling - as a bundle.
  • 24. In mixed bundling, both individually and in bundles 31 Product Life Cycle 32 Product Life Cycle Introduction • Marketing expenditures are high as awareness and knowledge of product features must be established in the target market • Trial may be hard to induce if customers are satisfied with current options • Distribution must be built up Growth • With awareness and trial achieved, the product’s performance is the dominant driver of sales • Success may induce the entry of new competitors and require promotional spending to defend against those competitors Maturity • All feasible market segments have been reached and distribution channels built up
  • 25. • For nondurables, sales come from replenishment only, as household penetration has leveled off • For durables, population and income growth can be key drivers Decline • The rate of decline may still be a function of marketing efforts. A focus on hard-core loyal, who will make an effort to buy even at high prices and limited distribution, may be a profit opportunity • The discipline to phase out weak products is critical, however, lest the company and distribution channels become overwhelmed 33 Lessons From Product Life Cycles • Products (market offerings) have a limited life • Sales pass through distinct stages, each posing different challenges, opportunities and problems to the seller • Profits rise and fall at different stages of the product life cycle • Products require different marketing, financial, manufacturing, purchasing and human resource strategies at each stage
  • 26. 34 Strategies To Sustain Rapid Market Growth • Improve product quality and add new product features and improved styling • Add new models, accessory items and personalising options • Enter new market segments • Increase its distribution coverage and enters new distribution channels • Shift from product-awareness advertising to product-preference advertising • Lower prices to attract the next layer of price-sensitive buyers 35 Strategies To Increase Sales Volumes 36 Luxury brands The common denominators:
  • 27. – Quality – Uniqueness A winning formula: – Craftsmanship – Heritage – Authenticity – History Design is often an important aspect https://www.bing.com/videos/search?q=tequla&view=detail&mi d=D9442DF79F05EFD67DD2D9442DF79F05EFD67DD2&FOR M=VIRE 37 Guidelines for Marketing Luxury Brands 38 Environmental Issues • Environmental issues are also playing an increasingly important role in product design and manufacturing – changing the manufacture of their products
  • 28. or the ingredients that go into them https://www.c2ccertified.org/ 39 Co-Branding • Two or more well-known brands are combined into a joint product or marketed together in some fashion ✓ Same-company ✓ Joint-venture ✓ Multiple-sponsor ✓ Retail 40 INGREDIENT BRANDING • Co-branding that creates brand equity for parts that are necessarily contained within other branded products ingredient brands can provide differentiation and important signals of quality 41
  • 29. Packaging • All the activities of designing and producing the container for a product Used as a marketing tool • Self-service: (attract attention, describe the product’s features, create consumer confidence, and make a favorable overall impression) • Consumer affluence: (for the convenience, appearance, dependability, and prestige for better …) • Company and brand image: (instant recognition, billboard effect) • Innovation opportunity: (make their products more convenient and easier to use) 42 Packaging Packaging objectives • Identify the brand • Convey descriptive and persuasive information
  • 30. • Facilitate product transportation and protection • Assist at-home storage • Aid product consumption To achieve these objectives listed here and satisfy consumers’ desires: marketers must choose the functional and aesthetic components of packaging correctly’ 43 The Color Wheel of Branding and Packaging Color is a particularly important aspect of packaging and carries different meanings in different cultures and market segments 44 Labeling, Warranties, and Guarantees
  • 31. • Labeling – Identifies, grades, describes, and promotes the product • Warranties – Formal statements of expected product performance by the manufacturer • Guarantees – Promise of general or complete satisfaction 45 BACK 46 REFERENCES Cooper, R.G. (2011). Winning at New Products: Creating Value through Innovation. New York: Basic Books. Dolan, R. J. (2019). Marketing Reading: Product Policy. Harvard Business School.
  • 32. Elberse, A. (2006). Principles of Product Policy – Module Note. Harvard Business School. Kotler, P. & Keller, K. L.(2016). A Framework for Marketing Management (5th ed.). Boston : Pearson. Back to LO COM5111 Fundamentals of Marketing Communication Week 4 Sem B 2019-20 Segmentation and Targeting COM5111 SemB 2019-20COM5111 SemB 2019-20 Learning Objectives for Week 4 1. What are the different levels of market segmentation? 2. In what ways can a company divide a market into segments? 3. What are the requirements for effective segmentation? 4. How should consumer and business markets be segmented?
  • 33. 5. How should a company choose the most attractive target markets? 6. Conclusion 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Importance of Market Segmentation • Companies cannot connect with all customers in large, broad, or diverse markets • A company then needs to identify which market segments it can serve effectively • This decision requires a keen understanding of consumer behavior and careful strategic thinking • To develop the best marketing plans, managers need to understand what makes each segment unique and different • Identifying and satisfying the right market segments is often the key to
  • 34. marketing success 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Target Marketing • To compete more effectively, many companies are now embracing target marketing • Effective target marketing requires that marketers: a. Identify and profile distinct groups of buyers who differ in their needs and Preference (market Segmentation) b. Select one or more market segments to enter (market Targeting) c. For each target segment, establish and communicate the distinctive benefit(s) of the company’s market offering (market Positioning) 4
  • 35. COM5111 SemB 2019-20 CONSUMER MARKETS Geographic Segmentation Demographic Segmentation Psychographic Segmentation Behavioral Segmentation 5 COM5111 SemB 2019-20COM5111 SemB 2019-20 Bases for Segmenting Consumer Markets (up to slide number 40) • Market segmentation divides a market into well-defined groups • A market segment consists of a group of customers who share a similar set of needs and wants • The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target • There are two broad groups of variables are used to segment consumer markets
  • 36. a. Descriptive characteristics: geographic, demographics, and psychographic (slide number 6 - 25) b. Behavioral considerations: consumer responses to benefits, usage occasions, or brands (slide number 26 - 40) • Regardless of which type of segmentation scheme we use, the key is adjusting the marketing program to recognize customer differences 6 COM5111 SemB 2019-20COM5111 SemB 2019-20 Major Segment Variables for Consumer Markets 7 COM5111 SemB 2019-20COM5111 SemB 2019-20 Major Segment Variables for Consumer Markets (cont’d) 8
  • 37. COM5111 SemB 2019-20COM5111 SemB 2019-20 Geographic Segmentation • Geographic segmentation calls for dividing the market into different geographical units such as nations, states, regions, counties, cities, or neighborhoods • The company can operate in one or a few areas, or operate in all but pay attention to local variations • In that way, it can tailor marketing programs to the needs and wants of local customer groups in trading areas, neighborhoods, and even individual stores 9 COM5111 SemB 2019-20COM5111 SemB 2019-20 Kit Kat 2016 Japan 10 https://www.youtube.com/watch?v=di9mbJlwCM0&feature=emb _title
  • 38. COM5111 SemB 2019-209 Geographic Segmentation Procter & Gamble—In China, P&G’s customer research managers discovered that while low prices help sales in villages, it is also important to develop products that are consistent with cultural traditions. Thus, urban Chinese pay more than $1 for Crest toothpaste with exotic flavors such as Icy Mountain Spring and Morning Lotus Fragrance; while those in the villages prefer 50-cent Crest Salt White since many rural Chinese believe that salt whitens teeth. Such geographic segmentation is also practiced for its Olay moisturizing cream, Tide detergent, Rejoice shampoo, and Pampers diapers. 11 COM5111 SemB 2019-20COM5111 SemB 2019-20
  • 39. Geographic Segmentation: Grassroots Marketing In a growing trend called grassroots marketing, such activities concentrate on getting as close and personally relevant to individual customers as possible Hewlett-Packard—Hewlett-Packard positions itself as a company implementing “e-inclusion,”— the attempt to help bring the benefits of technology to the poor. Toward that end, HP began a three-year project designed to create jobs, improve education, and provide better access to government services in the Indian state of Kuppam. Working with the local government, as well as a branch of HP Labs based in India, the company, through grassroots marketing, provides the rural poor with access to government records, schools, health information, crop prices, and so on. Its hope is to stimulate small, tech-based businesses. Not only does this build goodwill and the HP brand in India, it also helps the company discover new, profitable lines of business. 12
