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Section 5 CONSUMER ANALYSIS AND MARKETING STRATEGY Chapter 15. Market Segmentation and Product Positioning Chapter 16. Consumer Behavior and Product Strategy Chapter 17. Consumer Behavior and Promotion Strategy Chapter 18. Consumer Behavior and Pricing Strategy Chapter 19. Consumer Behavior, Electronic Commerce, and Channel Strategy Chapter 15 MARKET SEGMENTATION AND PRODUCT POSITIONING AUTHORS' OVERVIEW OF THE CHAPTER In This Section. In this fifth section of the text, we discuss applications of the consumer behavior concepts covered in the first four sections of the book. We are concerned with the implications of consumer analysis for developing effective marketing strategies, beginning with market segmentation and positioning. In This Chapter. In this chapter, we consider market segmentation, considered key to developing effective marketing strategies. We also discuss how products are positioned against these segments. We show how a thorough understanding of consumers, through detailed consumer analysis, is used throughout the segmentation and positioning process. Market Segmentation. Market segmentation is one of the primary applications of consumer research. Marketers (and most marketing students) know that consumers are not all alike in their needs or responses to marketing strategies. Consumers often vary widely along many dimensions. Thus, marketers find it useful to identify groups of similar consumers--segments of the overall market--and select the most appropriate group(s) to serve. Analyze Consumer/Product Relationship. Exhibit 15.1 presents a simple model of the key managerial tasks in market segmentation. The most important task in a successful market segmentation is the first step where marketers analyze (and attempt to understand) the relationship between consumers and the product or service being marketed. As indicated by the Wheel of Consumer Analysis, understanding the consumer/product relationship requires careful analyses of consumers' affect and cognitions about the product; their shopping, purchase, and consumption behaviors; as well as the social and physical environments in which those behaviors take place. Markets can be segmented based on any of these dimensions or by using several factors in combination (see Exhibit 15.2) Investigate Segmentation Bases. Next, we describe the major bases for segmentation--demographic, benefit, psychographic, person/situation, and geodemographic segmentation, along with several examples (see Exhibits 15.2 and 15.3). We also describe psychographic segmentation approach, including the VALS typology (see Exhibit 15.4). Next we discuss the person/situation approach to market segmentation combines individual differences in affect, cognition and behavior with situational or environmental factors. We describe the steps involved in using a person/situation segmentation approach (see Exhibit 15.5). This approach is quite compatible with the Wheel of Consumer Analysis. Finally, geodemographic segmentation is discussed, including the PRIZM system (Ex. 15.6). Develop Product Positioning. Next we give a brief overview of product positioning, the next step in developing a marketing strategy, after a suitable segment has been identified. A product positioning strategy involves establishing an identity or mental image for the product, relative to the competition. Positioning involves creating a certain set of meanings in consumers' minds, a cognitive structure regarding the product. We discuss five approaches to product positioning. Products can be positioned by attribute, by use or application, by user, by product class, or by competitor. We describe each of these approaches and give examples. Select Segmentation Strategy. Finally, we describe the decisions marketers must make when finally selecting the segmentation strategy. First, they must decide whether to enter the market at all. The second decision concerns whether to segment or adopt an aggregation or mass market approach. Third, they must decide whether to select one or several segments as a target for their marketing strategies. We describe three criteria for deciding if a segment is viable--it must be measurable, meaningful (sufficient profit potential), and marketable (reachable). Design Marketing Mix Strategy. We conclude by noting that the next task is to develop an effective marketing-mix strategy. Those issues are covered in the next five chapters. KEY CONCEPTS AND ISSUES Concept of market segmentation Five steps in market segmentation analysis Critical importance of analyzing consumer/product relationships for developing effective segmentation and positioning strategies Geographic, demographic and benefit approaches to market segmentation Psychographic approaches to market segmentation including VALS Steps involved in person/situation segmentation and advantages of the approach Geodemographic segmentation and the PRIZM system Concept of product positioning Types of positioning approaches--by attribute, by use, by user, by product class, or by competition Criteria for a viable segment OUTLINE OF CHAPTER TOPICS Chapter 16. MARKET SEGMENTATION AND PRODUCT POSITIONING A. H2-Oh!-Positioning the Hummer H2 B. Analyze Consumer-Product Relationships C. Investigate Segmentation Bases 1. Benefit segmentation 2. Psychographic segmentation 3. Person/situation segmentation 4. Geodemographic segmentation D. Develop Product Positioning 1. Positioning by attribute 2. Positioning by use or application 3. Positioning by product user 4. Positioning by product class 5. Positioning by competitors 6. Positioning maps E. Select Segmentation Strategy F. Design Marketing Mix Strategy G. Back to ... H2-Oh!