Enu market segmentation 090912


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Market segmentation, strategy

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  • As noted in earlier chapters, two decades ago Professor Theodore Levitt advanced the thesis that consumers in different countries increasingly seek variety, and that the same new segments are likely to show up in multiple national markets. Thus, ethnic or regional foods such as sushi, falafel, or pizza might be in demand anywhere in the world. Levitt suggested that this trend, known variously as the pluralization of consumption and segment simultaneity , provides an opportunity for marketers to pursue one or more segments on a global scale. Authors John Micklethwait and Adrian Wooldridge sum up the situation this way:   The audience for a new recording of a Michael Tippett symphony or for a nature documentary about the mating habits of flamingos may be minuscule in any one country, but round up all the Tippett and flamingo fanatics around the world, and you have attractive commercial propositions. The cheap distribution offered by the Internet will probably make these niches even more attractive financially.   Global market segmentation is based on the premise that companies should attempt to identify consumers in different countries who share similar needs and desires. A. Coskun Samli has developed a useful approach to global market segmentation that compares and contrasts “ conventional ” versus “ unconventional ” wisdom. This is shown on the next slide.
  • For example, conventional wisdom might assume that consumers in Europe and Latin America are interested in World Cup soccer while those in America are not. Unconventional wisdom would note that the “ global jock ” segment exists in many countries, including the United States. Similarly, conventional wisdom might assume that, because per capita income in India is about $820, all Indians have low incomes. Unconventional wisdom would note the presence of a higher-income, middle-class segment. As Sapna Nayak, a food analyst at Raobank India, noted recently, “The potential Indian customer base for a McDonald’s or a Subway is larger than the size of entire developed countries.  The same is true of China; the average annual income of people living in eastern China is approximately $1,200. This is the equivalent to a lower-middle-income country market with 470 million people, larger than every other single country market except India.  
  • Today, global (multi-national) companies, and the research and advertising agencies that serve them, use market segmentation to identify, define, understand, and respond to customer wants and needs on a worldwide, rather than strictly local basis. As we have noted many times in this book, global marketers must determine whether a standardized or adapted marketing mix is required to best serve those wants and needs. By performing market segmentation, marketers can generate the insights needed to devise the most effective approach. The process of global market segmentation begins with the choice of one or more variables to use as a basis for grouping customers. This slide shows the most common segmentation categories. The following slides will discuss them more in-depth.
  • By 2030, 20 percent of the U.S. population—70 million Americans—will be 65 years old or older versus 13 percent (36 million) today. America’s three main ethnic groups—African/Black Americans, Hispanic Americans, and Asian Americans—represent a combined annual buying power of $2.5 trillion. The United States is home to 28.4 million foreign-born residents with a combined income of $233 billion.
  • Demographic changes can create opportunities for marketing innovation. In France, for example, two entrepreneurs began rewriting the rules of retailing years before Sam Walton founded the Wal-Mart chain. Marcel Fournier and Louis Defforey opened the first Carrefour (“crossroads”) hypermarket in 1963. At the time, France had a fragmented shop system that consisted of small, specialized stores with only about 5,000 square feet of floor space such as the boulangerie and charcuterie . The shop system was part of France’s national heritage, and shoppers developed personal relationships with a shop’s proprietor. However, time pressed, dual-parent working families had less time to stop at several stores for daily shopping. The same trend was occurring in other countries. By 1993, Carrefour SA was a global chain with $21 billion in sales and a market capitalization of $10 billion. By 2008, sales had reached $124 billion; today, Carrefour operates 9,630 stores in 32 countries. As Adrian Slywotzky has noted, it was a demographic shift that provided the opportunity for Fournier and Defforey to create a novel, customer-matched, cost-effective business design.   After segmenting in terms of a single demographic variable—income—a company can reach the most affluent markets by targeting fewer than 20 nations: the European Union, North America, and Japan. By doing so, however, the marketers are not reaching almost 90 percent of the world ’ s population! A word of caution is in order here. Data about income (and population) have the advantage of being widely available and inexpensive to access. However, management may unconsciously “read too much” into such data. In other words, while providing some measure of market potential, such macro-level demographic data should not necessarily be used as the sole indicator of presence (or absence) of a market opportunity. This is especially true when an emerging country market or region is being investigated.   As noted previously, for products whose price is low enough, population is a more important variable than income in determining market potential. As former Kodak CEO George Fisher commented a decade ago, “ Half the people in the world have yet to take their first picture. The opportunity is huge, and it’s nothing fancy. We just have to sell yellow boxes of film.” Thus, China and India, with respective populations of 1.3 billion and 1 billion, represent attractive target markets. In a country like China, one segmentation approach would call for serving the existing mass market for inexpensive consumer products. (FYI, Kodak paralyzed their own growth by trying to suppress digital camera technology, even though they were the first to invent them, because of the fear their digital cameras would cannibalize their film business. They declared bankruptcy in 2012.)   Procter & Gamble, Unilever, Kao, Johnson & Johnson, and other packaged goods companies are targeting and developing the China market, lured in part by the possibility that as many as 100 million Chinese customers are affluent enough to spend a few cents for a single-use pouch of shampoo.
  • Young consumers may not yet have conformed to cultural norms; indeed, they may be rebelling against them. This fact, combined with shared universal wants, needs, desires, and fantasies (for name brands, novelty, entertainment, trendy, and image-oriented products), make it possible to reach the global teen segment with a unified marketing program. This segment is attractive both in terms of its size (about 1.3 billion) and its multi-billion dollar purchasing power. The U.S. teen market represents roughly $200 billion in annual buying power; the United Kingdom’s 7.5 million teens spend more than $10 billion each year. Coca-Cola, Benetton, Swatch, and Sony are some of the companies pursuing the global teenage segment.   The global elite is normally associated with older individuals who have accumulated wealth over the course of a long career, it also includes movie stars, musicians, elite athletes, and others who have achieved great financial success at a relatively young age.
  • In 2000, Nike generated $1.4 billion in global sales of women’s shoes and apparel, a figure representing 16 percent of total Nike sales. Nike executives believe its global women’s business is poised for big growth. To make it happen, Nike is opening concept shops inside department stores and creating free-standing retail stores devoted exclusively to women. In Europe, Levi Strauss is taking a similar approach. In 2003, the company opened its first boutique for young women, Levi’s for Girls, in Paris. As Suzanne Gallacher, associate brand manager for Levi’s in Europe, the Middle East, and Africa, noted, “In Europe, denim is for girls. ”
  • Data are obtained from questionnaires that require respondents to indicate the extent to which they agree or disagree with a series of statements. Psychographics is primarily associated with SRI International, a market research organization whose original VALS and updated VALS 2 analyses of consumers are widely known.   A psychographic study showed that, demographics aside, Porsche buyers could be divided into several distinct categories. Top Guns, for example, buy Porsches and expect to be noticed; for Proud Patrons and Fantasists, however, such conspicuous consumption is irrelevant. Porsche used the profiles to develop advertising tailored to each type.   As Richard Ford, Porsche vice president of sales and marketing, noted: “We were selling to people whose profiles were diametrically opposed. You wouldn’t want to tell an elitist how good he looks in the car or how fast he could go.” The results were impressive; Porsche’s U.S. sales improved nearly 50 percent after a new advertising campaign was launched.
  • The following characteristics come from a research team at D ’ arcy Massius Benton & Bowles. They focused on Europe and produced a 15-country study entitled: “ The Euroconsumer: Marketing Myth or Cultural Certainty? ” They identified four lifestyle groups which are highlighted here and on the next slide.
  • Behavior segmentation focuses on whether or not people buy and use a product, as well as how often, and how much they use or consume. Consumers can be categorized in terms of usage rates: for example, heavy, medium, light, and non-user. Consumers can also be segmented according to user status: potential users, non-users, ex-users, regulars, first-timers, and users of competitors ’ products. Nine country markets generate about 80 percent of McDonald’s revenues. This situation presents McDonald’s executives with strategy alternatives: Should the company pursue growth in the handful of countries where it is already well known and popular? Or, should it focus on expansion and growth opportunities in the scores of countries that, as yet, contribute little to revenues and profits?