  • 40. COM5111 SemB 2019-20COM5111 SemB 2019-20 Geographic Segmentation: Regional Marketing • More and more, regional marketing means marketing right down to a specific district • Some companies use mapping software to show the geographic locations of their customers • By mapping the densest areas, the retailer can resort to customer cloning, assuming that the best prospects live where most of his customers come from • Some approaches combine geographic data with demographic data to yield even richer descriptions of consumers and neighborhoods • Called geo-clustering, it captures the increasing diversity of the population 13 COM5111 SemB 2019-20COM5111 SemB 2019-20
  • 41. Demographic Segmentation In demographic segmentation, we divide the market by variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class Reasons for Popularity of Demographic Segmentation • First, consumer needs, wants, usage rates, and product and brand preferences are often associated with demographic variables • Second, demographic variables are easier to measure • Even when the target market is described in non-demographic terms (say, a personality type), the link back to demographic characteristics is needed to estimate the size of the market and the media that should be used to reach it efficiently 14 COM5111 SemB 2019-20COM5111 SemB 2019-20
  • 42. Age and Life-Cycle Stage • Consumer wants and abilities change with age • Nevertheless, age and life cycle can be tricky variables • The target market for some products may be the psychologically young 15 COM5111 SemB 2019-209 Life Stage • People in the same part of the life cycle may differ in their life stage • Life stage defines a person’s major concern, such as going through a divorce, going into a second marriage, taking care of an older parent, deciding to cohabit with another person, deciding to buy a new home, and so on
  • 43. 16 COM5111 SemB 2019-20COM5111 SemB 2019-20 Gender • Gender differentiation has long been applied in clothing, hairstyling, cosmetics, and magazines • Men and women tend to have different attitudinal and behavioral orientations, based partly on genetic make-up and partly on socialization • Examples: – Women tend to be more communal-minded and men tend to be more self-expressive and goal-directed – Men often like to read product information; women may relate to a product on a more personal level 17 COM5111 SemB 2019-20COM5111 SemB 2019-20 Gender Segmentation
  • 44. The beauty industry in Japan—Japanese women continue to sustain the beauty business. Tokyo’s fashionable Marunouchi business district has seen beauty outlets sprouting. One such outlet, Café de Make-up, specifically targets office ladies. It offers them an orange seat, a cup of coffee, a choice of five colors of nail polish or lipstick, the services of a beauty advisor, and a chance to apply make-up at leisure at a vanity table for a low price of 500 yen. Men are also a fast-growing segment in the beauty market. Mandom, one of Japan’s leading makers of men’s cosmetics, says that sales of face care products like cleansing gels, toning lotions, and mud packs are strong and growing. One explanation for this is the slew of boyish, clean-cut actors and pop singers who have become the rage among young Japanese women. These celebrities have been engaged as endorsers of more and more beauty products. 18 https://www.mandom.co.jp/ COM5111 SemB 2019-20COM5111 SemB 2019-20
  • 45. Income • Income segmentation is a long-standing practice in product and service categories • Increasingly, companies are finding their markets are hourglass-shaped as middle-market consumers migrate toward both discount and premium products Banyan Tree—Singapore’s Banyan Tree, famous for its upmarket pampering with a distinctive Asian touch, runs a multimillion dollar spa resort in Bahrain, where money is no object to guests. Set in a lush oasis, next to Bahrain’s Formula One motor-racing circuit and a wildlife reserve, the spa resort has been billed as the ultimate in exclusivity and luxury. Catering to the “blank check” segment, the spa resort has 78 villas with traditional Middle Eastern design, private open-air swimming pools, oversized infinity bathtubs, and sprawling master bedrooms. To deliver the ultimate level of
  • 46. privacy, guests, if they wish, can be kept away from view of other guests. Besides the high-end Banyan Tree resorts, it also has the Angsana Hotels and Resorts that are more affordable. 19 http://banyan-tree-desert-spa-resort-al-areen.manama- hotels.net/en/ COM5111 SemB 2019-20COM5111 SemB 2019-20 Example of Income Segmentation: Kraft in Rural Indonesia Kraft—In Indonesia, consumer goods companies are adapting their marketing strategies to target this group of consumers. Although tastes are becoming more Westernized, rural consumers are still extremely price sensitive. Television ads are thus adapted to make the products more approachable and affordable. These ads are increasingly peppered with rural scenes and down-to-earth-looking characters peddling products in small-pack sizes. Kraft’s confectionery and cheese products are sold by 1 million outlets throughout Indonesia. Its Bisquat milk biscuits sells more than 200 million packets each month. The small
  • 47. packets costs 500 rupiah (6 cents) and are also available in a softcake version called bolu. Kraft has researched on the Indonesian rural consumers. A typical young Indonesian boy’s dietary and personal preferences meant he requires snacks four times a day, of which two may be served outside the home. Hence, Kraft offers products in biscuit and softcake forms, and in smaller packages to be sold at snack kiosks in towns and villages. 20 http://www.kraftheinzcompany.com/ https://www.youtube.com/watch?v=OX5hbTHToFM COM5111 SemB 2019-20COM5111 SemB 2019-20 Generation • Each generation or cohort is profoundly influenced by the times in which it grows up • Demographers call these groups cohorts • They share similar outlooks and values
  • 48. • Marketers often advertise to a cohort by using the icons and images prominent in their experiences 21 COM5111 SemB 2019-20COM5111 SemB 2019-20 Gen Y • A generation group of interest to marketers is the Gen Y • Because Gen Y members are often turned off by overt branding practices and “hard sell,” marketers use different approaches to reach and persuade them • These include online buzz, student ambassadors, product placements in computer games, and sponsoring cool events China’s Gen Y are more entrepreneurial, more Internet connected, and know more about Westerners than Westerners know about them
  • 49. 22 COM5111 SemB 2019-20COM5111 SemB 2019-20 Psychographic Segmentation • Psychographics is the science of using psychology and demographics to better understand consumers • In psychographic segmentation, buyers are divided into different groups on the basis of psychological/personality traits, lifestyle, or values • People within the same demographic group can exhibit very different psychographic profiles • One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insights’ VALSTM framework • VALS classifies adults into eight primary groups based on personality traits and key demographics
  • 50. • The segmentation system is based on responses to a questionnaire featuring four demographic and 35 attitudinal questions 23 COM5111 SemB 2019-20COM5111 SemB 2019-20 Four groups with HIGHER resources 1. Innovators—Successful, sophisticated, active, and “take- charge” people with high self-esteem. Purchases often reflect cultivated tastes for relatively upscale, niche- oriented products and services 2. Thinkers—Mature, satisfied, and reflective people who are motivated by ideals and value order, knowledge, and responsibility. Favor durability, functionality, and value in products (guided by knowledge and principles) 3. Achievers—Successful career- and work-oriented people who value consensus and stability. They favor established and prestige products that demonstrate success to their
  • 51. peers (look for p/s->success) 4. Experiencers—Young, enthusiastic, and impulsive people who seek variety and excitement. Spend a comparatively high proportion of income on fashion, entertainment, and socializing (social/physical activity; risk) Consumer motivation Consumer resources Diff levels of resources enhance or constraint a person’s expression of his or her primary motivation 24 COM5111 SemB 2019-20COM5111 SemB 2019-20 Four groups with LOWER resources 1. Believers—These consumers are conservative, conventional, and traditional. They prefer familiar, established brands and staying loyal to them 2. Strivers—These consumers are trendy and fun-loving. They seek the approval of others. However, because they have fewer resources, they emulate the purchases of those
  • 52. with more wealth by buying stylish products 3. Makers—Focusing on their work and home, these consumers are pragmatic, self-sufficient, traditional, and family-oriented. As such, they favor functional products 4. Strugglers—Loyal to their favorite brands, these elderly consumers are passive and display a sense of resignation. They are concerned about change 25 COM5111 SemB 2019-20COM5111 SemB 2019-20 Behavioral Segmentation In behavioral segmentation, buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product 26 COM5111 SemB 2019-20COM5111 SemB 2019-20 Needs and Benefits
  • 53. • Not everyone who buys a product has the same needs or wants the same benefits from it • Needs-based or benefits-based segmentation is a widely used approach because it identifies distinct market segments with clear marketing implications 27 COM5111 SemB 2019-20COM5111 SemB 2019-20 Needs and Benefits Segmentation – P&G Procter & Gamble, for instance, has different shampoo brands according to the needs of each segment • Head & Shoulders is for those who need to control their dandruff problem • Pantene is for those who want to protect their hair from environmental damage from the sun • Rejoice is for those who want a mild