-Positioning the Hummer H2 H. Marketing Strategy in Action: Hershey Chocolate USA TEACHING OBJECTIVES After completing this chapter, the student should be able to: define market segmentation and the major steps in developing a segmentation strategy. describe geographic, demographic and benefit approaches to segmenting a market. describe person/situation segmentation and explain its advantages. describe geodemographic segmentation and the PRISM system. define product positioning. describe five alternative ways of positioning a product. discuss how analysis of the consumer/product relationship can help develop segmentation and positioning strategies. TEACHING IDEAS AND SUGGESTIONS Overview. In this chapter, we review concepts about market segmentation and product positioning, some of which most students encountered in the introductory marketing course. However, we do not intend this chapter to be a mere rehash of the segmentation chapter in a Principles of Marketing text. Rather, our objective is to review and elaborate students' existing knowledge about segmentation and positioning (which may be incomplete and somewhat sketchy). In addition, we show students how a consumer-oriented approach can be useful in doing segmentation and developing positioning strategy. In fact, our overall goal in Section 5 is to impress on students how a deep understanding of consumers' affect and cognitions, behaviors, and environments (and the interactions between them) can be used by managers to help develop marketing strategies and evaluate their effectiveness. Since much of the material in this chapter is straightforward and probably somewhat familiar, only one class period is necessary to cover it. Lecturing on the text material probably is not necessary. Instead, we recommend that you use class time to work through an analysis of consumer/product relationships, discuss and evaluate actual segmentation schemes, and develop segmentation and positioning strategies. Possible Mini-Lecture: Fragmenting Markets Require a More Precise Segmentation Approach. By the early 1990s, it was becoming clear that many markets were fragmenting--breaking up into smaller groups of homogeneous customers. This was quite unlike the heyday of mass marketing in the 1950s and 1960s. In those days, large groups of consumers were pretty much alike in income, social status, needs, and outlooks on life. Large mass markets existed for many products, and a single marketing strategy could become a blockbuster success. The response to this fragmenting of markets has been an increased emphasis on market segmentation. Marketers are using segmentation in creative ways to identify smaller groups of consumers and target them for specialized marketing strategies. Rather than mass marketing, more companies are practicing "micro marketing." Unfortunately, micro marketing is much more complex than mass marketing and more expensive, too. To be a successful, micro marketing requires that companies attend to several things, including the following: Know Your Customers. It is critical that companies find out who their customers are and learn as much as possible about them. High-tech research techniques are useful to do so. For instance, scanner data can tell companies things about their customers' purchasing habits that they did not know before. When P&G learned that Southern consumers liked to buy coffee in vacuum packed foil bricks, they repackaged Folgers. And, they supported it with a new advertising campaign and special targeted promotions. This strategy helped Folgers' market share to grow from 24 percent in 1980 to 32 percent in 1988. Make What Customers Want: This sounds simple, but many companies find it very hard to do. Sometimes it is difficult to know what consumers want; perhaps consumers do not know what they want. As markets fragment, consumers' needs, desired benefits and relevant product attributes become quite distinctive. Companies may have to offer many variations on a single product. Consider that Nabisco's Oreo cookies are now available in various sized packages and in several forms--including Double Stuff, Fudge Covered Oreos, and Oreo Big Stuff, as well as regular Oreo-to appeal to slightly different segments of the market. Reach Target Customers. Companies marketing to micro markets, need to reach those customers with their communications. They are advertising on cable TV, and in special interest magazines. Companies are trying to target their promotions to key target segments, in contrast to the old mass couponing approaches of the past. Consider the promising strategy of promoting your product to your competitors' customers. For instance, Seagram's developed a direct mail campaign for its Glenlivit brand of Scotch that was sent only to drinkers of competitive brands such as Johnny Walker Red, Cutty Sark and Dewars. The promotion was credited with creating 10,000 new Glenlivit customers, all of them once customers of competitive brands. Technology often drives some of these highly targeted strategies. For example, so-called "smart" cash registers can spit out coupons when someone buys a particular brand. This allowed Smuckers, the jam company, to try a promotion in which they gave a coupon good for a free jar of Smuckers to people who bought jam from archrival Sorrel Ridge. Micro marketers often try to reach customers right in the store, where many grocery decisions are made while shopping. The normal point-of-purchase promotions (displays, signs, price discounts) tend to be much more effective than the mass couponing. Now, companies can also reach their target customers through ads on in-store TV monitors at the checkout counter, VideOcart monitors on the grocery cart, and supermarket loudspeakers. [Source: Zachary Shiller, "Stalking the New Consumer," Business Week, August 28, 1989, pp. 54-61.] Analyze the Consumer/Product Relationship. Students should recognize that the essence of developing effective marketing strategies is understanding the special relationship that consumers have with products and/or brands. Determining this often requires in-depth consumer research. Ask students to discuss the consumer/product relationship and give some examples of how marketers might study it. The consumer product relationship concerns how consumers perceive a product as relevant for their lifestyle, salient consequences and values, and self-concepts. Means-end chains offer a model for