  • Marketers of health and beauty aids also use benefit segmentation. Many toothpaste brands are straightforward cavity fighters, and as such they reach a very broad market. However, as consumers become more concerned about whitening, sensitive teeth, gum disease, and other oral care issues, marketers are developing new toothpaste brands suited to the different sets of perceived needs. The European pet food market represents $30 billion in annual sales. Nestlé discovered that cat owners’ attitudes toward feeding their pets are the same everywhere. In response, a pan-European campaign was created for Friskies Dry Cat Food. The appeal was that dry cat food better suits a cat’s universally recognized independent nature. Likewise, many Europeans are concerned with improving the health and longevity of their pets. Accordingly, Procter & Gamble is marketing its Iams brand premium pet food as a way to improve pets’ health.
  • From a marketing point of view, these groups offer great opportunity. Companies in a variety of industry sectors, including food and beverages, consumer durables, and leisure and financial services are recognizing the need to include these segments when preparing marketing programs for the United States.   In the two-year period 1999-2000, new-vehicle registrations by Hispanics in the United States grew 20 percent, twice the overall national growth rate. Honda, Toyota, and other Japanese automakers have been courting U.S. Hispanics for years and have built up a great deal of brand loyalty. Ford and GM are playing catch up, with mixed results; despite large increases in advertising targeting Hispanics, GM’s market share is slipping. Sales of Corona Extra beer in the United States have grown dramatically recently, thanks in part to savvy marketing to the Hispanic segment. In lower-income neighborhoods, imported premium beer brands represent “ affordable luxuries. ” Although a six-pack of Corona typically costs at least a dollar more than Budweiser at a local bodega, it is usually priced lower than Heineken. Marketers must understand, though, that many Hispanic Americans live in two worlds; while they identify strongly with the United States, there is also a sense of pride associated with brands that connect to their heritage.
  • After segmenting the market by one or more of the criteria just discussed, the next step is to assess the attractiveness of the identified segments. This part of the process is especially important when sizing up emerging country markets as potential targets. It is at this stage that global marketers should be mindful of several potential pitfalls associated with the market segmentation process.
  • India is the world ’ s fastest growing cell phone market. The industry is expanding at a rate of 50 percent annually, with 5 to 6 million new subscribers added every month. By mid-2008, India had 261 million cell phone users; that number approached 900 million by the end of 2011.   1.3 million cars sold annually, 3 million within 10 years, world’s largest car market.   75% of India’s population is under age 35, increasing affluent and looking for designer brands.   Even so, barriers originating in the political and regulatory environments have shackled private-sector growth. From the perspective of a consumer packaged goods company, for example, low incomes and the absence of a distribution infrastructure offset the fact that 75 percent of India’s population lives in rural areas. The appropriate decision may be to target urban areas only, even though they are home to only 25 percent of the population. Visa’s strategy in China perfectly illustrates this criterion as it relates to demographics: Visa is targeting persons with a monthly salary equivalent to $300 or more. The company estimates that currently 60 million people fit that description; by 2010, the number could include as many as 200 million people.
  • Over the past several decades, for example, Japanese companies in a variety of industries targeted the U.S. market despite the presence of entrenched domestic market leaders. Some of the newcomers proved to be extremely adept at segmenting and targeting; as a result, they made significant inroads. In the motorcycle industry, for example, Honda first created the market for small-displacement dirt bikes. The company then moved upmarket with bigger bikes targeted at casual riders whose psychographic profile was quite different than that of the hardcore Harley-Davidson rider. In document imaging, Canon outflanked Xerox by offering compact desktop copiers and targeting department managers and secretaries. Similar case studies can be found in earth-moving equipment (Komatsu versus Caterpillar), photography (Fuji versus Kodak), and numerous other industries.   Germany’s DHL tried to enter the U.S. package-delivery market in 2003; to achieve scale, DHL acquired Airborne Express. However, management underestimated the dominance of the entrenched incumbents FedEx and UPS. DHL finally withdrew from the United States market in 2008 after losses totaled about $10 billion.
  • If a market segment is judged to be large enough, and if strong competitors are either absent or deemed to be vulnerable, then the final consideration is whether a company can and should target that market. The feasibility of targeting a particular segment can be negatively impacted by various factors. For example, significant regulatory hurdles may be present that limit market access. This issue is especially important in China today Other marketing-specific issues can arise; in India, for example, three to five years are required to build an effective distribution system for many consumer products. This fact may serve as a deterrent to foreign companies that might otherwise be attracted by the apparent potential of India’s large population.
  • Finally, it is important to address the question of whether targeting a particular segment is compatible with the company’s overall goals, its brand image, or established sources of competitive advantage. For example, BMW is one of the world’s premium auto brands. Should BMW add a minivan to its product lineup? As former BMW CEO Helmut Panke once explained, “There is a segment in the market which BMW is not catering to and that is the minivan or MPV segment. We don’t have a van because a van as it is in the market today does not fulfill any of the BMW group brand values. We all as a team said “no.”
  • Global marketing expert David Arnold has developed a framework that goes beyond demographic data and considers other, marketing-oriented assessments of market size and growth potential. Instead of a “ top-down ” segmentation analysis beginning with, say, income or population data from a particular country, Arnold ’ s framework is based on a “ bottom-up ” analysis that begins at the product-market level. After marketing-model drivers and enabling conditions have been identified, the third step is for management to weigh the estimated costs associated with entering and serving the market with potential short- and long-term revenue streams. Does this segment or country market merit entry now? Or, would it be better to wait until, say, specific enabling conditions are established?   The term product-market refers to a market defined by a product category; in the automotive industry, for example, phrases such as “luxury car market,” “SUV market,” and “minivan market” refer to specific product-markets. By contrast, phrases such as “the Russian market” or “the Indian market” refer to country markets.   Marketing model drivers are key elements or factors required for a business to take root and grow in a particular country market environment. The drivers may differ depending on whether a company serves consumer or industrial markets. Does success hinge on establishing or leveraging a brand name? Or, is distribution or a tech-savvy sales staff the key element? Marketing executives seeking an opportunity must arrive at insights into the true driving force(s) that will affect success for their particular product-market.   Enabling conditions are structural market characteristics whose presence or absence can determine whether the marketing model can succeed. For example, in India, refrigeration is not widely available in shops and market food stalls. This creates challenges for Nestlé and Cadbury Schweppes as they attempt to capitalize on Indians’ increasing appetite for chocolate confections. Although Nestlé’s KitKat and Cadbury’s Dairy Milk bars have been reformulated to better withstand heat, the absence or rudimentary nature of refrigeration hampers the companies’ efforts to ensure their products are in saleable condition.
  • A niche is simply a single segment of the global market. In cosmetics, the House of Lauder, Chanel, and other cosmetics marketers have used this approach successfully to target the upscale, prestige segment of the market. Similarly, Body Shop International PLC caters to consumers in many countries who wish to purchase “natural” beauty aids and cosmetics that have not been tested on animals.   Stolichnaya produces three brands of Russian vodka, each targeted at a different market segment: superpremium Stolichnaya Cristal, the premium “base” brand Stolichnaya, and low-priced Privet (the name means “greetings” in Russian).   In the cosmetics industry, Unilever NV and Cosmair Inc. pursue differentiated global marketing strategies by targeting both ends of the perfume market. Unilever targets the luxury market with Calvin Klein and Elizabeth Taylor’s Passion; Wind Song and Brut are its mass-market brands. Cosmair sells Tresnor and Giorgio Armani Gio to the upper end of the market and Gloria Vanderbilt to the lower end. Mass marketer Procter & Gamble, known for its Old Spice and Incognito brands, also embarked upon this strategy with its 1991 acquisition of Revlon’s EuroCos, marketer of Hugo Boss for men and Laura Biagiotti’s Roma perfume. In the mid-1990s, P&G launched a new prestige fragrance, Venezia, in the United States and several European countries. Conversely, in 1997 Estee Lauder acquired Sassaby Inc., owner of the mass-market Jane brand. The move marked the first move by Lauder outside the prestige segment.