  • 54. shampoo for everyday use Procter & Gamble offers a range of shampoo brands that satisfies different hair care needs 28 COM5111 SemB 2019-20COM5111 SemB 2019-20 Decision Roles • It is easy to identify the buyer for many products • People play five roles in a buying decision: initiator, influencer, decider, buyer, and user • Different people are playing different roles, but all are crucial in the decision process and ultimate consumer satisfaction 29 COM5111 SemB 2019-20COM5111 SemB 2019-20 User and Usage—Real User and Usage-related Variables Many marketers believe that behavioral variables—occasions,
  • 55. benefits, user status, usage rate, loyalty status, buyer- readiness stage, and attitude—are the best starting points for constructing market segments 30 COM5111 SemB 2019-20COM5111 SemB 2019-20 Occasions • Occasions are determined by a time of day, week, month, year or other well- defined temporal aspects of a consumer’s life • Buyers can be distinguished according to the occasions when they develop a need, purchase a product, or use a product • For example, air travel is triggered by occasions related to business, vacation, or family
  • 56. • Occasion segmentation can help firms expand product usage Occasions are another way to segment the market. In Japan, marketers celebrate different occasions with appropriate promotions. 31 COM5111 SemB 2019-20COM5111 SemB 2019-20 User Status • Markets can be segmented into non-users, ex-users, potential users, first-time users, and regular users of a product • Each will require a different marketing strategy • The key to attracting potential users, or even possibly nonusers, is understanding the reasons they are not using • Market-share leaders tend to focus on attracting potential users because they have the most to gain • Smaller firms focus on trying to attract current users away from the
  • 57. market leader 32 COM5111 SemB 2019-20COM5111 SemB 2019-20 Usage Rate • Markets can be segmented into light, medium, and heavy product users • Heavy users are often a small percentage of the market but account for a high percentage of total consumption • Marketers would rather attract one heavy user than several light users • A potential problem is that heavy users are often either extremely loyal to one brand, or never stay loyal to a brand and are always looking for the lowest price 33 COM5111 SemB 2019-209 Usage Rate—The Chinese Internet Market
  • 58. The Digital Junkies are the most intensive Internet users among the Chinese. They spend more than 34 hours a week with digital media compared to the average of 15.8 hours. Chinese Internet market—Consulting firm McKinsey found seven consumer segments among Internet users in China. The Traditionalists spend a large portion of their media time on traditional forms such as television and are less likely to own or want to own other digital devices. They are less educated than the rest of the Internet users and many live in smaller cities. The Digital Junkies are the most intensive Internet users. They spend more than 34 hours a week with digital media compared with an average of 15.8 hours for all users. They are young and are always on the lookout for the latest gadget. Another segment is the Gamers who spend most of their time on PC games and are
  • 59. heavy users of social networks. Mobile Mavens are heavy mobile- Internet users, preferring listening to music and reading. Info- centrics look for information to increase productivity at work. Basic Users spend the least amount of time online, and play games on mobile phones. Finally, the Traditionalists are light users of the Internet. They have little interest in high-tech devices and spend more time watching television. 34 COM5111 SemB 2019-20COM5111 SemB 2019-20 Buyer Readiness Stage • Some people are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy • To help characterize how many people are at different stages and how well they have converted people from one stage to another, some marketers employ a marketing funnel
  • 60. • See Figure 1: The Brand Funnel 35 COM5111 SemB 2019-209 Figure 1: The Brand Funnel The relative numbers of consumers at different stages make a big difference in designing the marketing program 36 COM5111 SemB 2019-20 Loyalty Status Buyers can be divided into four groups according to brand loyalty status: 1. Hard-core loyals—Consumers who buy only one brand all the time 2. Split loyals—Consumers who are loyal to two or three brands 3. Shifting loyals—Consumers who shift loyalty from one
  • 61. brand to another 4. Switchers—Consumers who show no loyalty to any brand COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Applications A company can learn a great deal by analyzing the degrees of brand loyalty: i. By studying its hard-core loyals, the company can identify its products’ strengths ii. By studying its split loyals, the company can pinpoint which brands are most competitive with its own iii. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses and attempt to correct them 38
  • 62. COM5111 SemB 2019-20COM5111 SemB 2019-20 Attitude Five attitude groups can be found in a market: 1. enthusiastic 2. positive 3. indifferent 4. negative 5. and hostile 39 COM5111 SemB 2019-20COM5111 SemB 2019-20 Behavioral Segmentation Breakdown Combining different behavioral bases can help to provide a more comprehensive and cohesive view of a market and its segments Figure 2 depicts one possible
  • 63. way to break down a target market by various behavioral segmentation bases 40 COM5111 SemB 2019-20 BUSINESS MARKETS Segmentation variables and marketing applications 41 COM5111 SemB 2019-20COM5111 SemB 2019-20 Bases for Segmenting Business Markets (up to slide number 48) • Business markets can be segmented with some of the same variables used in consumer market segmentation, such as geography, benefits sought, and usage rate, but business marketers also use other variables 42
  • 64. COM5111 SemB 2019-20COM5111 SemB 2019-20 Major Segmentation Variables for Business Markets • This table shows one set of these. The demographic variables are the most important, followed by the operating variables 43 COM5111 SemB 2019-20COM5111 SemB 2019-20 Major Segmentation Variables for Business Markets (cont…) 44 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Applications of Business Segmentation • The table lists major questions that business marketers should ask in determining which segments and customers to serve • Within a chosen target industry, a company can further segment by company size. The company might set up
  • 65. separate operations for selling to large and small customers • Within a given target market industry and customer size, a company can segment further by purchase criteria 45 COM5111 SemB 2019-20COM5111 SemB 2019-20 Segmenting Business Markets • Business marketers generally identify segments through a sequential process • The company first undertook macrosegmentation • It looked at which end-use market to serve: automobile, residential, or beverage containers • It chose the residential market, and it needed to determine the most attractive product application: semi-finished material, building components, or aluminum mobile homes • Deciding to focus on building components, it considered the best customer size and chose large customers
  • 66. 46 COM5111 SemB 2019-20COM5111 SemB 2019-20 Segmenting Business Markets • The second stage consisted of microsegmentation • The company distinguished among customers buying on price, service, or quality • Because it had a high-service profile, the firm decided to concentrate on the service-motivated segment of the market 47 COM5111 SemB 2019-20COM5111 SemB 2019-20 Segmenting Business Markets • Business-to-business marketing experts Anderson and Narus have urged marketers to present flexible market offerings to all members of a segment • A flexible market offering consists of two parts: a naked solution containing the product and service elements that all
  • 67. segment members value, and discretionary options that some segment members value • Each option might carry an additional charge 48 COM5111 SemB 2019-20 MARKET TARGETING Effective Segmentation Criteria Evaluating and Selecting the Market Segments Possible Levels of Segmentation Full Market Coverage Multiple-Segment Specialization Single-Segment Specialization Individual Marketing Legal and Ethical Issue with Market Targets 49 COM5111 SemB 2019-20COM5111 SemB 2019-20
  • 68. Market Targeting • Once the firm has identified its market-segment opportunities, it has to decide how many and which ones to target • Marketers are increasingly combining several variables in an effort to identify smaller, better-defined target groups • This has lead some researchers to advocate a needs-based market segmentation approach 50 COM5111 SemB 2019-20COM5111 SemB 2019-20 Steps in the Segmentation Process 51 COM5111 SemB 2019-20COM5111 SemB 2019-20 Effective Segmentation Criteria 1. Measurable—The size, purchasing power, and characteristics of the
  • 69. segments can be measured 2. Substantial—The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program 3. Accessible—The segments can be effectively reached and served 4. Differentiable—The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs 5. Actionable—Effective programs can be formulated for attracting and serving the segments 52 COM5111 SemB 2019-20COM5111 SemB 2019-20 Porter’s Five Forces Model and Segment Attractiveness Michael Porter has identified five forces that determine the