representing the consumer/product relationship. Laddering is a method that can be used to measure aspects of the consumer/product relationship. Consider a study that the advertising agency for American Motors fielded to learn more about the special product relationships that Jeep owners had with that product. They sent an anthropologist out to Detroit to spend a week talking to five jeep owners. They were trying to understand the elusive quality of the product they called "Jeepness." In another study, the same agency conducted focus group interviews with blue-collar men about smoking. Feelings of sexual frustration and being "hemmed in" emerged from the research, which influenced the choice of the advertising theme, "Make Your Move," for a new Danish cigarette, Prince, that was being introduced in the U.S. market. In-Class Exercise: Analyzing Segmentation Strategies. It is useful for students to gain some experience in critically evaluating actual segmentation strategies. They should try to figure out what goals a company had and how successful the segmentation scheme was likely to be. Also, they should try to come up with alternative segmentation strategies. Ask students to bring in an example of a segmentation strategy that they think is interesting. Alternatively, bring in one or two actual segmentation strategies, gleaned from the current business press, and describe them to the class. Consider the segmentation approaches recently used by banks. Banks used to treat all their customers pretty much alike (mass marketing). They offered only a few services (checking and savings accounts) and competed largely on the interest rates they paid for passbook savings. But the banking market has fragmented like many others. Now the typical bank offers a range of products and services, including money-market accounts, certificates of deposit, and interest bearing checking accounts, as well as differing interest rates based on the size of deposits. The current rage in banking is to bundle a set of services together and target them at specific (narrowly defined and usually smaller) segments of the population of potential bank customers. For example, a program targeted at young adults just starting their careers offers a preapproved car loan of up to $18,000. This segment uses few bank services now, but will add many more as they move through the family life cycle. A package offered to the baby boomer, thirty-something, segment offers a credit card and line of credit with no annual fees, and a full percentage point (1 percent) off normal installment loan rates. This group is a prime borrower segment. The mature and elderly segments constitute a prime target segment since they account for about 2/3 of bank deposits. A bank in Florida designed several service packages for seniors based on their lifestyles, including athletic activities, travel offers, and health information. Students should recognize that extensive segmentation and targeting smaller consumer groups necessarily produces higher marketing costs (compared to mass marketing approaches). It is expensive to design and promote multiple products to "small" consumer groups. Marketers have to set their prices high enough to pay for the "extra" costs. Still, the advantages usually are worth the trouble. The days of the mass banking market seem to be gone forever. [Source: Rick Christie, "Making Change for a Segmented Market," The Wall Street Journal, November 2, 1989, p. B1.] Ask students to analyze each strategy--identifying the type of segmentation approach involved, critically evaluating its likely success, and generating alternative strategies. "Is this segmentation strategy effective given the consumer/product relationship?" "Does the apparent basis for segmentation distinguishes important aspects of the consumer/product relationship?" In the banking examples above, the segmentation basis tended to be age and stage in the family life cycle. Also, activities and interests (lifestyles) were also used. In-Class Exercise: Person/Situation Segmentation. The person/situation approach to market segmentation can be a useful way to segment consumer markets. Many products have different meanings and involve different behaviors when they are used in different environments/situations. The person/situation approach is consistent with the reciprocal relationships between affect and cognition, behavior, and environment emphasized by the Wheel of Consumer Analysis. Begin by selecting a product of interest to students. Pick a product with which they have had some experience such as a currently fashionable article of clothing, a compact disk player, or a favorite off-campus restaurant or hang-out. Have the class follow the steps in a person/situation segmentation as outlined in Exhibit 15.5. Students should first identify relevant, important situations. These might be situations in which large volumes of product are consumed. Then, students should consider characteristics of consumers who might use the product in those situations. In particular, the perceived relevant attributes, benefits and value consequences of product use (in those situations) should be identified. Next, a consumer by situation matrix should be constructed, showing which consumers and situations go together. These consumer/situation combinations should be analyzed to determine which are most important, which have the highest potential sales volume, which offer the greatest competitive advantage, etc. Students should recognize that the person-situation approach is consistent with the Wheel of Consumer Analysis. This exercise and discussion illustrates the value of simultaneously considering affective and cognitive, behavioral, and environmental factors. In-Class Exercise: Product Positioning. Many students find product positioning to be one of the most interesting applications of a thorough consumer analysis. Enthusiastic discussions usually can be generated on this issue. A simple approach to generating a class discussion on product positioning is to assign the project below, and then have a