  • The S001 is the flagship of Bridgestone’s Potenza tire line. The S001 is featured as original equipment on exotic automobiles from Ferrari and other manufacturers. In the replacement tire market, Bridgestone targets car enthusiasts who own high-performance cars and drive them under both wet and dry conditions. The S001 is positioned as a premium sports tire that performs well at high driving speeds. In this ad from Brazil, the headline Aproveite um Novo Limite (“Enjoy the New Limit”) underscores the S001’s performance qualities. More broadly, the tagline “Your Journey, Our Passion” supports Bridgestone’s core brand message of “supporting individuals.”
  • Global consumer culture positioning: “ United Colors of Benetton ” means the unity of humankind. High-tech: MP3 players, cell phones, luxury cars, financial services, Canon cameras, Adidas. High-touch: Nescafe coffee.
  • Perception is how we see the world around us. You and your friend might see the same person, thing, or event yet you will interpret in different ways. This interpretation is highly individualized and depends on each person’s own needs, values, and expectations. These are the four major elements of perception. They will be described in detail on the following slides.
  • Sensation is the response of the sensory organs, including the eyes, ears, nose, mouth, and skin. Most of marketing focuses on sight and sound but much research is being done on smell and touch. The web link on this page connects to a company that uses smell as a marketing tactic. Advertisers must reach the absolute threshold for consumers to be able to experience their advertising tactic. It is interesting that the absolute threshold changes over time. Consumers adapt and get used to a certain ad or message so no longer notice it. This is one of the reasons why advertisers change their ads frequently.
  • Marketers are very concerned with the differential threshold , which is also called the just noticeable difference . It was a German scientist named Ernst Weber who realized that this difference was not a fixed amount. The best example is when you buy a low-priced product like a cup of coffee from Starbucks. A $1 increase in your tall coffee would be noticed by you. But if you were buying a laptop whose price changed from $455 to $456 you might not even notice.
  • Marketers make changes in their products over time. Sometimes they have to make negative changes, perhaps increase price or reduce package size. They want to make this negative change subtle enough that most consumers will not notice. On the other hand, a marketer might want to make positive changes to the product. They would want to determine how small they can make this change so that it is noticeable to the end consumer but does not cost the marketer excessive amounts of money. Marketers also want to be careful that when they change the look of a product or packaging, that consumers still recognize the brand and transfer their positive feelings toward the brand.
  • People have been fascinated by subliminal perception for over 50 years. The question is whether stimuli that are not consciously sensed can still be perceived and are therefore capable of altering behavior. At this point, there is no research that shows that it directly changes attitudes or purchase behavior. No doubt, there will continue to be research on this subject as many feel that there is indeed an effect from subliminal perception.
  • Consumers are bombarded by stimuli and are therefore very selective as to what messages and information they perceive. As new information comes to their mind, it is organized within their mind. Finally, consumers interpret the stimuli based on their needs, expectations, and experience. Each of these stages will be examined on the following slides.
  • Consumers are exposed to thousands, if not millions, of stimuli every day. The stimuli that they perceive depends on the three factors on this slide – nature of the stimulus, expectations, and motives. Think of the last time you went to the supermarket – what products did you notice? Why? Perhaps it was the nature of the stimulus, the packaging of the product. You might notice a sale on your favorite brand because you have positive expectations of how that brand performs. Finally, your motive in going to the supermarket might have been to purchase eggs and milk. This might lead you to notice promotions or point-of-purchase displays for these products.
  • These four concepts are very important to consider when understanding how consumers select which stimuli they will perceive. In general, they are selective as to what they are exposed to – what messages they seek out. Once exposed, they are selective of their attention to some messages over others. Consumers might even screen out or block messages that they consider threatening or overwhelming.
  • Organization refers to how people organize stimuli into groups and perceive them as a whole. This is referred to as Gestalt which means pattern in German. There are three major principles of perceptual organization, including figure and ground, grouping, and closure. The first, figure and ground , has to do with contrast. An advertiser wants just enough contrast so that the figure is noticed but that the background adds a sensory effect. Product placement, when a product appears in a movie or television show, can be considered a figure and ground issue. The advertiser wants the product (figure) to be noticed as it blends in with the ground (character in the show). This web link takes you to a very fun site called sporcle. The quiz that is opened for you refers to the top brands, organized by product category. Is this similar to how you organize these brands? How did you do on the test?
  • Grouping is common in perceptual organization. Whether it is numbers (phone numbers) that are grouped in 3 or 4 digits OR images in an ad, consumers will group stimuli together to organize them. This grouping helps memory and recall.
  • Individuals organize their perceptions to form a complete picture. Our minds have a need for closure and we will work to fill in the missing information when we are presented incomplete stimuli.
  • Perceptual interpretation occurs because consumers have unique motives, interests, and experiences. How people interpret often reveals a lot about themselves. For instance, individuals tend to have stereotypes due to physical appearances, descriptive terms, first impressions, and the halo effect. These will be examined in the next couple of slides.
  • We often make decisions based on how people or products appear. A beautiful spokesperson might be perceived as possessing expertise for beauty products. A certain color to a food might make us think it is healthier. The web link is an example of a tool marketers can use on their website to give a “human” touch. There are many attractive hosts to choose from.
  • The choice of descriptive terms for names and advertisement in services are particularly important due to the intangible nature of services. In this ad, the marketer has stereotyped the person who eats a cheeseburger vs. tofu and applied them in a descriptive sense to their product.
  • First impressions are lasting so a marketer should be careful how they advertise new products.
  • With the halo effect , a person uses just one dimension in evaluating a person, product, or service. For instance, a consumer might consider a clean waiting room as an indication of a good dentist. For this reason, marketers use the halo effect when licensing names of products or choosing spokespeople.
  • It is important to realize that good position defines the product in a unique place in the consumer’s mind when compared to competing products. This place is the result of the benefits that are offered by the product and how they are different or better than those of the competitor’s products.
  • A consumer often derives their understanding of a product and its benefits from the packaging. A good example would be shampoo. The shape of the bottle, the choice of colors and symbols, and even the cap can help the consumer position the product and determine if the product’s benefits are gentle, color safe, strong cleaning, or conditioning. Many marketers will need to reposition their product over time due to either market changes or consumer preference changes. This is often challenging to marketers, especially if their product had been perceived negatively in the marketplace.
  • Perceptual mapping helps the marketer visualize how their product is positioned in the consumer’s mind. It is a graph of products within a category based on two major benefits or attributes. It allows them to see gaps in the positioning of all the products and identify areas for new products.
  • This map shows slogans used to position new condos in New York City. We can see that they are broadly positioned by whether they are more modern vs. traditional and whether they are more of a home vs. a trophy. This map does not show any large gaps in the marketplace.
  • Positioning of services has extra challenges due to the intangible nature of a service. You cannot hold it in your hand and look at it – you must make your decision based on visual images and tangible cues, such as delivery trucks, storefronts, or other marketing tactics.
  • Perceived price should reflect the value that the customer receives from their purchase. It is important for customer satisfaction that the consumer sees their price as fair. To determine fairness, consumers look at other prices that they know. Comparative prices might be ones that the consumer knows (internal) or prices that the marketer uses in their advertising as is the case with an ad that states “compare to $100 at our competitor.” Consumers perceive the quality of a product by intrinsic and extrinsic cues. Those that are intrinsic concern the physical characteristics of the product. These include color, flavor, aroma, and size. Many times a consumer will use extrinsic cues, those that are not really part of the physical product including brand name, reputation, and location within store. If a consumer has no experience with a product, they are more likely to use external cues. An example of external cues is country of origin. A chocolate is from Switzerland so it must be good even though you know nothing of the color or taste of the chocolate.
  • These are three pricing strategies that one set of researchers proposed. They would be effective when considering services and the customer perception of the value that the service delivers.
  • This survey was used in a study to measure perceptions of brand luxury. The benefit of “luxury” would be one that many marketers would use, including hotels, cars, and jewelry.
