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7-1 Quiz Review 2: Chapters 7 to 11 MKT304 Dr. Franck Vigneron 7-2 STP Segmentation & Targeting & Positioning 1 Market Segmentation 2 Market Targeting 3 Market Positioning Step 1. Market Segmentation Bases for Segmenting Consumer Markets Geographic Nations, states, regions or cities Demographic Age, gender, family size and life cycle, or income Psychographic Social class, lifestyle, or personality Behavioral Occasions, benefits sought, user status, usage rate, loyalty 7-3 7-4 Hybrid Segmentation Psychographic + Demographic Variables Work, hobbies social events, vacation, entertainment, club membership, community,shopping, sports ACTIVITIES Family,home, job, community, recreation, fashion, food media, achievements INTERESTS Themselves, social issues, politics, business, economics, education,products, future, culture OPINIONS DEMOGRAPHICS PSYCHOGRAPHIC PROFILES 20/80 Rule Step 1. Market Segmentation 7-5 Requirements for Effective Segmentation Measurable • Size, purchasing power, profiles of segments can be measured. Accessible • Segments can be effectively reached and served. Substantial • Segments are large or profitable enough to serve. Differential • Segments must respond differently to different marketing mix elements & programs. Actionable • Effective programs can be designed to attract and serve the segments. Step 2. Market Targeting 7-6 Evaluating Market Segments • Segment Size and Growth – Analyze sales, growth rates and expected profitability for various segments. • Segment Structural Attractiveness – Consider effects of: Competitors, Availability of Substitute Products and, the Power of Buyers & Suppliers. • Company Objectives and Resources – Company skills & resources relative to the segment(s). – Look for Competitive Advantages. Marketing Differentiation Strategy 7-7 A Undifferentiated Marketing Company Marketing Mix Market B Concentrated Marketing Company Marketing Mix Target 1 Target 2 Target 3 C Differentiated Marketing Company Marketing Mix 1 Company Marketing Mix 2 Company Marketing Mix 3 arketing strategies Target 1 Target 2 Target 3 Step 3. Positioning for Competitive Advantage 7-8 • Product’s Position - the way the product is defined by consumers on important attributes - the place the product occupies in consumers’ minds relative to competing products. • Marketers must: –Plan positions to give their products the greatest advantage in selected target markets, –Design marketing mixes to create these planned positions. 7-9 Creating Perceptual Maps Goal: Obtain 2-3 key underlying dimensions that position competing products/services Two approaches..... Both can be used to obtain a convergent picture of consumer perceptions. 1) Multi-Dimensional Scaling (MDS) 2) Factor Analysis Steps in Segmentation, Targeting, and Positioning 6. Develop Marketing Mix for Each Target Segment 5. Develop Positioning for Each Target Segment 4. Select Target Segment(s) 3. Develop Measures of Segment Attractiveness 7-10 Market Positioning Market Targeting 2. Develop Profiles of Resulting Segments 1. Identify Bases for Segmenting the Market Market Segmentation 7-11 What is a Product? • A Product is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need. • Includes: – Physical Objects – Services – Events – Persons – Places – Organizations – Ideas – Combinations of the above The Total Product Concept Image of retail store Image of the brand Warranty Service after sale Color Attachments Packaging Instructions The Product Product Strategies 7-12 Levels of Product: think on 3 levels Augmented Product Installation Packaging Delivery & Credit Brand Name Quality Level Core Benefit or Service Features Design Warranty Actual Product Core Product AfterSale Service 7-13 7-14 Product Classifications Consumer Products Convenience Products Buy frequently & immediately Low priced Mass advertising Many purchase locations i.e Candy, newspapers, soap Shopping Products Buy less frequently Higher price Fewer purchase locations Comparison shop, time/effort i.e Clothing, cars, appliances Specialty Products Unsought Products Special purchase efforts New innovations High price Unique characteristics Brand identification Few purchase locations i.e Lamborghini, Rolex Products consumers don’t want to think about these products Require much advertising & personal selling i.e Life insurance, blood donation 7-15 Product Mix Decisions Consistency Width - number of different product lines Depth - number of versions of each product Length - total number of items in product lines Product Mix all the product lines & items offered 7-16 Product-Line Width, Depth and Consistency • Definitions: – Width (Breadth): the number of product lines carried. – Length; refers to the total number of items the company carries within its product lines – Depth: the assortment of sizes, colors, and models offered within each product line. – Consistency: the consistent relationship between products in a product line. Trucks Cars Vans Passenger Passenger Passenger Sports Commercial Station wagons Leisure-Recreation Depth (assortment variables within Commercial a line) Farm related