few students present their projects to the class for discussion. Alternatively, show examples of positioning strategies for different brands or product forms in the same product class. Print ads that portray the positioning strategies work well as examples. Consider the Volvo print ads that position Volvo as a very sturdy car, well-engineered and safe. Or, Pepsi is positioned "for young people." Orange juice is "not just for breakfast." Ask students to identify the target market segment and the type of positioning strategy used (by attribute, use, competitor, etc.). Challenge them to be specific and to justify their statements. Then, students should critically evaluate the effectiveness of the positioning strategies. What alternative positioning could have been used? PROJECTS These two simple projects will give students an opportunity to think about some of the factors involved in market segmentation and product positioning. These projects can be written up and handed in for formal evaluation. Alternatively, they could be assigned as "informal" projects to be brought to class and presented as a basis for class discussion. Market Segmentation This project is intended to give you practice in thinking about the concepts and principles involved in market segmentation. Identify two or more brands in a product class that seem to be following different segmentation strategies. Describe and contrast these strategies. What type of segmentation is being used (describe in terms of the concepts covered in the text). What are the target markets? Attach ads or other materials that illustrate each segmentation strategy to your paper (or bring them to class). How effective do you think each strategy is? Product Positioning This project is intended to give you practice in thinking about some of the concepts and principles involved in product positioning. Identify alternative product or brand positioning strategies for two or more brands within the same product class. Describe these positioning strategies in terms of the concepts covered in the text (type of positioning). Attach ads or other materials that illustrate each positioning strategy to your paper (or bring them to class). What is your evaluation of their relative effectiveness? NOTES AND ANSWERS TO REVIEW AND DISCUSSION QUESTIONS 1. Define market segmentation and describe the management tasks involved in applying the concept. This simple review question concerns the critical segmentation process in modern marketing. Students should know that segmentation is defined as a process of dividing a market into groups of similar consumers and selecting the most appropriate group or groups for the firm to serve (see page 484 in the text). The need for information about consumers to use in segmenting a market is one basic reason for studying consumer behavior. The management tasks involved in segmentation are presented in Exhibit 16.1 (page 378 in the text). Students should know each step in the segmentation process and generally understand what it entails. A thorough understanding of consumers is crucial to segmenting markets and developing effective marketing strategies. 2. Select a product (other than toothpaste) with which you are fairly knowledgeable and develop a preliminary description of possible benefit segments following the structure presented in Exhibit 15.3. This is a fairly simple application question. Students should be able to think beyond their own perceptions of a product and the benefits they personally desire. Most students should have no trouble thinking of benefit segments for any ordinary product. Students could focus on familiar product categories such as movies, athletic shoes, skin care products, soda beverages, blue jeans, or retail clothing stores. Ask individual students or small groups to present their ideas to the class. Display the key points on the chalkboard or overhead projector to stimulate discussion by the class. As an extension of the question, ask students to develop research projects to further identify these segments and better understand the benefits desired. Research to identify specific psychological and demographic characteristics of the consumers would be useful. Research involving means-end chains might be used to better understand the benefits that people mention. 3. Identify potential advantages and problems associated with marketing to benefit segments. This application question will require some thought about the essence of benefit segmentation and its role in understanding the consumer/product relationship. Benefit segmentation attempts to identify the salient (important) positive consequences people seek when they make a purchase. As discussed in Chapter 4, benefits are consequences at an intermediate level of abstraction--functional outcomes of product use or psychosocial consequences. These benefit meanings may play a critical role in consumers' decision processes, because benefits link the product attributes to the consumer's self-concept in a way that is personally meaningful to the consumer. The means-end chain concepts covered in Section 2 of the text are relevant here. Means-end chains represent the meanings by which consumers link the attributes of products to the basic end values of consumers. Benefit segmentation allows the marketing organization to position its brands in these highly meaningful terms. One of the difficulties or problems with benefit segmentation is that benefits are specific (unique) to each product class, unlike demographic or psychological factors. Another problem is that benefits may change over time as consumers learn more about the product category. Benefit segments may become outdated as cultural values change (consider the difficulties faced by the liquor industry as consumers' values and desired benefits have changed over the past 15 years or so). After benefit segmentation, marketers still have to do additional analyses to identify distinctive consumer characteristics and learn more about situational factors in the use environment as these factors are not generally included in benefit analysis. Finally, the research to identify perceived benefits can be expensive. Benefit segmentation is most relevant for developing advertising strategies; it may be difficult to integrate perceived benefit analyses in developing pricing and distribution strategies. 