  • Services have unique characteristics that make quality a more complex issue. First of all, services are intangible. It is hard for consumers to compare them side by side without having to use external cues. Secondly, they can differ from day to day. We all know that we can get a haircut from a barber or hair stylist on one day that is vastly different from the quality of a previous cut. Services are difficult because they are perishable, they cannot be put on a shelf and left standing from day to day. Finally, the products are consumed and produced at the same time, making quality control hard for the service marketer. The SERVQUAL scale measures the gap between customer expectations of a service before it is provided versus their perceptions after the service is provided. The scale measures five dimensions, including reliability, responsiveness, assurance, empathy, and tangibility
  • Value is the trade-off between perceived benefits and perceived sacrifice. As such, a consumer helps understand the benefits many times in terms of the monetary sacrifice. The more they pay, the better product or service they get.
  • The image and subsequent positioning of a retail store is a result of the factors listed above. Of considerable interest are the brands that the store carries. There is an association formed between the retailer and their brands. Research has shown that strong brands will improve the image of a retailer in many situations.
  • Manufacturers want their corporate image to be positive so that their products and brands can be positively perceived in the marketplace. Institutional advertising can do this in addition to exhibits and sponsorship of community events.
  • Consumer purchase decisions are determined by the degree of risk that consumers perceive, and their tolerance for risk. The major types of risk are listed in this slide. The first, functional risk, deals with the risk that the product will not perform as expected. Physical risk is the risk to self and others. Financial risk is that the product will not be worth its cost and social risk is that the choice of the product might lead to social embarrassment. Psychological risk is that a poor product choice will hurt the consumer's ego and time risk is that the time has been wasted in purchasing this product.
  • How consumers handle risk will differ by their own individual strategy. That being said, there are a handful of strategies that people tend to use when dealing with risk. The first of these is to seek information so that they have more knowledge when they purchase. Consumers can also stay brand loyal, thereby avoiding risk by sticking with a known product. Consumers can select by brand image to reduce their risk because they may already know and trust the brand, perhaps from buying a different product by the same brand or company. Some consumers will rely on store image to help them reduce risk. Some customers buy the most expensive model assuming that the price/quality relationship will safely deliver them the best product. Finally, consumers seek reassurance through money-back guarantees, warranties, seals of approval and free trials.
  • Recognition and recall tests determine whether consumers remember seeing an ad and the extent to which they can recall the ad. The researcher can use aided recall, which would rely on recognition as opposed to unaided recall. There are a number of services which conduct these tests, including Starch Research which you can reach with the web link on this page.
  • Brand loyalty is also a measure of consumer learning. Ideally, it is the outcome of learning where the consumer now knows the best choice to make each time. Brand loyalty includes attitudes and behaviors toward the brand. Behavior measures are observable whereas attitudinal measures are concerned with the consumers’ feelings about the brand. On this chart, we see an integrated conceptual framework which views loyalty as a function of three factors or influences upon the consumer. These three factors can lead to the four types of loyalty including no loyalty, covetous loyalty, which is no purchase but a strong attachment to the brand, inertia loyalty, which is purchasing the brand out of habit or convenience with no attachment, or premium loyalty, which is a high attachment to the brand. Brand equity reflects brand loyalty and together they lead to increased market share and greater profits for the firm.
  • Starbucks founder and chairman Howard Schultz and his management team have used a variety of market entry approaches—direct ownership, licensing, and franchising—to create an empire of more than 17,000 coffee cafés in 55 countries. In addition, Schultz has licensed the Starbucks brand name to marketers of non-coffee products such as ice cream. The company has also made forays into movies and recorded music.
  • The various entry mode options form a continuum. As shown on this slide, the level of involvement, risk, and financial reward increases as a company moves from market entry strategies such as licensing to joint ventures and ultimately, various forms of investment. When a global company seeks to enter a developing country market, there is an additional strategy issue to address: Whether to replicate the strategy that served the company well in developed markets without significant adaptation. To the extent that the objective of entering the market is to achieve penetration, executives at global companies are well advised to consider embracing a mass-market mind-set. This may well mandate an adaptation strategy.
  • Licensing is a contractual arrangement whereby one company (the licensor) makes a legally protected asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation. The licensed asset may be a brand name, company name, patent, trade secret, or product formulation. Some companies that use licensing extensively: Apparel designers (Hugo Boss, Bill Blass, Ralph Lauren), Coca-Cola, Disney, Caterpillar, and the National Basketball Association. Licensing agreements allow companies to extend their brands and generate substantial revenue. It can contribute ROI if performance levels are stated in contracts. There are two key advantages associated with licensing as a market entry mode. First, because the licensee is typically a local business that will produce and market the goods on a local or regional basis, licensing enables companies to circumvent tariffs, quotas, or similar export barriers discussed in Chapter 8. Second, when appropriate, licensees are granted considerable autonomy and are free to adapt the licensed goods to local tastes. Licensing allows Disney to create synergies based on its core theme park, motion picture, and television businesses. Its licensees are allowed considerable leeway to adapt colors, materials, or other design elements to local tastes. In China, licensed goods were practically unknown until a few years ago; by 2001, annual sales of all licensed goods totaled $600 million. Industry observers expect that figure to more than double by 2010.
  • First, because the licensee is typically a local business that will produce and market the goods on a local or regional basis, licensing enables companies to circumvent tariffs, quotas, or similar export barriers discussed in Chapter 8. Perhaps the most famous example of the opportunity costs associated with licensing dates back to the mid-1950s, when Sony co-founder Masaru Ibuka obtained a licensing agreement for the transistor from AT&T's Bell Laboratories. Ibuka dreamed of using transistors to make small, battery-powered radios. However, the Bell engineers with whom he spoke insisted that it was impossible to manufacture transistors that could handle the high frequencies required for a radio; they advised him to try making hearing aids. Undeterred, Ibuka presented the challenge to his Japanese engineers who spent many months improving high-frequency output. Sony was not the first company to unveil a transistor radio; a U.S.-built product, the Regency, featured transistors from Texas Instruments and a colorful plastic case. However, it was Sony's high quality, distinctive approach to styling and marketing savvy that ultimately translated into worldwide success.
  • Conversely, the failure to seize an opportunity to license can also lead to dire consequences. In the mid-1980s, Apple Computer chairman John Sculley decided against a broad licensing program for Apple's famed operating system (OS). Such a move would have allowed other computer manufacturers to produce Mac-compatible units. Meanwhile, Microsoft's growing world dominance in both OS and applications got a boost in 1985 from Windows, which featured a Mac-like graphic interface. Apple sued Microsoft for infringing on its intellectual property; however, attorneys for the software giant successfully argued in court that Apple had shared crucial aspects of its OS without limiting Microsoft's right to adapt and improve it. Belatedly, in the mid-1990s, Apple began licensing its operating system to other manufacturers. However, the global market share for machines running the Mac OS continues to hover in the low single digits. The return of Steve Jobs and Apple's introduction of the new iMac in 1998 marked the start of a new era for Apple. More recently, the popularity of the company's iPod digital music players and iTunes Music Store have boosted its fortunes. However, Apple's failure to license its technology in the pre-Windows era arguably cost the company tens of billions of dollars. What's the basis for this assertion? Microsoft, the winner in the operating systems war, had a market capitalization of nearly $300 billion in 2006. By contrast, Apple ’ s 2006 market cap was roughly $66 billion.
  • Another advantage of contract manufacturing includes limited commitment of financial and managerial resources and quick entry into target countries, especially when the target market is too small to justify significant investment. One disadvantage, as already noted, is that companies may open themselves to public scrutiny and criticism if workers in contract factories are poorly paid or labor in inhumane circumstances. Timberland and other companies that source in low-wage countries are using image advertising to communicate their corporate policies on sustainable business practices.   Franchising has great appeal to local entrepreneurs anxious to learn and apply Western-style marketing techniques
  • The specialty retailing industry favors franchising as a market entry mode. For example, there are more than 2,500 Body Shop stores in 60 countries; 90 percent of the stores are operated by franchisees. Franchising is also a cornerstone of global growth in the fast-food industry; McDonald's reliance on franchising to expand globally is a case in point. The fast-food giant has a well-known global brand name and a business system that can be easily replicated in multiple country markets.
