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Case 1-1 PRE-TEEN MARKET – THE RIGHT PLACE TO BE IN FOR CELL PHONE PROVIDERS? This case presents a chance to discuss marketing opportunities and ethical dilemmas in marketing. Teaching objectives: 1. Allow students to see the need for marketing research, analyze marketing opportunities that arise, and make relevant business decisions. 2. Provide students the chance to consider ethical issues in marketing and incorporate ethical considerations into the decision making process. 3. Offer the instructor a springboard for a general discussion about marketing intelligence and ethics. Study questions: 1. Do you think pre-teens offer good market potential for cell phone companies? Answering this question actually addresses the situation analysis mentioned in the chapter. Generally, three major issues should be analyzed during situation analysis, which include market environment, market characteristics, and consumer behavior. Some suggestions particularly relevant to this case are: Market environment: a. Technologies: Firefly’s product offers relatively simple features for use and safety, such as no numerical keypad, and incoming calls screening. Are these in sync with consumer demand and needs? b. Disposable income: It is important to determine whether the current offering package price of $199 is economically relevant to the target market. c. Social trends: Firefly should determine whether there is a growing need in the market for communication between parents and their pre-teen kids and among kids, and what drives this trend. d. Political and regulatory: It is necessary to identify regulations, if any, that govern the sale and use of cell phones by pre-teens as well as understand and appreciate the concern of stakeholders, such as schools and parents, about kids’ use of cell phones in order to incorporate relevant features into the product design. Market characteristics: a. Market size, potential and growth rate: These are very important issues that any company must consider before launching a new product. Details pertaining to these issues are not provided in this case, but the fact that food companies and retailers have targeted pre-teen market proves that this market is a potential one. b. Competition: Several companies were mentioned as Firefly’s competitors. Among them were wireless carriers who offer family plans, pre-teen phone specialist (Wherify), and well recognized names in the pre-teen market such as Mattel Inc. with Barbie products. 1|Page c. Competitive products: Some products were believed to be offered at lower price, such as family plans offered at steep discounts, others were offered with special features, such as GPS locator which enables parents to track their kids. Consumer behavior: a. What and why customers buy a product: Obviously parents buy cell phones for their kids mostly to maintain regular communication with them. b. Who buys: Although ultimate customers are pre-teens, most often parents are the buyers. So the product should satisfy the different needs of both the pre-teens and their parents. 2. While designing products for this market, what are the issues faced by the service providers? The product in this case, cell phone, requires special attention in terms of ethics because it targets preteens who are usually not in a position to make their own decisions and also prone to misuse the service if not monitored in some way. The product thus comes under scrutiny by three different bodies: parents, schools and the government. During product design, the manufacturer has to consider concerns raised by all these three bodies including possible product misuse, unnecessary investment, kids’ tendency to lose their belongings, and even cell phone ban in classrooms. Manufacturers and service providers can familiarize themselves with all these issues through appropriate market research techniques like focus groups and surveys in order to address them adequately. Case 1-2 BEST BUY ON A SEGMENTATION SPREE This case illustrates the importance of marketing intelligence in making business decisions particularly with regard to market segmentation and marketing program development. The focus of this case is on Best Buy’s segmentation of customers into high value (“angels”) and low value customers (“devils”) in order to apply the best marketing strategy for each category. By treating customers differently based on their value and behavior, Best Buy could maximize high value customers’ contribution, avoid unprofitable ones, lower cost and improve profits. Teaching objectives 1. Allow the students to appreciate the business decisions behind optimal allocation of marketing resources among a company’s vast array of customers 2. Provide an insight into how companies make use of customer data for segmentation and profiling of customers, determining potential value of each segment, and how the companies tailor their marketing strategy based on marketing intelligence. 