4. Use the VALS™ categories to suggest marketing strategies for psychographic segments of buyers for hotel/motel services. This challenging review and application question requires students to understand the VALS categories and consider how they can stimulate marketing strategies for the hotel/motel industry. In the text we briefly review the VALS system on pages 385-386. Currently, there are many well-publicized changes in the hotel/motel industry. Numerous articles are available in the business press about their marketing efforts. Of course, you could change the category of interest if desired when assigning the question. Show a transparency of Exhibit 15.4 to guide and stimulate the discussion. Of course, there is no one right answer. Students should be able to generate marketing strategies for the most important VALS categories. Alternatively, students might find it easier to match the VALS groups in Exhibit 15.4 with the particular strategies used by actual hotel/motel chains. You could bring in ads from these hotels to show students and stimulate the discussion. There are numerous companies in the hotel/motel industry--Trump Casino hotels, Club Med, Marriott Courtyards, Embassy Suites, LaQuinta Inns, Hampton Inns, Disney Resort Hotels, Red Roof Inns, EconoLodge, Days Inn, Quality Inns, Motel 6, etc.. Encourage students to critically evaluate these marketing strategies and suggest changes. 5. Consider person/situation segmentation as a way to view the snack food market. State the needs and objectives of consumers in situations for at least three segments that you identify. This is another challenging application question. Person/situation segmentation probably seems fairly complex to most students. If so, it may be useful to work through an example in class. Of course, you could change the product category when you assign or pose the question. The movie industry is a possibility as are restaurants. The following exercise can illustrate the first steps in the process of identifying multiple person/situation segments. Show Exhibit 15.5 and briefly review the steps cited in the text. To elicit snacking situations, you could conduct a quick "focus group interview" with a few students. Or, you could set up several small "focus groups" with one student moderator in each. Ask questions such as: Who eats snacks? When do you eat snacks? Where do you eat snacks? In what circumstances do you eat snacks? Can you describe typical snacking situations? Select one or two interesting situations to describe further. Ask students to consider the needs and goals of different types of consumers in this situation. This analysis should lead to a benefit segmentation scheme. Further, ask students to consider how consumers perceive alternative snack products in each situation. For instance, compare various types of potato and other chips (corn, taco) with other salty snack products and with candy-type products. Finally, ask students to consider how behaviors (shopping, purchasing and use/consumption) vary in these situations for different types of consumers. 6. Explain each of the five approaches to product positioning and offer an example (not in the text) for each approach. This is a straightforward review question to help students understand the positioning strategies discussed in the text. Positioning by attribute associates the product with a particular attribute or set of attributes. Examples are numerous. For instance, consider the milk content of Kraft "Singles" cheese slices, or the two scoops of raisins in Raisin Bran breakfast cereal, or the fist full of peanuts in a Snickers candy bar, or the no caffeine in 7Up soda. Positioning by use or application focuses on how the product is used by a consumer group. Multiple use positions are possible (baking soda for cooking and for deodorizing refrigerators), but these are more difficult to accomplish. Examples not listed in the text could include multi-purpose uses for off-road vehicles (Jeep, Range Rover), the Pick-Me-Up bouquet advertised by FTD florists, or AT&T telephone services for personal and business uses. Positioning by user focuses on a particular type of consumer or user of a product. Examples could include the positioning of pick up trucks to blue collar males, Virginia Slims as a cigarette for liberated women, or Pepsi-Cola to young people. Positioning by product class attempts to influence how consumers categorize competitive products (is freeze-dried coffee a substitute for instant or regular coffee, or both?). This strategy can also affect the shelf location in the store. An example of product class positioning is the attempt by Stove Top Stuffing Mix to be seen as an alternative to potatoes. Often, the product is shelved next to the potato products in the grocery store. Twix is promoted as a candy bar and a cookie and may be available in both grocery sections. Positioning by competitor uses another specific product to define an image. Frequently, the other product is a market leader, and the objective is to capture some of the leader's meaning, as well as some of its market share. For instance, Red Roof Inns are positioned as a less expensive alternative to major hotels which are shown as basically equivalent to Red Roof Inns except for some over-priced amenities like the "$25 mint" on the pillow at night. “Pork, The Other White Meat”, is another very effective positioning by competitor example. 