  • Foreign direct investment (FDI) figures reflect investment flows out of the home country as companies invest in or acquire plants, equipment, or other assets. Foreign direct investment allows companies to produce, sell, and compete locally in key markets. Examples of FDI abound: Honda built a $550 million assembly plant in Greensburg, Indiana; Hyundai invested $1 billion in a plant in Montgomery, Alabama.   At the end of 2000, cumulative foreign investment by U.S. companies totaled $1.2 trillion. The top three target countries for U.S. investment were the United Kingdom, Canada, and the Netherlands. Investment in the United States by foreign companies also totaled $1.2 trillion; the United Kingdom, Japan, and the Netherlands were the top three sources of investment.
  • Joint venture investment is growing rapidly. China is a case in point; for many companies, the price of market entry is the willingness to pursue a joint venture with a local partner. Procter & Gamble has several joint ventures in China. China Great Wall Computer Group is a joint-venture factory in which IBM is the majority partner with a 51 percent stake. As one global marketing expert warns, "In an alliance you have to learn skills of the partner, rather than just see it as a way to get a product to sell while avoiding a big investment." Yet, compared with U.S. and European firms, Japanese and Korean firms seem to excel in their ability to leverage new knowledge that comes out of a joint venture. For example, Toyota learned many new things from its partnership with GM—about U.S. supply and transportation and managing American workers—that have been subsequently applied at its Camry plant in Kentucky. However, some American managers involved in the venture complained that the manufacturing expertise they gained was not applied broadly throughout GM. To the extent that this complaint has validity, GM has missed opportunities to leverage new learning. Still, many companies have achieved great successes in joint ventures. Gillette, for example, has used this strategy to introduce its shaving products in the Middle East and Africa.
  • Large-scale direct expansion by means of establishing new facilities can be expensive and require a major commitment of managerial time and energy. However, political or other environmental factors sometimes dictate this approach. As an alternative to greenfield investment in new facilities, acquisition is an instantaneous—and sometimes, less expensive—approach to market entry or expansion. Although full ownership can yield the additional advantage of avoiding communication and conflict of interest problems that may arise with a joint venture or co-production partner, acquisitions still present the demanding and challenging task of integrating the acquired company into the worldwide organization and coordinating activities.   If government restrictions prevent majority or 100 percent ownership by foreign companies, the investing company will have to settle for a minority equity stake. In Russia, for example, the government restricts foreign ownership in joint ventures to a 49 percent stake. A minority equity stake may also suit a company’s business interests. For example, Samsung was content to purchase a 40 percent stake in computer maker AST. As Samsung manager Michael Yang noted, “We thought 100 percent would be very risky, because any time you have a switch of ownership, that creates a lot of uncertainty among the employees.”
  • An equity stake is simply an investment; if the investor owns fewer than 50 percent of the shares, it is a minority stake; ownership of more than half the shares makes it a majority.
  • Recent changes in the political, economic, sociocultural, and technological environments of the global firm have combined to change the relative importance of those strategies. Trade barriers have fallen, markets have globalized, consumer needs and wants have converged, product life cycles have shortened, and new communications, technologies, and trends have emerged. Although these developments provide unprecedented market opportunities, there are strong strategic implications for the global organization and new challenges for the global marketer. Such strategies will undoubtedly incorporate—or may even be structured around—a variety of collaborations. Once thought of only as joint ventures with the more dominant party reaping most of the benefits (or losses) of the partnership, cross-border alliances are taking on surprising new configurations and even more surprising players.
  • The terminology used to describe the new forms of cooperation strategies varies widely. The phrases collaborative agreements , strategic alliances , strategic international alliances , and global strategic partnerships (GSPs) are frequently used to refer to linkages between companies from different countries who jointly pursue a common goal. A broad spectrum of inter-firm agreements, including joint ventures, can be covered by this terminology. However, the strategic alliances discussed here exhibit three characteristics which are highlighted in this diagram and discussed on the next slide.
  • Companies forming GSPs must keep these factors in mind. Moreover, successful collaborators will be guided by the following four principles. First, despite the fact that partners are pursuing mutual goals in some areas, partners must remember that they are competitors in others. Second, harmony is not the most important measure of success; some conflict is to be expected. Third, all employees, engineers, and managers must understand where cooperation ends and competitive compromise begins. Finally, as noted earlier, learning from partners is critically important.
  • Japan ’ s keiretsu represent a special category of cooperative strategy. A keiretsu is an inter-business alliance or enterprise group that, in the words of one observer, “ resembles a fighting clan in which business families join together to vie for market share. ” Keiretsu exist in a broad spectrum of markets, including the capital market, primary goods markets, and component parts markets. Keiretsu relationships are often cemented by bank ownership of large blocks of stock and by cross-ownership of stock between a company and its buyers and nonfinancial suppliers. Further, keiretsu executives can legally sit on each other's boards, and share information, and coordinate prices in closed-door meetings of "presidents' councils." Thus, keiretsu are essentially cartels that have the government's blessing. While not a market entry strategy per se, keiretsu played an integral role in the international success of Japanese companies as they sought new markets. Several large companies with common ties to a bank are at the center of the Mitsui Group and Mitsubishi Group. These two, together with the Sumitomo, Fuyo, Sanwa, and DKB groups make up the "big six" keiretsu .
  • Like the Japanese keiretsu , chaebol are composed of dozens of companies, centered around a central bank or holding company, and dominated by a founding family. However, chaebol are a more recent phenomenon; in the early 1960s, Korea ’ s military dictator granted government subsidies and export credits to a select group of companies. By the 1980s, Daewoo, Hyundai, LG, and Samsung had become leading producers of low-cost consumer electronics products. The chaebol were a driving force behind South Korea ’ s economic miracle; GNP increased from $1.9 billion in 1960 to $238 billion in 1990.
  • Increasing numbers of companies in all parts of the world are entering into alliances that resemble keiretsu . In fact, the phrase digital keiretsu is frequently used to describe alliances between companies in several industries—computers, communications, consumer electronics, and entertainment—that are undergoing transformation and convergence. These processes are the result of tremendous advances in the ability to transmit and manipulate vast quantities of audio, video, and data and the rapidly approaching era of a global electronic "superhighway" composed of fiber optic cable and digital switching equipment.
  • The “relationship enterprise” is said to be the next stage of evolution of the strategic alliance. Groupings of firms in different industries and countries, they will be held together by common goals that encourage them to act almost as a single firm. Within the next few decades, Boeing, British Airways, Siemens, TNT, and Snecma might jointly build several new airports in China. As part of the package, British Airways and TNT would be granted preferential routes and landing slots, the Chinese government would contract to buy all its aircraft from Boeing/Snecma, and Siemens would provide air traffic control systems for all 10 airports.   Another perspective on the future of cooperative strategies envisions the emergence of the “virtual corporation.” As described in a recent Business Week cover story, the virtual corporation “will seem to be a single entity with vast capabilities but will really be the result of numerous collaborations assembled only when they’re needed. ” On a global level, the virtual corporation could combine the twin competencies of cost effectiveness and responsiveness; thus, it could pursue the “think globally, act locally” philosophy with ease. This reflects the trend toward “mass customization.”
  • The table illustrates the following strategies: Strategy 1, country and market concentration , involves targeting a limited number of customer segments in a few countries. This is typically a starting point for most companies. It matches company resources and market investment needs. Strategy 2, country concentration and segment diversification, a company serves many markets in a few countries. This strategy was implemented by many European companies that remained in Europe and sought growth by expanding into new markets. Strategy 3, country diversification and market concentration, is the classic global strategy whereby a company seeks out the world market for a product. Strategy 4, country and segment diversification, is the corporate strategy of a global, multi-business company such as Matsushita. Overall , Matsushita is multi-country in scope and its various business units and groups serve multiple segments.