2|Page Study Questions: 1 What benefits can Best Buy hope to gain from its customer segmentation tactics? Out of the million visitors each year to Best Buy Co.’s stores, nearly 20 percent are considered undesirable and therefore Best Buy wants to avoid these customers. Customer segmentation based on purchase behavior and thereby value to the company enables Best Buy Co. to work out appropriate marketing strategies to deal with each segment. Specifically, each store maintains stocks that fit with local demographics. It lures high spenders by stocking more merchandise, offers right products to the relevant segments (e.g. pricey home-theatre systems to upper income people), and offers more service options. To keep the undesirables away, the company cuts back on promotions, enforces re-stocking fee of 15 percent of the purchase price, resells returned items over the Internet, etc. These strategies help improve revenue, and thereby profit, while reducing costs. Early results indicate that pilot stores [those applying the stated segmentation scheme] performed far better than conventional ones, therefore Best Buy Co. intends to introduce the model in other stores. Question 2: Do you think Best Buy is making adequate use of marketing intelligence practices for its business decisions? Marketing intelligence is applied to various areas including product decisions, customer segmentation decisions, branding and pricing decisions, keeping shareholders happy, market estimation, competitive benchmarking, and distribution. The case mentions Best Buy Co.’s use of marketing intelligence for product decisions and customer segmentation purposes, with remarkable success. Best Buy Co. can further extend its use of marketing intelligence for optimizing marketing resource allocation through customer lifetime value calculations and marketing mix modeling. 3|Page Case 1-3 ETHICAL DILEMMAS IN MARKETING RESEARCH Six brief descriptions of ethical dilemmas that can arise in a marketing research setting are presented. In all the descriptions the student is to look at the situation from the viewpoint of the market researcher. Most of the problems deal either with the interaction between the researcher and subject or between the researcher and client. These dilemmas usually generate a spirited, open discussion of ethical issues. Teaching Objectives 1. Allow students to see the need for ethical judgments in marketing research and for the development of ethical criteria. 2. Provide a means for students to see that there are different interpretations of "ethics". 3. Offer the instructor a springboard for a general discussion of ethics in marketing in general and in marketing research in particular. Study Question Assume you are the executive mentioned in each of these dilemmas. What action would you take? (Write out your answer beforehand and be prepared to justify your course of action in class.) Analysis 1. Fictitious Market Research Agent. This problem raises issues about the researcher-subject interaction. In such cases, a useful question is how would the subject react if he or she knew the truth? Some students approve this action because the deception appears harmless. These students argue that most people know that organizations can and do hire market research organizations to hide the source and ask why should a company have to spend extra money to hire an outside firm to achieve this goal. On the other hand, more students usually will not use a fictitious name, noting that the executive director only suggests the practice. Would this compromise the data? One possible solution would have interviewers not mention the name of any organization to a respondent unless asked. ___________ The note was prepared and is Copyright 1987 by C. Weinberg. 4|Page If asked, the interviewers could be instructed to respond that they cannot provide an answer until the end of the interview, to prevent this knowledge from influencing responses. (This solution implies that competing products appear too on the form, to avoid unintentional indications of the study's sponsor.) In this case, would the interviewer allow the respondent to withdraw his or her answers from the study at the end? 2. Omit Data. This problem focuses on the researcher-client interaction. In these types of dilemmas, some classifying variables are (a) whether the person is employed by the user or supplier of information, (b) who asks for the deception, and (c) whether the deception asked for is passive or active. Of course, the issue often turns on whether the researcher perceives a deception to have occurred. Another issue, if the researcher refuses to comply, is how vigorously should he or she act to make the request for deception known. Students frequently raise questions pertaining to circumstances surrounding the request to omit relevant data: • How seriously mis-marketed is the product? • Does the product management team know or suspect that the product was mismarketed before the research was conducted? • Do others in the organization know or suspect? • What action will the product management team take with respect to the research firm if the finding is included in the final report? Can the research firm tolerate the loss of this account? Many conclude that answers to these questions are largely irrelevant because to omit the data violates their own ethics, and, in the long run, is a disservice to the client. Those who argue for excluding the data suggest that the purpose of the market research was not to evaluate the program but to help the product management team. Because release of the data will not aid the team members who are aware of the results, not complying will serve only to undermine those for whom the researcher is working. How likely is the research firm to obtain another contract with this company if the request is not complied with? 3. Biased Questionnaire. Students may propose several actions: a. Accede to the client’s request. b. Explain to the client that biased data will result but proceed as requested. c. Accede to the request but strongly qualify results in the final report. d. Refuse to proceed with the study. 