  • 70. intrinsic long-run attractiveness of a market or market segment: • industry competitors • potential entrants • substitutes • buyers • suppliers 53 COM5111 SemB 2019-20COM5111 SemB 2019-20 Porter’s Five Forces Model and Segment Attractiveness 1. Threat of intense segment rivalry—A segment is unattractive if it already contains numerous, strong, or aggressive competitors 2. Threat of new entrants—The most attractive segment is one in which entry barriers are high and exit barriers are low
  • 71. 3. Threat of substitute products—A segment is unattractive when there are actual or potential substitutes for the product. Substitutes place a limit on prices and on profits 4. Threat of buyers’ growing bargaining power—A segment is unattractive if buyers possess strong or growing bargaining power 5. Threat of suppliers’ growing bargaining power—A segment is unattractive if the company’s suppliers are able to raise prices or reduce quantity supplied 54 COM5111 SemB 2019-20COM5111 SemB 2019-20 Evaluating and Selecting the Market Segments • In evaluating different market segments, the firm must look at two factors: – The segment’s overall attractiveness and – The company’s objectives and resources • Does a potential segment have characteristics that make it
  • 72. generally attractive, such as size, growth, profitability, scale economies, and low risk? • Does investing in the segment make sense given the firm’s objectives, competencies, and resources? 55 COM5111 SemB 2019-20COM5111 SemB 2019-20 Possible Levels of Segmentation • Marketers have a range or continuum of possible levels of segmentation that can guide their target market decisions • As this figure shows, at one end is a mass market of essentially one segment; at the other are individuals or segments of one person • Between lie multiple segments and single segments 56 COM5111 SemB 2019-20COM5111 SemB 2019-20 Full Market Coverage
  • 73. • The firm attempts to serve all customer groups with all the products they might need • In undifferentiated marketing, the firm ignores segment differences and goes after the whole market with one offer • In differentiated marketing, the firm operates in several market segments and designs different products for each segment 57 COM5111 SemB 2019-209 Full Market Coverage Samsung identified six segments of mobile phone users based on their need for style, infotainment, business, multimedia, connection, and basic necessities. It has a slew of mobile phones for full market coverage. Samsung—Its climb to be the second largest mobile phone maker is grounded on understanding customer needs. Samsung realized
  • 74. that it needed to design more products for people in India, China, and other emerging markets that are providing most of the industry’s growth. Its research showed that there are six segments of users based on their needs: style, infotainment, business, multimedia, connected, and basic. The latter two are most relevant in emerging markets. The “connected” segment consists of people whose main concern is communicating with family, friends, and business associates; while people in the “basic” segment just want a low-cost device that allows them to talk and text message. 58 COM5111 SemB 2019-20COM5111 SemB 2019-20 Undifferentiated Marketing • In undifferentiated marketing or mass marketing, the firm ignores segment
  • 75. differences and goes after the whole market with one offer • It designs a product and a marketing program that will appeal to the broadest number of buyers • It relies on mass distribution and advertising • It aims to endow the product with a superior image • Undifferentiated marketing is “the marketing counterpart to standardization and mass production in manufacturing” • The narrow product line keeps down costs of research and development, production, inventory, transportation, marketing research, advertising, and product management • The undifferentiated advertising program also reduces costs • Presumably, the company can turn its lower costs into lower prices to win the price-sensitive segment of the market 59 COM5111 SemB 2019-20COM5111 SemB 2019-20
  • 76. Differentiated Marketing • In differentiated marketing, the firm operates in several market segments and designs different products for each segment • Differentiated marketing typically creates more total sales than undifferentiated marketing. However, it also increases the costs of doing business • Because differentiated marketing leads to both higher sales and higher costs, nothing general can be said about the profitability of this strategy 60 COM5111 SemB 2019-20COM5111 SemB 2019-20 Differentiated Marketing – Lenovo Lenovo practices differentiated marketing to reach out more effectively to consumer and business customers
  • 77. Lenovo—China’s IT service market is estimated to grow by leaps and bounds. To capitalize on this, Lenovo differentiated its retail channel to reach consumer and business customers. It doubled its chain of 1+1 Special Shops to more than 500 stores aimed at consumers. It also established a chain of about 400 commercial IT specialty shops, aimed at business customers. In so doing, Lenovo can sell bundled products like Internet services with hardware. It can also identify those customers, especially small- and mid-sized businesses, who might buy additional services. Lenovo has two departments working on its service business—one on bundling, the other offering after-sale services such as systems integration.
  • 78. 61 COM5111 SemB 2019-20COM5111 SemB 2019-20 Multiple Segment Specialization • With selective specialization, a firm selects a subset of all the possible segments, each objectively attractive and appropriate • There may be little or no synergy among the segments, but each promises to be a moneymaker • Keeping synergies in mind, companies can try to operate in super segments rather than in isolated segments. A super segment is a set of segments sharing some exploitable similarity 62 COM5111 SemB 2019-20COM5111 SemB 2019-20 Multiple Segment Specialization • With product specialization, the firm sells a certain product to
  • 79. several different market segments • This leads to a strong reputation in the specific product area • The downside/risk is that the product may be supplanted by an entirely new technology • With market specialization, the firm concentrates on serving many needs of a particular customer group, such as by selling an assortment of products only to university laboratories • The firm gains a strong reputation among this customer group and becomes a channel for additional products its members can use • The downside/risk is that the customer group may suffer budget cuts or shrink in size 63 COM5111 SemB 2019-20COM5111 SemB 2019-20 Single-segment Concentration • With single-segment concentration, the firm markets to only
  • 80. one particular segment • Through concentrated marketing, the firm gains deep knowledge of the segment’s needs and achieves a strong market presence • Further, the firm enjoys operating economies through specializing its production, distribution, and promotion • If it captures segment leadership, the firm can earn a high return on its investment 64 COM5111 SemB 2019-20COM5111 SemB 2019-20 Niche Marketing • A niche is a more narrowly defined customer group seeking a distinctive mix of benefits within a segment. Marketers usually identify niches by dividing a segment into sub- segments • Niche marketers aim to understand their customers’ needs so well that customers willingly pay a premium
  • 81. 65 COM5111 SemB 2019-20COM5111 SemB 2019-20 Individual Marketing • The ultimate level of segmentation leads to “segments of one,” “customized marketing,” or “one-to-one marketing” • As companies have grown more proficient at gathering information about individual customers and business partners (suppliers, distributors, retailers) • Consumers increasingly value self-expression and the ability to capitalize on user- generated products as well as user-generated content • Customization is not for every company. It may be very difficult to implement for complex products such as automobiles 66 COM5111 SemB 2019-20COM5111 SemB 2019-20
  • 82. Legal and Ethical Issue with Market Targets • Market targeting sometimes generates public controversy (Make a hit? fun? good? bad? offended?) • The public is concerned when marketers take unfair advantage of vulnerable groups (such as children) or disadvantaged groups (such as rural poor people), or promote potentially harmful products • Example, the fast-food industry has been heavily criticized for marketing efforts directed toward children Ethical Choice of Market Targets • Socially responsible marketing calls for targeting that serves not only the company’s interests, but also the
  • 83. interests of those targeted 67 https://jingdaily.com/burberry-altered-campaign/ https://uk.style.yahoo.com/post/142348521319/gucci-ad- banned-for-gaunt-model https://www.theguardian.com/world/2004/apr/21/china.jonathan watts COM5111 SemB 2019-20COM5111 SemB 2019-20 Conclusion 1. Target marketing includes three activities: market segmentation, market targeting, and market positioning. Market segments are large, identifiable groups within a market 2. Two bases for segmenting consumer markets are consumer characteristics and consumer responses. The major segmentation variables for consumer markets are geographic, demographic, psychographic, and behavioral. Marketers use them singly or in combination 3. Business marketers use all these variables along with operating variables, purchasing approaches, and situational factors 4. To be useful, market segments must be measurable, substantial, accessible, differentiable, and actionable