  • Enu market segmentation 090912

    1. 1. Go Global !Global Economic Environment :Market Segmentation By Stephen Ong Edinburgh Napier University Business School chong@mail.tarc.edu.my Visiting Professor, College of Management, Shenzhen University 9 September 2012
    2. 2. Agenda1. Market Segmentation2. Targeting3. Positioning4. Perceptual Mapping5. Market entry strategies
    3. 3. Learning Objectives To understand and explain the principles of market segmentation To identify criteria for effective segmentation of consumer and organisational markets To understand targeting strategies To explain what positioning means and how it is achieved
    4. 4. Introduction • How to identify like groups of potential customers? • How to chose the groups to target? • How to segment those groups? • How to position the brand in the mind of the customer?
    5. 5. Market Segmentation Represents an effort to identify and categorize groups of customers and countries according to common characteristics 77.5 million dogs are owned in the U.S. Who owns whom?
    6. 6. Targeting• The process of evaluating segments and focusing marketing efforts on a country, region, or group of people that has significant potential to respond• Focus on the segments that can be reached most effectively, efficiently, and profitably
    7. 7. Positioning• Positioning is required to differentiate the product or brand in the minds of the target market.
    8. 8. Global Market Segmentation• Defined as the process of identifying specific segments—whether they be country groups or individual consumer groups—of potential customers with homogeneous attributes who are likely to exhibit similar responses to a company’s marketing mix.
    9. 9. Contrasting Views of Global Segmentation• Conventional Wisdom – Assumes heterogeneity  Unconventional Wisdom between countries  Assumes emergence of segments that transcend national – Assumes homogeneity boundaries within a country  Recognizes existence of within- – Focuses on macro level country differences of cultural differences  Emphasizes micro-level differences – Relies on clustering of  Segments micro markets within national markets and between countries – Less emphasis on within-country segments
    10. 10. Global Market Segmentation • Demographics • Psychographics • Behavioral characteristics • Benefits sought Skiing became a sport in Norway where it was invented 4,000 years ago.
    11. 11. Demographic Segmentation• Income• Population• Age distribution• Gender• Education• Occupation What are the trends?
    12. 12. Demographic Facts and Trends• In India the number of people under the age of 14 is greater than the entire US population• In the EU, the number of consumers aged 16 and under is rapidly approaching the number of consumers aged 60-plus• Asia is home to 500 million consumers aged 16 and under• Half of Japan’s population will be age 50 or older by 2025
    13. 13. Demographic Segmentation• A widening age gap exists between the older populations in the West and the large working-age populations in developing countries• In the European Union, the number of consumers aged 16 and under is rapidly approaching the number of consumers aged 60-plus• Asia is home to 500 million consumers aged 16 and under• Half of Japan’s population will be age 50 or older by 2025
    14. 14. Segmenting by Income and Population• Income is a valuable segmentation variable – 2/3s of world’s GNP is generated in the Triad but only 12% of the world’s population is in the Triad• Do not read into the numbers – Some services are free in developing nations so there is more purchasing power• For products with low enough price, population is a more important variable
    15. 15. Per Capita Income
    16. 16. 10 Most Populous Countries
    17. 17. Age Segmentation• Global Teens-between the ages of 12 and 19 – A group of teenagers randomly chosen from different parts of the world will share many of the same tastes• Global Elite–affluent consumers who are well traveled and have the money to spend on prestigious products with an image of exclusivity
    18. 18. Gender Segmentation In focusing on the needs and wants of one gender, do not miss opportunities to serve the other Companies may offer product lines for both genders  Nike, Levi Strauss
    19. 19. Psychographic Segmentation Grouping people according to attitudes, values, and lifestyles  SRI International and VALS 2 Porsche example  Top Guns (27%): Ambition, power, control  Elitists (24%): Old money, car is just a car  Proud Patrons (23%): Car is reward for hard work  Bon Vivants (17%): Car is for excitement, adventure  Fantasists (9%): Car is form of escape
    20. 20. Psychographic Segmentation The Euroconsumer:  Successful Idealist –Comprises from 5% to 20% of the population; consists of persons who have achieved professional and material success while maintaining commitment to abstract or socially responsible ideals  Affluent Materialist – Status-conscious up-and- comers’– many of whom are business professionals – use conspicuous consumption to communicate their success to others
    21. 21. Psychographic Segmentation The Euroconsumer: Disaffected Comfortable Survivors Belongers lack power and affluence 25% to 50% of a harbour little hope for country’s population upward mobility conservative tend to be either most comfortable with resentful or resigned the familiar concentrated in high- content with the crime urban inner city comfort of home, attitudes tend to affect family, friends, and the rest of society community
    22. 22. Psychographic Segmentation:Sony’s U.S. Consumer Segments
    23. 23. Behaviour Segmentation• Focus on whether people purchase a product or not, how much, and how often they use it• User status• Law of disproportionality/Pareto’s Law–80% of a company’s revenues are accounted for by 20% of the customers
    24. 24. Benefit SegmentationBenefit segmentation focuses on the value equation Value=Benefits/PriceBased on understanding the problem a product solves, the benefit it offers, or the issue it addresses
    25. 25. Ethnic Segmentation• The population of  Hispanic Americans many countries  50 million Hispanic includes ethnic Americans (14% of total pop.) with $978 billion groups of annual buying power significant size  “$1 trillion Latina” 24 million Hispanic women:• Three main 42% single, 35% HOH, 54% working groups in the U.S. include African- Americans, Asian- Americans, and Hispanic Americans
    26. 26. Assessing Market PotentialBe mindful of the pitfalls Tendency to overstate the size and short-term attractiveness of individual country markets The company does not want to ‘miss out’ on a strategic opportunity Management’s network of contacts will emerge as a primary criterion for targeting
    27. 27. Assessing Market Potential• Three basic criteria: – Current size of the segment and anticipated growth potential – Potential competition – Compatibility with company’s overall objectives and the feasibility of successfully reaching the target audience
    28. 28. Current Segment Size and Growth• Is the market segment currently large enough to present a company with the opportunity to make a profit?• If the answer is ‘no’, does it have significant growth potential to make it attractive in terms of a company’s long-term strategy?
    29. 29. Potential Competition• Is there currently strong competition in the market segment?• Is the competition vulnerable in terms of price or quality?
    30. 30. Feasibility and Compatibility• Will adaptation be required? If so, is this economically justifiable in terms of expected sales?• Will import restrictions, high tariffs, or a strong home country currency drive up the price of the product in the target market currency and effectively dampen demand?
    31. 31. Feasibility and Compatibility• Is it advisable to source locally? Would it make sense to source products in the country for export elsewhere in the region?• Is targeting a particular segment compatible with the company’s goals, brand image, or established sources of competitive advantage?
    32. 32. Framework for SelectingTarget Markets• Demographic information is a starting point but not the decision factor• Product-Market must be considered – Market defined by product category• Marketing model drivers must be considered – Factors required for a business to take root and grow• Are there any enabling conditions present? – Conditions whose presence or absence will determine success of the marketing model
    33. 33. 9 Questions for Creating a Product-Market Profile1. Who buys our product?2. Who does not buy it?3. What need or function does it serve?4. Is there a market need that is not being met by current product/brand offerings?5. What problem does our product solve?6. What are customers buying to satisfy the need for which our product is targeted?7. What price are they paying?8. When is the product purchased?9. Where is it purchased?
    34. 34. Target MarketStrategy Options Standardized global marketing Mass marketing on a global scale Undifferentiated target marketing Standardized marketing mix Minimal product adaptation Intensive distribution Lower production costs Lower communication costs
    35. 35. Target Market Strategy Options• Concentrated global marketing – Niche marketing Differentiated global – Single segment marketing of global market  Multi-segment targeting – Look for global  Two or more distinct markets depth rather than  Wider market coverage national breadth  Ex.: P&G markets Old Spice – Ex.: Chanel, and Hugo Boss for Men Estee Lauder
    36. 36. Positioning• Locating a brand in consumers’ minds over and against competitors in terms of attributes and benefits that the brand does and does not offer – Attribute or Benefit – Quality and Price – Use or User – Competition
    37. 37. Positioning Strategies • Global consumer culture positioning – Identifies the brand as a symbol of a particular global culture or segment – High-touch and high-tech products • Foreign consumer culture positioning – Associates the brand’s users, use occasions, or product origins with a foreign country or cultureBeer is associated with this German’s culture; thesymbol on his shirt is not German!