5|Page e. Take some other action. The instructor might develop this list of potential actions and take a vote before directly discussing this dilemma. Few students elect to run the study as directed. The class discussion can get exciting when students commit themselves on various choices of b, c, and d as the "to get along you have to go along" group voting for b does battle with the "pride before price" group voting for d. It is useful to ask students how they can retain ethical values espoused in class when they enter the "real world" and must face financial and other pressures. 4. Jury Research. Most students would conduct the research, reasoning that any defendant is, the end result is a presumed innocent until proven guilty. Often they rationalize that "If I don't perform the research, someone else will" and that "The prosecution has the same option open to it as does the defense." Still, the end result is a jury biased on socioeconomic characteristics and other attitudes. The instructor can use the class discussion about this dilemma to point out that ethical issues are often not about marketing per se but about how marketing is used. 5. Misleading Advertising. Students quite easily conclude that the problem describes an ethical issue not in marketing research but in advertising, if the advertising agent knows of the misuse. Thus, the research director has a responsibility to see that both the advertising agency and marketing management of the chemical company are formally informed of the misuse. Most students stop here, feeling that their ethical responsibilities are discharged. However, some would hold for disclosure to the press or a regulatory agency if these first efforts fail, an action somewhat akin to the plot of "The China Syndrome". An interesting discussion can result 6. First day in Summer Internship. While this dilemma can raise a number of issues (e.g., what does information disclosure mean, what information is disclosed and what information is withheld) the main function is to reveal student research practices about corporations. One approach is to ask whether students think such practices are common and engage in a discussion on whether this practice is ethical or not. Then, ask the students what they think are other ethically questionable practices corporations might do. With regard to the dilemma itself, a first issue is how do the students verify what information have to be disclosed when collecting information? Can the information be collected without raising the identity of the caller? What are the legal repercussions for the caller, the supervisor and the company? Commentary Ethical concerns may shift over time as a result of societal and industry changes. A recent study of marketing researchers and executives asked them for their reactions to several ethical scenarios in a replication of an earlier study done in 19701. The three scenarios listed in Figure 2-1 (below), although worded differently, revolve around the same ethical issues as those mentioned in Questions #1, and 2 (and to a lesser extent #5). The instructor can use these excerpts from the study to indicate shifting ethical concerns in industry and compare them to the class opinions about the same ethical issues. 6|Page The instructor may wish to make the following comments when discussing the results of the ethical judgments made by marketing professionals shown in Figure 2-1. Items 1 and 3 above show a shift in ethical concerns over the past twenty years, though in different directions. The shift in Item 1 may reflect that marketing professionals have got more sensitized to ethical issues and are less likely to condone research practices such as use of a fictitious company name as the study sponsor. The shift in item 3 may reflect that societal concerns with minority-related issues have been superseded by other social problems such as AIDS and the drug epidemic. Misrepresentation of facts in item 2 seems to be an ethical issue overwhelmingly disapproved of by respondents in other studies. The numbers in the table also indicate good agreement between the opinions of marketing researchers and educators. __________________________ 1 . Ishmael P. Akaah and Edward A. Riordan, judgments of Marketing Professionals About Ethical Issues in Marketing Research: A Replication and Extension", Journal of Marketing Research, 26 (February 1989), 112-120. 7|Page Figure 2-1 Judgments of Marketing Professionals About Ethical Issues in Marketing Research PERCENTAGE OF DISAPPROVALS Marketing Researchers 1970 1989 Shady Study (n=259) (n=205) Marketing Executives 1970 1989 Shady Study (n=142) (n=215) 1. "In another study concerning consumers' magazine reading habits, the Marketing Director decided to contact a sample of consumers using the fictitious company name, Media Research Institute. This successfully camouflaged the identity of X company as the sponsor of the study." 13 30b 16 30c 2. "In the trial run of a major presentation to the Board of Directors, the marketing vice president deliberately distorted some recent research findings. After some thought the Marketing Research Director decided to ignore the matter since the vice president obviously knew what he was doing." 87 88 86 89 51 26b 3. 'The National Marketing Advisory Council 39 20b (formed of top marketing executives ant marketing educators to advise the Commerce Department) has a taskforce studying inner city prices. The head of this study group recently called to ask if they could have a copy of a recent X company study which showed that inner city appliance prices are significantly higher than in suburban areas. Since X company sells appliances to these inner city merchants, the Marketing Research Director felt compelled to refuse the request." __________________ b Difference between 1989 and 1970 study is significant at .001 level. c Difference between 1989 and 1970 study is significant at .01 level. 8|Page