  • 84. 5. We can target markets at four main levels: mass, multiple segments, single (or niche) segment, and individuals 6. A mass market targeting approach is adopted only by the biggest companies. Many companies target multiple segments defined in various ways such as various demographic groups who seek the same product benefit 7. A niche is a more narrowly defined group. Globalization and the Internet have made niche marketing more feasible to many 8. More companies now practice individual and mass customization. The future is likely to see more individual consumers take the initiative in designing products and brands. Marketers must choose target markets in a socially responsible manner at all times 68 COM5111 SemB 2019-20COM5111 SemB 2019-20 References Kotler, P., Keller, K. L., Ang, S.H., Tan, C.T., Leong, S.M. (2018). Marketing Management: An Asian perspective
  • 85. (7th ed.). Harlow, United Kingdom: Pearson Education Limited. 69 1Sources: Getty Images COM5111 Pricing strategy COM5111 Semester B 2019-20 Week 6 27th February 2020 2 Critical questions 1. How do consumers process and evaluate prices? 2. How should a company initially set prices for products and/or services? 3. How should a company adapt prices to meet varying
  • 86. circumstances and opportunities? 4. When should a company initiate a price change? 5. How should a company respond to a competitor’s price change? 3 • Rent • Tuition • Fee • Fare • Rate • Toll • Premium • Honorarium • Special assessment • Bribe • Dues • Salary
  • 87. • Commission • Wage • Tax Not just a number on a tag … Many forms; performs many functions; and made up of many components A major determinant of buyer choice Synonyms for price 4 Understanding Pricing • Pricing in a digital world ✓ Get instant vendor price comparisons ✓ Name your price and have it met ✓ Get products free ✓ Monitor customer behavior & tailor offers ✓ Give customers access to special prices
  • 88. ✓ Let customers decide the price ✓ Negotiate prices in online auctions and exchanges B__ S_____ 5 Understanding Pricing • A changing pricing environment – Sharing economy – Bartering • Florida Barter • www.swap.com – Renting A severe recession in 2008–2009 New millennial generation (new attitudes and values to consumption) It is about a brand’s luxury connotation
  • 89. 6 Understanding Pricing • How companies price – Small companies: (boss) – Large companies: (division/product line managers) • How companies should price – Understanding of consumer pricing psychology – a systematic approach to setting, adapting, and changing prices Common mistakes • Calculate and add • Not revising often enough - make change • Set independently • Not varying: e.g. purchase occasions 7 Consumer psychology and pricing ( how consumers perceive prices ) How they consider the actual but not the state price
  • 90. Interpret price in different ways Reference prices Price-quality inferences Price endings Comparing an observed price to an internal reference price they remember or an external frame of reference Many consumers use price as an indicator of quality Many sellers believe prices should end in an odd number Imaging pricing Ego-sensitive products “Left to right” 9 - discount 8 Possible consumer reference prices sellers often attempt to manipulate them e.g. products among expensive competitors Source: Adapted Winer, R. S. (1988). Behavioral perspectives on pricing: buyers’ subjective perceptions of price revisited. In T. Devinney, T. M. (Eds.), Issues in Pricing: Theory
  • 91. and Research, (pp. 35-57). Lexington, MA: Lexington Books. 9 Price cues • ‘Left-to-right’ pricing (€299 versus €300) €34 to €39; €34 to €44 • Odd number discount perceptions • Even number value perceptions • Ending prices with 0 or 5 (easy to process and retrieve) • ‘Sale’ written next to price (spur demands) 10 Sales signs and prices that end in 9 become less effective the more they employed. They are more influential when consumers’ price knowledge is poor when … When to use price cues • Customers purchase item infrequently • Customers are new • Product designs vary over time
  • 92. • Prices vary seasonally • Quality or sizes vary across stores • How about Limited availability? (e.g. three days only) 11 Watch this video for tips on pricing from a marketing executive: www.youtube.com/watch?v=4phxRH6vk-I Pricing a new product must take into account the conditions of the market and competitors’ prices Setting the right price http://www.youtube.com/watch?v=4phxRH6vk-I 12 Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price Where to position its market offering (e.g. product) on quality
  • 93. and price Steps in setting price (slide #14 - #36) 13 Step 1: selecting the price objective 1. Survival 2. Maximum current profit 3. Maximum market share (e.g. TI. Slide #14) 4. Maximum market skimming (e.g. Sony, Apple. Slide #15) 5. Product-quality leadership “affordable luxuries” • Other objectives (e.g. university, nonprofit hospital, social service agency) 14 Conditions favouring a market- penetration pricing strategy Market-penetration pricing involves setting a low price for a new product in order to attract a large number of buyers and a large market share. So lead to lower unit costs and higher long-run profit
  • 94. • Market is highly price sensitive and low prices stimulate market growth • Production and distribution costs fall with accumulated production experience • Low price discourages actual and potential competition 15 Conditions favouring a market-skimming pricing strategy Market-skimming pricing (or price skimming) strategy sets high initial prices to “skim” revenue layers from the market. Certain conditions: • A sufficient number of buyers have high demand • Unit costs of producing a small volume are not so high as to cancel advantage of charging what traffic will bear • High initial price does not attract more competitors to the market • High price communicates superior product image
  • 95. 16 Price sensitivity Estimating demand curves Price elasticity of demand What affects price sensitivity? attempt to measure their demand curves using several different methods Step 2: determining demand 17 normally a inverse relationship between price and demand So when the demand curse slopes upward? Inelastic and elastic demand Each price will lead to a different level of demand and have a different impact on a company’s marketing objectives
  • 96. 18 Source: Adapted from T. T. Nagle and R. K. Holden (2001) The Strategy and Tactics of Pricing , 3rd edn, Chapter 4. Copyright © 2001. Reprinted by permission of Pearson Education, Inc., Upper Saddle River, NJ. Æ +Y PHONE Companies prefer customers who are less price-sensitive!! Agree, or not? Factors leading to less price sensitivity No Google, no GPS, no camera... so why such a huge price tag for the Æ sir Æ +Y £37,000 a phone to be seen with 19 Surveys Price experiments Statistical analysis
  • 97. How can companies estimate demand curves? 20 Price elasticity of demand • If demand hardly changes with a small change in price, the demand is inelastic; if demand changes considerably, it is elastic • The higher the elasticity, the greater the volume growth resulting from a 1% price reduction • If demand is elastic, sellers consider lowering price • There may be a price indifference band within which there is little or no effect 21 Types of costs Target costing Accumulated production
  • 98. Step 3: estimating costs 22 Cost per unit at different levels of production per period Cost terms and production • Fixed costs • Variable costs • Total costs • Average cost • Cost at different levels of production • Activity-based cost accounting (the key is to define and judge activities properly) 23 Cost per unit as a function of accumulated production: the experience curve Experience curve - also known as the learning curve, is the decline in the average cost with accumulated production experience. Accumulated production
  • 99. 24 Target costing • Price less desired profit margin 25 Step 4: analyse competitor’s costs, prices and offers • Firm must take competitors’ costs, prices, & reactions into account • Evaluate worth to customer for differentiated features • Anticipate response from competition 26 The three Cs model for price setting • Three major considerations in price – Customers’ assessment of unique features = price ceiling – Competitors’ prices = orienting point
  • 100. – Costs = price floor Step 5: selecting a pricing method 27 Six pricing setting methods 1. Markup pricing 2. Target-return pricing 3. Perceived-value pricing 4. Value pricing 5. Going-rate pricing 6. Auction-type pricing 28 1. Markup pricing • Add a standard markup to the product’s cost 29 2. Target-return pricing
  • 101. • Price that yields its target rate of return on investment 30 Break-even chart for determining target-return price and break-even volume (what would happen at other sales levels) Variable costs, not shown in the figure, rise with volume 31 Companies must deliver the value promised key to perceived-value pricing is to deliver more unique value than competitors and to demonstrate this to prospective buyers managerial judgments, value of similar products, focus groups, surveys • Buyer’s image of product performance • Ability to deliver on time • Warranty quality
  • 102. • Customer support • Supplier reputation • Trustworthiness • Esteem 3. The components of perceived-value pricing? 32 Value pricing (not just low price) refers to re-engineering the company’s operations to become a low-cost producer without sacrificing quality, to attract a large number of value-conscious customers. For a video on how to negotiate value go to: www.youtube.com/watch?v=Y-iH1dDp6-8&feature=related Everyday low pricing (EDLP) High-low pricing 4. What is value pricing?