7. How does the concept of segmentation relate to positioning strategies? This is a difficult review question that requires students to think about how managers might use (and integrate) the segmentation and positioning concepts and processes. In the diagram of segmentation tasks (Exhibit 15.1) segmentation precedes positioning. Conceptually, this makes sense. First identify your customers, then develop a positioning for your product. But in reality, segmentation and positioning can be partially concurrent activities. Consumers in different segments tend to have different cognitive, affective, and behavioral responses to the product and its competitors. So, "positioning" (how consumers perceive the competitive brands) can be a basis for market segmentation (perceptual segmentation). Usually, marketers use of segmentation and product positioning is an interactive process. Sometimes, segmentation comes first followed by positioning strategies. Sometimes, a positioning strategy can "create" market segments if it creates distinct product perceptions in consumers' minds. The successful use of each depends on the other. 8. What options are available to the organization after it identifies segments in the market? When would each of these options represent a reasonable choice? This is a straightforward review question. Students should easily identify the next three stages in Exhibit 15.1. Two important points should be brought out in the discussion. Students should recognize that a firm might decide not to enter any of the market segments they have identified. Perhaps the investment required is too high or the demand potential and return on investment are too low to meet organizational goals. After segmenting the market, a company could decide to adopt a mass marketing strategy. This would be reasonable if the differences between segments are not large enough to justify multiple marketing strategies. In some cases, the economies of scale in a mass marketing approach may be considered greater than the gains from a segmentation strategy. Or, perhaps each segment is too small to be profitable, or only heavy users are relevant, or the product is dominant in the whole market. In general, however, most companies opt for a segmentation approach to the market. In fact, most markets seem to be fragmenting into smaller and more narrowly defined groups of consumers. This trend necessitates a more careful approach to segmentation sometimes called micro-marketing (see discussion in "Teaching Ideas" section). Students should know the criteria for evaluating a segmentation scheme. Segments should be measurable, meaningful, and marketable. 9. How would segmentation and positioning decisions be different for a small-business entrepreneur than for a large corporation? This application question goes beyond the text discussion and requires some special thought. The question is appropriate since many students will work for smaller rather than large businesses. The intent of the question is to help students realize that segmentation and positioning can be useful for developing effective marketing strategies, even when resources are limited. In many cases, an entrepreneur would be more likely to select one or a few market segments rather than a mass marketing approach, or trying to cover many market segments. Segments which are small or have very specialized needs may be more appealing to an entrepreneur. Entrepreneurs should avoid segments that are well served already by strong competitors. Entrepreneurs usually do better if they identify small segments that the larger companies have ignored (called niche markets). Often, they can serve these customers well and profitably. Students may generate other differences in the discussion, but the major point you need to stress is the relevance of these concepts to all sizes of business organizations and to nonprofit organizations too. NOTES TO DISCUSSION QUESTIONS FOR MARKETING STRATEGY IN ACTION--Hershey Foods Overview. This case describes recent marketing successes of Hershey Foods. We especially focus on Hershey's decision to (a) introduce new products (e.g., Kisses with Almonds) and (b) target adults rather than just children. This makes the case especially relevant for the segmentation and product positioning topics of Chapter 15. The case also is relevant to issues of the need to understand the consumer/product relationship and product image and product positioning strategy. The candy market has been highly competitive for many years. The two big players in the U.S. are Hershey and Mars. For many years these companies have engaged in a ferocious battle for market share in the candy bar market. Mars Candy Company had taken leadership of this market in the early 1970s, and by the end of that decade had a market share 14 percent greater than Hershey's. However, by 1985, Hershey and Mars were tied as the market leaders, each with a 35 percent share Hershey continued to gain ground through the 1980s. In 1989, Hershey's had a 20.5 percent market share of the $8 billion candy market in the U.S., compared to Mars with 18.5 percent. Hershey Foods was and is a tough competitor. For instance, the company made several intelligent acquisitions, including buying the brands Peter Paul Mounds and Almond Joy, as well as York's Peppermint Patties. In the process, Hershey sold off Friendly's Ice Cream, a chain of restaurants specializing in ice cream, because it was a distraction from their key candy business. Hershey also spent heavily on advertising and promotion campaigns in the late 1980s. By 1989, Hershey had half of the top 20 brands in the U.S., and their Reese's Peanut Butter Cup was pressing Mars' Snickers for the top brand position. An important aspect of Hershey' s overall marketing strategy was to develop new brands, in part to gain more space on the store shelves. Shelf space is critical because consumers seldom buy the same candy bar twice in a row. Therefore, the company with lots of choice alternatives available on the shelf will tend to gain the highest overall market share. Another aspect of Hershey’s new product strategy was to increase their appeal to adult consumers, in addition to the traditional children's market (adults eat more than 1/2 of all candy sold in the U.S.). Hershey tried to introduce one new candy product each year. For instance, in 1988 they introduced Hershey Bar None, a peanut/chocolate wafer to go with their