Width (# of product lines) Product Strategies 7-17 Product Line Decisions Product Line Length Number of Items in the Product Line Stretching Filling Lengthen beyond current range Lengthen within current range Downward Two-Way Upward 7-18 NATURE OF SERVICE Intangibility Inseparability Variability Perishability Can’t be seen, tasted, felt, heard, or smelled before purchase. Can’t be separated from service providers. Quality depends on who provides them and when, where and how. Can’t be stored for later sale or use. What is underlined is very important! Concepts in Brand Equity 7-19 Brand Equity = Mostly means the image of a brand Recall versus Recognition BRAND AWARENESS Expected Performance = Brand Meanings BRAND ASSOCIATIONS BRAND QUALITY • Anchor to Which Other Associations Can Be Attached • Help Process & Retrieve Information • Reason-to-Buy • Familiarity Liking • Differentiate/ Position • Price • Signal of Commitment • Reason-to-Buy • Extensions • Brand to Be Considered • Create Positive Attitudes/ Feelings • Potential for Extensions • Differentiation/ Position • Channel Member Interest Price Sensitivity & Purchase rate BRAND LOYALTY • Reduced Marketing Costs Trade leverage • Attracting New Customers (create Awareness & Reassurance) • Time to Respond to Competitive Threats 7-20 Types of Brands Manufacturer’s Brands Name is owned and advertised by the manufacturer Black & Decker tools Product Strategies Whirpool Appliances Distributor’s or Private Brands Generic Products Name is owned and advertised by intermediary “No-Name” product in plain package with stark lettering Craftsman Tools VONS products Dog Food Strategic Choices of Brand Name Three brand name choices : A. family branding - less expensive - less effective - Philips B. individual branding - more expensive - can be very effective - OMO POWER C. combinations VW Beetle 7-21 7-22 Strong Brands = Strength + Stature • Strength – Differentiation – Relevance • Stature – Esteem – Knowledge Dimensions of Brand Personality 7-23 The set of human characteristics associated with a brand. It enables a customer to express his or her own self, or ideal self, on specific dimensions of the self through the use of the brand Sincerity Excitement Down-to earth Honest Wholesome Cheerful Daring Spirited Imaginative Up-to-date Competenc e Sophisticatio n Ruggedness Reliable Intelligent Successful Upper class Charming Outdoorsy Tough 7-24 Four Brand Strategies Product Category Existing Brand Name Existing New New Line Extension Dannon Yogurt Flavors Brand Extension Barbie Electronics Multibrands Seiko Pulsar New Brands Toyota & Lexus + Co-Branding = brands bearing 2 or more brand names BMW + Michelin or Intel + Compaq What is a New Product? High New product lines/ established markets New to the world products 20% Newness to the Firm Improvements to existing products 26% 10% Additions to existing product lines 26% Cost reductions Repositionings Low 11% Low 7% High Newness to the Market 1982 survey conducted by Booze, Allen & Hamilton Managing product lines and brands over time: The Product Life Cycle (PLC) + Market Introduction Market Growth Market Maturity - Market Decline + time 7-26 7-27 Applications of the Product Life Cycle • The PLC concept can describe a: – Product class which has the longest life cycles (i.e. gas-powered cars), – Product form which tend to have the standard PLC shape (i.e. minivans), – Brand which can change quickly because of changing competitive attaches and responses (i.e. Ford Taurus), – Style which is a basic and distinctive mode of expression, – Fashion which is a popular style in a given field, – Fad which is a fashion that enters quickly, is adopted quickly and declines fast. 7-28 Product Life-Cycle Stages and Marketing Steps Sales MATURITY GROWTH Maximize share, grow market Maximize profit, Defend Mkt Share DECLINE Reduce/ Delete, milk the brand INTRODUCTION awareness and trial Launch Product Strategies Takeoff Rapid Shakeout Maturity growth Time Decline Speeding Up Development Simultaneous (Team-Based) Step 2 Step 3 Step 4 Step 2 Step 1 Step 1 Sequential 7-29 Step 3 Step 4 Major Stages in New-Product Development Marketing Strategy Concept Development and Testing Idea Screening Idea Generation 7-30 Business Analysis Product Development Test Marketing Commercialization 7-31 Step 7. Test Marketing 3 Methods Standard Test Market Controlled Test Market Full marketing campaign in a small number of representative cities. A few stores that have agreed to carry new products for a fee. Simulated Test Market Test in a simulated shopping environment to a sample of consumers. Internal Factors Affecting Pricing Decisions: Marketing Objectives Survival Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business. Marketing Objectives Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Etc. Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality and R & D. 7-32 7-33 Types of Cost Factors that Affect Pricing Decisions Fixed Costs (Overhead) Variable Costs Costs that don’t vary with sales or production levels. Costs that do vary directly with the level of production. Executive Salaries, Rent Raw materials Total Costs Sum of the Fixed and Variable Costs for a Given Level of Production 7-34 Costs Considerations Cost Per Unit at Different Levels of Production Per Period The Experience Curve 1 Cost per unit 2 3 SRAC (short-run average cost curve) 4 4,000 3,000 2,000 1,000 LRAC Quantity Produced per Day Price Elasticity of Demand 7-35 Price A. Inelastic Demand Demand Hardly Changes With a Small Change in Price. P2 P1 Price Q2 Q1 Quantity Demanded per Period B. Elastic Demand Demand Changes Greatly With a Small Change in Price. P’2 P’1 Q2 Quantity Demanded per Period Q1 7-36 Major Considerations in Setting Competitors prices Consumer Other internal and Perceptions External factors Of value High price Low price No possible profit at this price No possible demand at this price 7-37 Cost-Based Pricing Certainty About Costs Price Competition Is Minimized Much Fairer to Buyers & Sellers Cost-Plus Ethical Pricing is an Approach That Adds a Standard Markup to the Attitudes Costofof the Others Product. Unexpected Situational Factors Pricing is Simplified Simplest Pricing Method Ignores Current Demand & Competition 7-38 Break-Even pricing • Break-even pricing (target profit pricing) is an approach to setting price to break-even on the cost of making and marketing products or to make the target (desired) profit. • a). It uses a break-even chart that shows the total cost and total revenue at different levels of sales volume. • b). Although break-even analysis and target profit pricing can help the company to determine minimum prices needed to cover expected costs and profits, they do not take the price-demand relationship into account. • c). When using this method, the company must also consider the impact of price on the sales volume needed to realize target profits and the likelihood that the needed volume will be achieved at each possible price. Value-Based Pricing • Pricing developed early as part of overall marketing program • Target price based on perceived value of the extended product: offering just the right combination of quality and good service at a fair price). In many instances, this has resulted in the organization introducing less expensive versions of established, brand-name products. • Perceived value dictates design and cost: a redesign of existing brands in order to offer more quality for a given price or the same quality for less has been the result. • A company using this approach must find out what value the buyer assigns to different competitive offers. 7-39 Competition-Based Pricing Setting Prices Going-Rate Company Sets Prices Based on What Competitors Are Charging. ? ? Sealed-Bid Company Sets Prices Based on What They Think Competitors Will Charge. 7-40 7-41 Setting Pricing Policy 1. Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competitors’ costs, prices, and offers 5. Selecting a pricing method 6. Selecting final price Pricing Strategies 7-42 New Product Pricing Strategies Market Skimming Setting a High Price for a New Product to “Skim” Maximum Revenues from the Target Market. Results in Fewer, But More Profitable Sales. • Use Under These Conditions: – Product’s Quality and Image Must Support Its Higher Price. – Costs Can’t be so High that They Cancel the Advantage of Charging More. – Competitors Shouldn’t be Able to Enter Market Easily and Undercut the High Price. 7-43 New Product Pricing Strategies Market Penetration Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply. Attract a Large Number of Buyers and Win a Larger Market Share. • Use Under These Conditions: – Market Must be Highly Price-Sensitive so a Low Price Produces More Market Growth. – Production/ Distribution Costs Must Fall as Sales Volume Increases. – Must Keep Out Competition & Maintain Its Low Price Position or Benefits May Only be Temporary. 7-44 Product Mix-Pricing Strategies: Product Line Pricing • Involves setting price steps between various products in a product line based on: – Cost differences between products, – Customer evaluations of different features, and – competitors’ prices. 7-45 Product Mix- Pricing Strategies • Optional-Product – Pricing optional or accessory products sold with the main product. i.e camera bag. • Captive-Product – Pricing products that must be used with the main product. i.e. film. 7-46 Product Mix- Pricing Strategies • By-Product – Pricing low-value byproducts to get rid of them and make the main product’s price more competitive. – i.e. sawdust, Zoo Doo • Product-Bundling – Combining several products and offering the bundle at a reduced price. – i.e. theater season tickets. 7-47 Discount and Allowance Pricing Adjusting Basic Price to Reward Customers For Certain Responses Cash Discount Seasonal Discount Quantity Discount Trade-In Allowance Functional Discount Promotional Allowance 7-48 Segmented Pricing Selling Products At Different Prices Even Though There is No Difference in Cost Customer - Segment Location Pricing Product - Form Time Pricing 7-49 Promotional Pricing Loss Leaders Temporarily Pricing Products Below List Price to Increase Short-Term Sales Through: Special-Event Pricing Cash Rebates Low-Interest Financing Longer Warranties Free Merchandise Discounts