  • 103. http://www.youtube.com/watch?v=Y-iH1dDp6- 8&feature=related 33 5. What is going-rate pricing? In going-rate pricing, firms base prices on competitors’ prices, charging the same, more or less than major competitors Smaller firms ‘follow the leader’ 34 English auctions Dutch auctions Sealed-bid auctions one seller and many buyers one seller and many buyers orone buyer and many sellers would-be suppliers submit only one bid; they cannot know the other bids 6. Auction type pricing
  • 104. 35 Step 6: selecting the final price Pricing methods narrow the range from which the company must select its final price • Additional factors to select final price: • Impact of other marketing activities • Company pricing policies • Gain-and-risk sharing pricing – Buyer resist … The seller then has the option of offering to absorb part or all the risk • Impact of price on other parties – distributors and dealers; sales force; government? 36 Geographical pricing Discounts/allowances Differentiated pricing Promotional pricing Price adaption strategies
  • 105. 37 Geographical pricing Countertrade • Barter • Compensation deal • Seller receive some percentage of payment in cash and the rest in products • Buyback arrangement • The seller sells a plant, or technology to another country and • agrees to accept partial payment using products manufactured with the supplied equipment • Offset • The seller receive full amount in cash but • agrees to spend a substantial amount of money in that country within a stated time period 38
  • 106. Price discounts and allowances • Cash discount • Quantity discount • Functional discount • Seasonal discount • Allowance 39 Promotional pricing tactics • Loss-leader pricing (supermarket drops prices) • Special-event pricing • Cash rebates • Low-interest financing • Longer payment terms • Warranties and service contracts (adding low cost or free contracts) • Psychological discounting (was $459, now $359) 40
  • 107. Differentiated pricing • Customer-segment pricing (diff groups pay differently) • Product-form pricing (diff version priced diff) • Image pricing (same product in two diff levels. Price differently) • Channel pricing (fast-food, where you get it?) • Location pricing (theatre) • Time pricing (tickets, restaurants) 41 Critical question for debate 42 Initiating and Responding to Price Changes • Initiating price cuts – Excess plant capacity – Domination of market • Price-cutting traps – Price concessions
  • 108. – Low-quality – Fragile market share (A low price buys market share but not market loyalty) – Shallow pockets – Price war 43 Initiating price increases Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts does not set a final price until the product is finished or delivered pay today’s price plus all or part of any inflation increase that takes place before delivery maintains its price but removes or prices separately one or more elements not to offer its normal cash and quantity discounts
  • 109. 44 if sales volume is unaffected Profits before and after a price increase If the company’s profit margin is 3 percent of sales 45 Ways to avoid price increases • Shrink the product • Substitute cheaper materials • Reduce or remove product features • Remove or reduce product services • Use less expensive packaging • Reduce the sizes and models offered • Create new economy brands 46 Responding to competitors’ price changes
  • 110. • Anticipating competitive responses • Responding to competitors’ price changes 47Source: Kumar, N. (2006). Strategies to fight low-cost rivals. December 2006, Harvard Business Review. • Design ‘cool’ product • Continually innovate • Offer unique product mix • Sell experience 48 Critical question for discussion Is the right price a fair price? Take a position: • Prices should reflect the value that consumers are willing to pay. or Prices should primarily just reflect the cost involved in making a product.
  • 111. 49 Recap: can you explain 1. How do consumers process and evaluate prices? 2. How should a company initially set prices? 3. How should a company adapt prices to meet varying circumstances and opportunities? 4. When should a company initiate a price change? 5. How should a company respond to a competitor’s price change? 50 Your main goal is to pull people into the funnel in hopes of turning a fraction of them into paying customers Estée Lauder Gillette & HP Ryanair (seat, pay) Marketing insight: giving it all away • Stick to the free offer (Freemium Strategy) • Have a product that truly stands out • Make sure the product works
  • 112. • Keep improving the product • Make access to product within one click (easy access) • Know your up-selling plan from the beginning • Identify a range of revenue sources 51 Further readings • Bertini, M., & Wathieu, L. (2010). How to Stop Customers from Fixating on Price. Harvard Business Review. • Gourville, J., & Soman, D. (2002). Pricing and the Psychology of Consumption. Harvard Business Review. • Mohammed, R. (2018). The Good-Better-Best Approach to Pricing. Harvard Business Review. • Nagle, T., Hogan, J., & Zale, H. (2018). The strategy and tactics of pricing: A guide to growing more profitably (6th ed.). New York, NY ; Abingdon, Oxon : Routledge. • Siggelkow, N., & Terwiesch, C. (2019). 5 questions to consider when pricing smart products. Harvard Business Review.
  • 113. 52 Watson (2018) Retail information technology “Virtual makeup” 53 Watson (2018) Retail information technology Change price tag within 10 to 12 seconds 54 Hey you, it’s time to start your Individual Assignment (40%) Due on 19th March 2020 • Haven’t you? • A quick review? – Can someone do it? • Someone has already started, am I right? – Which stage are you now? COM5111 SemB 2019-20
  • 114. COM5111 Fundamentals of Marketing Communication Week 3 Marketing Information & Customer Insights Photo source: www.scmp.com COM5111 SemB 2019-20COM5111 SemB 2019-20 Learning Objectives 3-1 Describe the environmental forces that affect the company’s ability to serve its customers 3-2 Explain how changes in the demographic and economic environments affect marketing decisions 3-3 Identify the major trends in the firm’s natural and technological environments 3-4 Explain the key changes in the political and cultural environments 3-5 Discuss how companies can react to the marketing environment 2
  • 115. COM5111 SemB 2019-20COM5111 SemB 2019-20 A Company’s Marketing Environment The marketing environment includes the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers Microenvironment consists of the actors close to the company that affect its ability to serve its customers—the company, suppliers, marketing intermediaries, customer markets, competitors, and publics Macroenvironment consists of the larger societal forces that affect the microenvironment—demographic, economic, natural, technological, political, and cultural forces Learning Objective 1 3 Study Seek COM5111 SemB 2019-20COM5111 SemB 2019-20 The Microenvironment
  • 116. Learning Objective 1 4 Marketing management’s job is to build relationships with customers by creating customer value and satisfaction COM5111 SemB 2019-20COM5111 SemB 2019-20 The Microenvironment The Company In designing marketing plans, marketing management takes other company groups into account • Top management • Finance • R&D • Purchasing • Operations • Accounting Learning Objective 1 • Provide the resources to produce goods and services
  • 117. • Treat as partners to provide customer value Suppliers 5 Critical Questions • What type of collaboration does there need to be between the departments? • How might projects be integrated between marketing and finance? • How might projects be integrated between marketing and information systems? $, Availability, quality shortage, delay … COM5111 SemB 2019-20COM5111 SemB 2019-20 The Microenvironment Marketing Intermediaries Marketing intermediaries are firms that help the company to promote, sell, and distribute its goods to final buyers Learning Objective 1
  • 118. Resellers Physical distribution firms Marketing services agencies Financial intermediaries 6 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Microenvironment Competitors Firms must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers Learning Objective 1 7 Own size and industry position
  • 119. COM5111 SemB 2019-20COM5111 SemB 2019-20 The Microenvironment Publics Any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives: • Financial publics • Media publics • Government publics • Citizen-action publics • Local publics • General public • Internal publics Learning Objective 1 Customers • Consumer markets • Business markets • Reseller markets
  • 120. • Government markets • International markets 8 Seller needs to study these COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macro environment Learning Objective 2 9 vulnerable to the often turbulent and changing forces COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Demographic Environment • Demography is the study of human populations—size, density, location, age, gender, race, occupation, and other statistics • Demographic environment involves people, and people make up markets • Demographic trends include changing age and family
  • 121. structures, geographic population shifts, educational characteristics, and population diversity Learning Objective 2 10 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Demographic Environment • Baby Boomers – born 1946 to 1964 (spending more carefully) • Generation X – born between 1965 and 1976 (overlooked, research, quality) • Millennials – born between 1977 and 2000 (filled with devices, social media, financially strapped) • Generation Z – born after 2000 (kids, tweens and teens) Learning Objective 2 11 COM5111 SemB 2019-20COM5111 SemB 2019-20
  • 122. The Macroenvironment Demographic Environment Generational marketing is important in segmenting people by lifestyle or life stage instead of age Learning Objective 2 12 Critical Question Do marketers need to create separate products and marketing programs for each generation? COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Demographic Environment • Changing (American) family • What kind of changes? • Changes in the workforce • What kind of changes? Learning Objective 2 13
  • 123. COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Demographic Environment Geographic Shifts in Population • Growth in U.S. West and South and decline in Midwest and Northeast • How about China or Europe or any place (e.g. Hong Kong) you would like to discuss? • Change in where people work • Telecommuting • Home Office Learning Objective 2 14 Critical Questions • Why do you think these geographic shifts in population are happening? • Where will you choose to live
  • 124. when you finish your education? Why? COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Demographic Environment Markets are becoming more diverse • International • National • Ethnicity • Gay and lesbian • Disabled Learning Objective 2 15 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Economic Environment
  • 125. Learning Objective 2 16 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Economic Environment Changes in Consumer Spending Value marketing involves offering financially cautious buyers greater value—the right combination of quality and service at a fair price Learning Objective 2 17 What changes might there be in U.S. vs. China? Any thoughts? COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Economic Environment Income Distribution
  • 126. Over the past several decades, the rich have grown richer, the middle class has shrunk, and the poor have remained poor Learning Objective 2 18 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment The Natural Environment The natural environment is the physical environment and the natural resources that are needed as inputs by marketers or that are affected by marketing activities Learning Objective 3 19 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment The Natural Environment Trends in the Natural Environment
  • 127. • Growing shortages of raw materials • Increased pollution • Increased government intervention • Developing strategies that support environmental sustainability Learning Objective 3 20 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Natural Environment Environmental sustainability involves developing strategies and practices that create a world economy that the planet can support indefinitely Learning Objective 3 21 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment
  • 128. Technological Environment • Most dramatic force in changing the marketplace • New products, opportunities • Concern for the safety of new products Learning Objective 3 22 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Political and Social Environment Legislation regulating business is intended to protect • companies from each other • consumers from unfair business practices • the interests of society against unrestrained business behavior Learning Objective 4 23 COM5111 SemB 2019-20COM5111 SemB 2019-20
  • 129. The Macroenvironment Political and Social Environment • Increased emphasis on ethics • Socially responsible behavior • Cause-related marketing Learning Objective 4 24 COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Cultural Environment The cultural environment consists of institutions and other forces that affect a society’s basic values, perceptions, and behaviors Why? Learning Objective 4 25 How they think and consume?