popular Kit Kat bar. In 1989, they rolled out Symphony, a creamy chocolate bar. Also, they began selling Hershey chocolate drink in aseptic packages and introduced a line of puddings. Mars, of course, didn't sit still during this time. Mars had traditionally relied on sales of a few blockbuster brands, but in the late 1980s sales of Snickers, Milky Way and M&Ms began to flatten. So, Mars also began to introduce new products, including a coconut bar, Bounty, to challenge Almond Joy and Mounds. In 1989, Mars test marketed a peanut butter bar, PB Max, to challenge Reese's. While the candy wars continue, Hershey is growing its lead. According to Information Resources Inc., Hershey now controls nearly 43% of the U.S. chocolate candy market, compared to 26% for Mars (now a part of Masterfoods). [Source: Joseph Weber, "Why Hershey is Smacking its Lips," Business Week, October 30, 1989, p. 140] Suggested Answers for Discussion Questions 1. What are the advantages of targeting candy bars to adults rather than to children ? A number of advantages for positioning candy bars against the adult market can be offered, some of which were mentioned in the case. Students should be able to think of many of the following issues. Adults eat a lot of candy--in fact, about 55 percent of candy is consumed by adults. In addition, adults control an even greater percentage of candy purchases. Adults, especially parents, may influence children's taste preferences in candy. Adults are not likely to be very price sensitive for products in this price range (candy bars are mostly under $1.00). Therefore, small price increases are not likely to depress sales in this market as much as for the children's market. Avoiding price competition is desirable. Unlike some children, adults do not need "permission" to purchase and consume candy. Marketing and promotion strategies can be more straightforward. However, there is considerable guilt and other negative affect and cognitions associated with candy consumption of candy. These dynamics of the consumer/product relationship make candy a very interesting product to study and a challenge to understand. Partly because they have more money to spend, adults are more likely to be purchasers of multipleunit packages of candy bars in food stores. Kids may be more likely to buy single bars. Thus, adults have a higher volume (and profit) potential. 2. Does targeting to adults require a change in the image for candy products? This question is relevant to the detailed discussion of affect and cognition in Chapter 4. The question is designed to get students to think about the meanings (both cognitions and affective reactions) that candy, especially candy bars, have for consumers. Most students are likely to say that targeting adults requires a different image for candy (a different set of affect and cognitions). This is because the needs and interests of children are likely to be quite different from adults. However, adults and kids may have some similar reactions to candy (basic affective reactions to chocolate taste, for example). Begin by asking students what candy means to them. Ask, for instance, "What comes to mind when I say 'candy bar'?" "What feelings do you have about candy?" Initially, focus on the overall or global meanings of candy bars. Do adult consumers see candy bars as a junk food, an enjoyable snack, a sinful treat, a high energy snack, a nutritious food, or what? Then, use laddering procedures to produce means-ends chains and reveal some of the more abstract meanings associated with candy bars. Finally, explore the overall or global meanings of candy bars. Do adult consumers see candy bars as a junk food, an enjoyable snack, a sinful treat, a high energy snack, a nutritious food, or what? Considering these meanings can naturally lead to a discussion of the positioning of various brands of candy bars. For instance, Mars positioned Snickers as a high-energy "nutritious" snack mostly for teenagers and young adults. Marketers must decide who is the target consumer and what are the desired meanings (image) for the brand. For instance, Mars positioned Snickers as a high-energy "nutritious" snack mostly for physically active teenagers and young adults. To support this image, Mars paid $5 million to have Snickers and M&Ms named official snack foods of the 1984 Olympic Games. Commercials were created to show Olympic athletes eating candy bars as high energy snacks. According to the Fortune article that was the basis for this example, Mars wanted to convince consumers that candy is a "sweet snack" and not a "fattening, tooth- rotting, pimple-producing junk food." Ask students to consider how the image of candy bars has changed over the past 5 to 10 years. Students should consider how the cognitive, behavior, and environmental changes in society regarding health and fitness may have contributed to the current image of candy bars. 3. Why do you think bite-sized candies are so popular with adults? Answering this question requires a rather deep analysis of the consumer/product relationship, an important concept emphasized throughout the text. Also, this question subtly focuses students on consumers' behaviors in a consumption environment and with related affect and cognitions. Thus, the Wheel of Consumer Analysis is useful here. You might let students struggle a bit with presenting their ideas about this question, and then bring in the Wheel of Consumer Analysis as a way to organize their thinking about this problem. One way to begin is to ask students to identify the environmental aspects of the consumption situations in which adults eat candy. Many households have a candy dish sitting around for snacks or after meal treats for the family and guests. Bite-sized pieces, particularly those that are individually wrapped, are perfect for this usage. Parents may purchase the bite-size pieces to give as treats to their children. This allows the parent to give a (small) treat that does not overload the kids with sugar and calories. Then, ask students to identify the behaviors required in those