    38. 38. Positioning Strategies• Local consumer culture positioning – Identifies with local cultural meanings – Consumed by local people – Locally produced for local people – Used frequently for food, personal, and household nondurables – Ex.: Budweiser is identified with small-town America Clydesdale = Which Beer?
    40. 40. Consumer Behaviour In The News…Can you guess what is happening to advertising clutter on the internet?  Increasing  Decreasing  Staying the SameSource: A. Klaassen, “Some Respite for Consumers as Ad Clutter Clears on Web,” Advertising Age, October 27, 2008, p. 1/26.
    41. 41. Consumer Behaviour In The News…If you answered decreasing you were correct. A recent ComScore study shows a 12 percent decrease. Trend Good for Marketers: A 15% boost in online ads leads to a 10% decline in click-through. Nielson even has an online clutter metric which it sells to clients to help them manage this aspect.Source: A. Klaassen, “Some Respite for Consumers as Ad Clutter Clears on Web,” Advertising Age, October 27, 2008, p. 1/26.
    42. 42. The Nature of Perception
    43. 43. 1. Perception The process by which an individual selects, organizes, and interprets stimuli into a meaningful and coherent picture of the worldElements of Perception Sensation Absolute threshold Differential threshold Subliminal perception 43
    44. 44. 1.1 SensationSensation is the immediate and direct response of the sensory organs to stimuli A stimulus is any unit of input to any of the senses.The absolute threshold is the lowest level at which an individual can experience a sensation. Chapter Six Slide
    45. 45. 1.2 Differential Threshold (Just Noticeable Difference – j.n.d.)Minimal difference that can be detected between two similar stimuliWeber’s law The j.n.d. between two stimuli is not an absolute amount but an amount relative to the intensity of the first stimulus The stronger the initial stimulus, the greater the additional intensity needed for the second stimulus to be perceived as different. 45
    46. 46. 1.2.1 Marketing Applications of the J.N.D. Marketers need to determine the relevant j.n.d. for their products  so that negative changes are not readily discernible to the public  so that product improvements are very apparent to consumers 46
    47. 47. 1.3 Subliminal PerceptionStimuli that are too weak or too brief to be consciously seen or heard They may be strong enough to be perceived by one or more receptor cells.Is it effective? Extensive research has shown no evidence that subliminal advertising can cause behaviour changes Some evidence that subliminal stimuli may influence affective reactions 47
    48. 48. 2. Aspects of Perception 48
    49. 49. 2.1 Perceptual SelectionSelection Depends Upon: 49
    50. 50. Why Are ConsumersLikely to Notice This Ad? TheAttention- GettingNature of a Dramatic Image 50
    51. 51. 2.2 Perceptual SelectionImportant Concepts 51
    52. 52. 2.3.1 OrganizationPrinciples People tend to organize perceptions into figure-and- ground relationships. Figure and The ground is usually ground hazy. Grouping Marketers usually Closure design so the figure is the noticed stimuli. 52
    53. 53. 2.3.2 OrganizationPrinciples People group Figure and stimuli to form a ground unified impression Grouping or concept. Closure Grouping helps memory and recall. 53
    54. 54. 2.3.3 OrganizationPrinciples People have a need for closure and organize perceptions to form Figure and a complete picture. ground Will often fill in Grouping missing pieces Incomplete messages Closure remembered more than complete 54
    55. 55. What Element of PerceptualOrganizationIs Featured in This Ad?Closure 55
    56. 56. 2.4.1 Interpretation People hold meanings related to stimuli 56
    57. 57. 2.4.2 Interpretation Positive attributes of people they know to those who resemble them Important for model selection 57
    58. 58. 2.4.3 Interpretation Verbal messages reflect stereotypes 58
    59. 59. How Does This Ad Depict PerceptualInterpretation? It Contrasts the Powerful Durango with Less Rugged Referred to in the Ad as the “Land Of Tofu.” 59
    60. 60. 2.4.4 Interpretation First impressions are lasting The perceiver is trying to determine which stimuli are relevant, important, or predictive 60
    61. 61. 2.4.5 Interpretation Consumers perceive and evaluate multiple objects based on just one dimension 61
    62. 62. 3. Product PositioningEstablishing a specific image for a brand in the consumer’s mind in relation to competing brandsConveys the product in terms of how it fulfills a needSuccessful positioning creates a distinctive, positive brand image 62
    63. 63. Brand Image and Product PositioningBrand image refers to the schematic memory of a brand. Perceived Product Attributes Manufacturer Marketer Benefits Characteristics Brand Image Users Usage Situations
    64. 64. Which Concepts of Perception AreApplied in These Ads? The Principle Of Contrast 64
    65. 65. Brand Image and Product PositioningProduct positioning is a decision by a marketer to try toachieve a defined brand image relative to competitionwithin a market segment.An important component of brand image is the appropriateusage situations for the product or brand.Perceptual mapping offers marketing managers a usefultechnique for measuring and developing a product’sposition.
    66. 66. 3.1 Packaging as a Positioning ElementPackaging conveys the image that the brand communicates to the buyer.Color, weight, image, and shape are all important.Repositioning might be necessary because: Increased competition Changing consumer tastes 66
    67. 67. 3.2 Perceptual MappingAn analytical technique that enables marketers to plot graphically consumers’ perceptions concerning product attributes of specific brands 67
    68. 68. PerceptualMapping 68
    69. 69. Perceptual Map for Chocolate Candy Dimensions Products 1. Cadbury 2. Dove1.Economical/ 3. Ghiradelli Common vs 4. Godiva Expensive/Chic 5. Hershey’s Bar2. Adventurous & 6. Hershey’s Kisses Fun vs Serious 7. Kit Kat 8. M&M’s 9. Nestle Crunch Bar
    70. 70. Perceptual Map for Chocolate Candy
    71. 71. Product RePositioningProduct repositioning refers to a deliberate decision tosignificantly alter the way the market views a product. Thiscan involve  level of performance  the feelings it evokes  the situations in which it should be used, or  who uses the product
    72. 72. 3.3 Positioning of ServicesImage is a key factor for servicesServices often want a differentiated positioning strategy to market several versions of their service to different markets. 72
    73. 73. Which Elements of This Ad Convey the The Steak Knife and Restaurant’s the Reference to Perceptual Vegetarians Convey The Position of the Position and Restaurant as a How? Well-Established Steakhouse 73
    74. 74. 3.4 Perceived Price and Perceived Quality Reference prices – used as a basis for comparison in judging another price Internal External Perceived Quality of Products Intrinsic vs. Extrinsic Cues
    75. 75. 3.4.1 Three Pricing StrategiesFocused on Perceived Value 75
    76. 76. 3.4.2 Measuring Perceptions ofBrand Luxury 76
    77. 77. 3.4.3 Perceived Quality of Services Difficult due to characteristics of services Intangible Variable Perishable Simultaneously Produced and Consumed SERVQUAL scale used to measure gap between customers’ expectation of service and perceptions of actual service 77
    78. 78. 3.5 Price/Quality RelationshipThe perception of price as an indicator of product quality (e.g., the higher the price, the higher the perceived quality of the product.) 78
    79. 79. How Can This Ad Affect the Service’s Perceived Quality? It Uses a Process Dimension in Advertising a Newly- Formed Business Class on an Airline79
    80. 80. Which of the Ad’s ElementsConveys the Product’s Quality? The Slogan onthe Ad’s Bottom Left Reads“Perfection Has Its Price” 80
    81. 81. 3.6 Retail Store Image 81
    82. 82. 3.6.1 Manufacturer’s ImageFavourable image tied to new product acceptanceCompanies sponsor community events to enhance imagesProduct and institutional images 82
    83. 83. 3.7 Perceived Risk The degree of uncertainty perceived by the consumer as to the consequences (outcome) of a specific purchase decision Types  Functional Risk  Physical Risk  Financial Risk  Social Risk  Psychological Risk  Time Risk 83
    84. 84. 3.7.1 How Consumers Handle Risk 1. Seek Information 2. Stay Brand Loyal 3. Select by Brand Image 4. Rely on Store Image 5. Buy the Most Expensive Model 6. Seek Reassurance 84
    85. 85. In Terms of Consumer Learning, Are These New Products Likely to Succeed? These Ads Might Induce Learning Due to the Familiar
    86. 86. 8. Measures of Consumer LearningBrand LoyaltyRecognition and Recall MeasuresBrand Loyalty 86
    87. 87. 8.1 Measures of Consumer Learning Brand LoyaltyBrand Equity – the value inherent in a well-known brand name 87
    88. 88. Learning Objectives• Trade barriers are falling around the world• Companies need to have a strategy to enter world markets• Starbucks has used direct ownership, licensing, and franchising for shops and products In 2010, Starbucks had 12,000 cafes in 35 countries and sales of $10.8 billion. Its goal is to reach 40,000 units worldwide.