  • 130. COM5111 SemB 2019-20COM5111 SemB 2019-20 The Macroenvironment Cultural Environment Core beliefs and values are persistent and are passed on from parents to children and are reinforced by schools, churches, businesses, and government Secondary beliefs and values are more open to change and include people’s views of themselves, others, organizations, society, nature, and the universe Learning Objective 4 26 COM5111 SemB 2019-20COM5111 SemB 2019-20 Responding to the Marketing Environment Views on Responding Uncontrollable • React and adapt to forces in the
  • 131. environment Proactive • Take aggressive actions to affect forces in the environment Reactive • Watch and react to forces in the environment Learning Objective 5 27 “There are three kinds of companies: those who make things happen, those who watch things happen, and those who wonder what’s happened.” COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information to gain Customer Insights Learning Objectives 4-1 Explain the importance of information in gaining insights about
  • 132. the marketplace and customers 4-2 Define the marketing information system and discuss its parts 4-3 Outline the steps in the marketing research process 4-4 Explain how companies analyze and use marketing information 4-5 Discuss the special issues some marketing researchers face, including public policy and ethics issues 28 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information and Customer Insights Customer insights are fresh marketing information-based understandings of customers and the marketplace that become the basis for creating customer value, engagement, and relationships 29 Learning Objective 1
  • 133. COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information and Customer Insights Customer insights • Fresh and deep insights into customer needs and wants • Important but difficult to obtain ▪ Needs and buying motives not obvious ▪ Customers usually can’t tell you what and why • Better information and more effective use of existing information 30 Learning Objective 1 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information and Customer Insights Managing Marketing Information • Companies are forming customer insights teams ▪ Include all company functional areas ▪ Collect information from a wide variety of sources
  • 134. ▪ Use insights to create more value for their customers 31 Learning Objective 1 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information and Customer Insights Managing Marketing Information Marketing information system (MIS) refers to the people and procedures dedicated to assessing information needs, developing the needed information, and helping decision makers to use the information to generate and validate actionable customer and market insights 32 Learning Objective 1 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Information and Customer Insights 33 Learning Objective 1 Marketing Information System - to develop customer insights, make marketing decisions, and manage customer relationships
  • 135. 1 2 3 0 COM5111 SemB 2019-20COM5111 SemB 2019-20 Assessing Marketing Information Needs A marketing information system (MIS) provides information to the company’s marketing and other managers and external partners such as suppliers, resellers, and marketing service agencies 34 Learning Objective 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Assessing Marketing Information Needs Characteristics of a Good MIS Balancing the information users would like to have against what they need and what is feasible to offer
  • 136. User’s Needs MIS Offerings 35 Learning Objective 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Developing Marketing Information Marketers obtain information from: Internal data Marketing intelligence Marketing research 36 Learning Objective 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Developing Marketing Information Internal Data
  • 137. Internal databases are collections of consumer and market information obtained from data sources within the company network 37 Learning Objective 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Developing Marketing Information Competitive Marketing Intelligence Competitive marketing intelligence is the systematic collection and analysis of publicly available information about consumers, competitors, and developments in the marketing environment 38 Learning Objective 2 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Marketing research is the systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation
  • 138. facing an organization 39 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Defining the Problem and Research Objectives - guides the entire research process Exploratory research Descriptive research Causal research 40 Learning Objective 3 to gather preliminary information that will help define the problem and suggest hypothesesdescribes marketing problems, situations, or markets , such as
  • 139. the market potential for a product or the demographics and attitudes of consumer research tests hypothesis about cause-and-effect relationships COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Developing the Research Plan • Outlines sources of existing data • Spells out the specific research approaches, contact methods, sampling plans, and instruments to gather data present the plan to management 41 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research
  • 140. Developing the Research Plan Management problem Research objectives Information needed How the results will help management decisions Budget 42 Learning Objective 3 presented in a written proposal COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Developing the Research Plan Secondary data is information that already exists somewhere, having been collected for another purpose Primary data is information collected for the specific purpose at hand
  • 141. 43 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Gathering Secondary Data Advantages Lower cost Obtained quickly Cannot collect otherwise Disadvantages - data may not be Relevant Accurate Current Impartial 44
  • 142. Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection Research Approaches Contact Methods Sampling Plan Research Instruments 45 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research 46 Learning Objective 3 Planning Primary Data Collection
  • 143. COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection Research Approaches • Observational research involves gathering primary data by observing relevant people, actions, and situations • Ethnographic research involves sending trained observers to watch and interact with consumers in their “natural environments.” 47 Learning Objective 3 https://www.kaltura.com/index.php/extwidget/preview/partner_i d/506471/uiconf_id/9952721/entry_id/0_7z04f86l/embed/auto? &flashvars%5bstreamerType%5d=auto COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection Research Approaches • Survey research involves gathering primary data by asking people
  • 144. questions about their knowledge, attitudes, preferences, and buying behavior • Experimental research involves gathering primary data by selecting matched groups of subjects, giving them different treatments, controlling related factors, and checking for differences in group responses 48 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Focus Group—Personal Contact Method • Six to 10 people • Trained moderator • Challenges ▪ Expensive ▪ Difficult to generalize from small group ▪ Consumers not always open and honest
  • 145. 49 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Online Contact Methods Advantages • Low cost • Speed • Higher response rates • Good for hard to reach groups 50 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection
  • 146. Sampling Plan A sample is a segment of the population selected for marketing research to represent the population as a whole • Who is to be studied? • How many people should be studied? • How should the people be chosen? 51 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research 52 Learning Objective 3 Types of samples COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection
  • 147. Research Instruments--Questionnaires • Most common • In person, by phone, or online • Flexible • Researchers must be careful with wording and ordering of questions ▪ Closed-ended ▪ Open-ended • Useful in exploratory research 53 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Primary Data Collection Mechanical Research Instruments Mechanical devices People meters
  • 148. Checkout scanners Neuro- marketing 54 Learning Objective 3 COM5111 SemB 2019-20COM5111 SemB 2019-20 Marketing Research Implementing the Research Plan • Collecting the information • Processing the information • Analyzing the information Interpreting and Reporting Findings • Interpret findings • Draw conclusions • Report to management 55 Learning Objective 3
  • 149. COM5111 SemB 2019-20COM5111 SemB 2019-20 Analyzing and Using Marketing Information Customer Relationship Management (CRM) CRM involves managing detailed information about individual customers and carefully managing customer touch points to maximize customer loyalty 56 Learning Objective 4 COM5111 SemB 2019-20COM5111 SemB 2019-20 Analyzing and Using Marketing Information Customer Relationship Management CRM Touchpoints Customer purchases Sales force contacts Service and support
  • 150. calls Web and social media sites Satisfaction surveys Credit and payment interactions Marketing research studies 57 Learning Objective 4 COM5111 SemB 2019-20COM5111 SemB 2019-20 Analyzing and Using Marketing Information Distributing and Using Marketing Information Information distribution involves making information available in a timely, user-friendly way • Intranet