    89. 89. Investment Cost of Marketing EntryStrategies
    90. 90. Which Strategy Should Be Used? It depends on: Vision Attitude toward risk Available investment capital How much control is desired
    91. 91. Licensing A contractual agreement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation  Patent  Trade secret  Brand name  Product formulations
    92. 92. Advantages to Licensing1. Provides additional profitability with little initial investment2. Provides method of circumventing tariffs, quotas, and other export barriers3. Attractive ROI4. Low costs to implement5. License agreements should have cross-technology agreements to inequities
    93. 93. Disadvantages to Licensing1. Limited participation2. Returns may be lost3. Lack of control4. Licensee may become competitor5. Licensee may exploit company resources
    94. 94. Special Licensing Arrangements• Contract manufacturing – Company provides technical specifications to a subcontractor or local manufacturer – Allows company to specialize in product design while contractors accept responsibility for manufacturing facilities• Franchising – Contract between a parent company-franchisor and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies
    95. 95. Special Licensing Agreements• Contract Manufacturing – Companies provide technical specifications to a subcontractor or local manufacturer. The subcontractor then oversees production. Such arrangements offer several advantages. The licensing firm can specialize in product design and marketing, while transferring responsibility for ownership of manufacturing facilities to contractors and subcontractors.• Franchising is another variation of licensing strategy. A franchise is a contract between a parent company-franchiser and a franchisee that allows the franchisee to operate a business developed by the franchiser in return for a fee and adherence to franchise-wide policies and practices.
    96. 96. Franchising Questions• Will local consumers buy your product?• How tough is the local competition?• Does the government respect trademark and franchiser rights?• Can your profits be easily repatriated?• Can you buy all the supplies you need locally?• Is commercial space available and are rents affordable?• Are your local partners financially sound and do they understand the basics of franchising?
    97. 97. Investment• Partial or full ownership of operations outside of home country – Foreign Direct Investment (FDI) • Forms – Joint ventures – Minority or majority equity stakes – Outright acquisitionIKEA, with affordable furniture andhousewares, spent $2 billion in Russia.
    98. 98. Joint Ventures • Entry strategy for a single target country in which the partners share ownership of a newly- created business entity • Builds upon each partner’s strengths • Examples: Budweiser and Kirin (Japan), GM and Toyota, GM and Russian government, Ericsson’s cell phones and Sony, Ford and Mazda, Chrysler and BMW
    99. 99. Joint Ventures • Disadvantages – Requires more• Advantages investment than a – Allows for risk sharing– licensing agreement financial and political – Must share rewards as – Provides opportunity to learn well as risks new environment – Requires strong – Provides opportunity to coordination achieve synergy by combining – Potential for conflict strengths of partners among partners – May be the only way to enter – Partner may become a market given barriers to entry competitor
    100. 100. Investment via Direct Foreign Investment• Start-up of new operations – Greenfield operations or – Greenfield investment• Merger with an existing enterprise• Acquisition of an existing enterprise• Examples: Volkswagen, 70% stake in Skoda Motors, Czech Republic (equity), Honda, $550 million auto assembly plant in Indiana (new operations)
    101. 101. Examples of Market Entry & Expansion by JointVenture
    102. 102. Examples of Equity Stake
    103. 103. Examples of Investment to Establish NewOperations
    104. 104. Examples of Acquisitions
    105. 105. Global Strategic PartnershipsPossible terms: Collaborative agreements Strategic alliances Strategic international alliances The Star Alliance Global strategic is a GSP made up partnerships of six airlines.
    106. 106. The Nature of Global StrategicPartnerships
    107. 107. The Nature of Global Strategic Partnerships• Participants remain independent following formation of the alliance• Participants share benefits of alliance as well as control over performance of assigned tasks• Participants make ongoing contributions in technology, products, and other key strategic areas
    108. 108. Five Attributes of True Global StrategicPartnerships 1. Two or more companies develop a joint long-term strategy 2. Relationship is reciprocal 3. Partners’ vision and efforts are global 4. Relationship is organized along horizontal lines (not vertical) 5. When competing in markets not covered by alliance, participants retain national and ideological identities
    109. 109. Success Factors of Alliances• Mission: Successful GSPs create win-win situations, where participants pursue objectives on the basis of mutual need or advantage.• Strategy: A company may establish separate GSPs with different partners; strategy must be thought out up front to avoid conflicts.• Governance: Discussion and consensus must be the norms. Partners must be viewed as equals.
    110. 110. Success Factors (Con’t)• Culture: Personal chemistry is important, as is the successful development of a shared set of values.• Organization: Innovative structures and designs may be needed to offset the complexity of multi-country management.• Management: Potentially divisive issues must be identified in advance and clear, unitary lines of authority established that will result in commitment by all partners.
    111. 111. Examples of Global Strategic Alliances
    112. 112. Alliances with Asian Competitors• Four common problem areas 1. Each partner had a different dream 2. Each must contribute to the alliance and each must depend on the other to a degree that justifies the alliance 3. Differences in management philosophy, expectations, and approaches 4. No corporate memory
    113. 113. Cooperative Alliance in Japan: Keiretsu• Inter-business alliance or enterprise groups in which business families join together to fight for market share• Often cemented by bank ownership of large blocks of stock and by cross-ownership of stock between a company and its buyers and non- financial suppliers• Keiretsu executives can legally sit on each other’s boards, share information, and coordinate prices
    114. 114. Cooperative Strategies in South Korea:Chaebol • Composed of dozens of companies, centered around a bank or holding company, and dominated by a founding family – Samsung – LG – Hyundai – Daewoo
    115. 115. 21st Century Cooperative Strategies: Targetingthe Digital Future Alliances between companies in several industries that are undergoing transformation and convergence Computers Communications Consumer electronics Entertainment
    116. 116. Beyond Strategic AlliancesNext stage of evolution of the strategic alliance Super-alliance Virtual corporation
    117. 117. Market Expansion Strategies• Companies must decide to expand by: – Seeking new markets in existing countries – Seeking new country markets for already identified and served market segments
    118. 118. Conclusion ► “Brand equity reflects brand loyalty… one of the most important applications of learning theory... to teach consumers that their product is best, to encourage repeat purchase, and to develop loyalty to the brand name and brand equity for the company.” Schiffman
    119. 119. Casestudy : SAB-MILLER1. Read and prepare the Casestudy on SAB MILLER (Johnson, Whittington & Scholes (2011)) for discussion and presentation next week.2. Identify and evaluate the global marketing challenges facing SAB MILLER by conducting External Environment, Industry, Competitor analysis, SWOT, global Marketing Mix strategies and Gap Analysis.
    120. 120. Core Reading Juleff, L, Chalmers, A.. and Harte, P. (2008) Business Economics in a Global Environment, Napier University Edinburgh Keegan, W.J. and Green, M.C. (2013) Global Marketing, 7th edition, Pearson Solomon, M. (2013) Consumer Behaviour, 10th Edition, Pearson Schiffman, L. and Kanuk,L. (2010) Consumer Behaviour, 10th Edition, Pearson