  • 151. • Extranet 58 Learning Objective 4 COM5111 SemB 2019-20COM5111 SemB 2019-20 Other Marketing Information Considerations Marketing Research in Small Businesses and Nonprofit Organizations International Market Research Public Policy and Ethics • Customer privacy • Misuse of research findings 59 Learning Objective 5 COM5111 SemB 2019-20COM5111 SemB 2019-20 60 Coronavirus Free
  • 152. Good Health COM5111 Fundamentals of Marketing Communication Week 2 DEVELOPING MARKETING STRATEGIES AND PLANS SemB 2019-20 Outlines 1. Recap – previous lecture and assignments 2. How does marketing affect customer value? 3. How is strategic planning carried out at different levels of the organization? 4. What does a marketing plan include? COM5111 Week 2 SemB 2019-202 Traditional View of Marketing • The traditional view of marketing is that the firm makes something and then sells it (sellers’ point of view)
  • 153. • The traditional view will not work, however, in economies where people face abundant choices • New belief: marketing begins with the planning process COM5111 Week 2 SemB 2019-203 Marketing and Customer Value • The task of any business is to deliver customer value at a profit • A company can win only by fine-tuning the value delivery process and choosing, providing, and communicating superior value COM5111 Week 2 SemB 2019-204 Value creation and delivery consists of three parts: 1. Choosing the value (segment the market, select target market, develop “offering”) 2. Providing the value (product features, prices, and distribution channels) 3. Communicating the value (sales force, internet,
  • 154. advertising, and communication tools) COM5111 Week 2 SemB 2019-205 Value Delivery Network (also called a supply chain) • To be successful, a firm also needs to look for competitive advantages beyond its own operations, into the value chains of suppliers, distributors, and customers COM5111 Week 2 SemB 2019-206 The Value Chain (Porter) • Michael Porter’s Value Chain identifies nine strategically relevant activities that create value and costs in a specific business (five primary and four support activities) • The primary activities cover the sequence of bringing materials into the business (inbound logistics), converting them into final products (operations), shipping out final products (
  • 155. outbound logistics), marketing them (marketing and sales), and servicing them (service) • The support activities—procurement, technology development, human resource management, and firm infrastructure—are handled in certain specialized departments, as well as elsewhere COM5111 Week 2 SemB 2019-207 The firm’s success depends not only on how well each department performs its work but also on how well the various departmental activities are coordinated to conduct core business processes Application of the Value Chain Model • The firm’s task is to examine its costs and performance in each value-creating activity and look for ways to improve it • The firm should estimate its competitors’ costs and performances as benchmarks against which to compare its own costs and performance • It should go further and study the “best of class” practices
  • 156. of the world’s best companies COM5111 Week 2 SemB 2019-208 Core Business Processes 1. The market sensing process (marketing intelligence) 2. The new offering realization process (research and development) 3. The customer acquisition process (defining target markets and consumers) 4. The customer relationship management process (deeper understanding of consumers) 5. The fulfillment management process (receiving, shipping, and collecting payments) COM5111 Week 2 SemB 2019-209 Finding capabilities inside and outside the organization (profit or non-profit) • Strong companies develop superior capabilities in these core business processes (also slide #38 from Lecture 1)
  • 157. • Strong companies also re-engineer the workflows and build cross-functional teams responsible for each process • Many companies have partnered with suppliers and distributors to create a superior value delivery network COM5111 Week 2 SemB 2019-2010 Core Competencies • The key, then, is to own or nurture the resources and competencies that make up the essence of the business— outsource if competency is cheaper and available. (E.g Nike uses Asian manufacturers) • A core competency has three characteristics 1. Makes a significant contribution to perceived customer benefits 2. Has applications in a wide variety of markets 3. It is difficult for competitors to imitate Companies own and control most of the resources that entered their businesses
  • 158. COM5111 Week 2 SemB 2019-2011 Maximizing Core Competencies • Business realignment (case study: Kodak, 2004, 2011) may be necessary to maximize core competencies. It has three steps: 1. (re) defining the business concept or “big idea”; 2. (re) shaping the business scope; and 3. (re) positioning the company’s brand identity CA ultimately derives from how well the company has fitted its core competencies and distinctive capabilities into tightly interlocking activity systems COM5111 Week 2 SemB 2019-2012 Competitive Advantage • Competitive advantage also accrues to companies that possess distinctive capabilities or excellence in broader business processes • Three distinctive capabilities:
  • 159. 1. market sensing 2. customer linking 3. channel bonding COM5111 Week 2 SemB 2019-2013 Asian Companies Adopt three Main Strategies (McKinsey) to harness their core competence • Expand quickly to capture global market opportunities • Become atomizers • Become asset light by using intangibles • Fostering human capital, exploiting network effects, creating synergies on reputation COM5111 Week 2 SemB 2019-2014 The Central Role of Strategic Planning Companies focus on the customer and are organized to respond effectively to changing customer needs. They have well-staffed marketing departments, and their other departments also accept the concept that the customer is king
  • 160. COM5111 Week 2 SemB 2019-2015 The Strategic Planning, Implementation, and Control Processes COM5111 Week 2 SemB 2019-2016 Corporate and Division Strategic Planning All corporate headquarters undertake four planning activities: i. Defining the corporate mission ii. Establishing strategic business units (SBUs) iii. Assign resources to each SBU iv. Assessing growth opportunities COM5111 Week 2 SemB 2019-2017 Defining the Market • A target market definition tends to focus on selling a product or service • Pepsi could define its target market as everyone who drinks a
  • 161. cola beverage and competitors would therefore be other cola companies • A strategic market definition could be everyone who might drink something to quench his or her thirst COM5111 Week 2 SemB 2019-2018 Establishing Strategic Business Units (SBUs) • Companies often define themselves in terms of products: They are in the “auto business” or the “clothing business.” • Market definitions of a business, however, describe the business are superior to product definitions • A business must be viewed as a customer-satisfying process, not a goods-producing process • Basic needs and customer groups endure forever. Transportation is a need: the bicycle, the automobile, the railroad, the airline, and
  • 162. the truck are products that meet that need COM5111 Week 2 SemB 2019-2019 Strategic Business Units (SBUs) The purpose of identifying the company’s strategic business units is to develop separate strategies and assign appropriate funding • A business can define itself in terms of three dimensions: customer groups, customer needs, and technology • An SBU has three characteristics: i. It is a single business, or a collection of related businesses, that can be planned separately from the rest of the company ii. It has its own set of competitors iii. It has a manager responsible for strategic planning and profit performance, who controls most of the factors affecting profit COM5111 Week 2 SemB 2019-2020 Assigning Resources to Each SBU
  • 163. • Once it has defined SBUs, management must decide how to allocate corporate resources to each • Several portfolio-planning models introduced to provide an analytical means for making investment decisions • The GE/McKinsey Matrix classifies each SBU according to the extent of its competitive advantage and the attractiveness of its industry • Management would want to grow, “harvest” or draw cash from, or hold on to the business • Another model, from Boston Consulting Group, called the BCG’s Growth-Share Matrix, uses relative market share and annual rate of market growth as criteria to make investment decisions COM5111 Week 2 SemB 2019-2021 Assessing Growth Opportunities • Assessing growth opportunities involves planning new businesses,
  • 164. downsizing, and terminating older businesses. If there is a gap between future desired sales and projected sales, corporate management will need to develop or acquire new businesses to fill it COM5111 Week 2 SemB 2019-2022 The Strategic-Planning Gap COM5111 Week 2 SemB 2019-2023 Strategic Options • The first option is to identify opportunities for growth within current businesses (intensive opportunities). Improving current business • The second is to identify opportunities to build or acquire businesses related to current businesses (integrative opportunities). Thru backward, forward or horizontal integration • Third is to identify opportunities to add attractive unrelated