situations, and the affect and cognition that accompany and influence those behaviors. Some of these factors encourage the consumption of bitesized candies (rather than larger candy bars). There are lots of relevant ideas to be brought to bear here, among them the following: Students might note that many adults eat candy at work (chomping on a large candy bar might not be acceptable in an office environment). Many consumers may feel it is easier, less messy, and more socially acceptable to "snack" on small pieces of candy. In fact, adults can even "sneak" these candies into their mouths without others being aware they are eating candy. Ask students to consider the affect and cognition factors associated with candy consumption. Bite-sized candies are more convenient, especially if you only want a "little," not a large candy bar. In this sense, bite-sized candies are more economical--you only eat what you want, and nothing goes to waste. Guilt is still an important affective and cognitive reaction to candy, and adults experience more guilt about eating candy than do children. Bite-sized candies allow adults to satisfy their craving, without feeling overwhelming guilt. This guilt restricts the size of the overall market for candy; marketers should deal with it somehow. 4. Describe your most recent purchase of a candy bar in terms of the relevant affect and cognition, behavior, and environments. This question has a similar aim and focus as the preceding question. The difference is that this one deals with personal experiences in the purchase environment, rather than the focus on the consumption environment in Question 3. The main objective is for students to learn the distinctions between the components of the Wheel of Consumer Analysis, to practice thinking about how these factors are related, and to consider how these factors are relevant to developing marketing strategies. Several ideas could be brought out in this discussion. Begin by asking several students to describe the brand of candy bar they purchased. Then, have each student identify the major social and physical features of the purchase environment, along with the key behaviors they performed in this environment, and the related cognitive and affective factors in this situation. List all of these factors on the chalkboard, point out the distinctions, discuss difficulties in determining what goes where. Relevant environmental cues such as advertising, the presence of a vending machine, seeing someone eating a candy bar might be identified. The interactions between affect, cognitions, behaviors, and environmental factors can be discussed to reveal the dynamic, reciprocal interactions between the components of the Wheel of Consumer Analysis during consumers' decision processes. Then, ask what candy bar attributes were used as choice criteria. Included here might be such physical attributes as chocolate, caramel, peanut butter, and nuts. More abstract attributes might be mentioned such as smoothness, creaminess, texture, crunchiness. Some students might mention choice criteria such as psychosocial consequences--how the candy makes them feel or the pleasure of sharing the candy with someone else. Reinforce the point that consumers may use different levels of meaning in choosing a product. Ask students to discuss the choice decision process in their candy purchase. Some students will probably describe rational, logical reasons for their choice of candy bar, while other students may give "nonrational,", emotional reasons for their choices. Yet other students may suggest that their choice was a routine choice behavior made out of habit. Encourage these students to consider how their past experiences (stored knowledge and meanings) influenced their habitual behavior. Other students might mention a candy purchase that was a quick, impulsive action. You might stimulate a discussion of impulse purchases for candy. Using the Wheel of Consumer Analysis as a guide, ask students to describe an impulse purchase of candy (identify affect and cognition, behavior, and environmental factors). One important aspects of consumer analysis in this marketing situation is to determine the type of decision and the amount of decision making effort that is involved in candy bar choice. Marketing research suggests that about 70 percent of all candy purchases are made on impulse. Impulse purchases occur quickly, with little apparent thought (although affect might be strong). In addition, ask students to discuss the levels of involvement that they have with candy in general, and candy bars in particular. Some students may be somewhat involved, while others may not have much enduring involvement at all. A deeper analysis of the meanings for candy in these two groups could be interesting. Students should be asked to consider the implications that these meanings would have for developing marketing strategies. In addition, ask one or two students to identify the key behaviors in their recent candy purchase. Jot their reasons on the chalkboard. Then, have the class quiz the student(s) about the amount and type of cognitive activity that occurred for each behavior and the key environmental factors that were present. Relevant environmental cues such as advertisements, the presence of a vending machine, seeing someone eating a candy bar, etc. might be identified. The reciprocal interactions between affect, cognitions, behaviors, and environmental factors can be discussed to reveal the dynamic, reciprocal interactions between the components of the Wheel of Consumer Analysis during consumers' decision processes. You could end the session by asking students if the case discussion made them hungry. Poll the class to see how many students intend to buy and eat a candy bar after class. The point, obviously, is that the case discussion is an environmental event that can influence students' affect, cognitions and behaviors (and future environments). Additional Discussion Question and Suggested Answer: A. What means-end chains might different consumers have for candy bars? This review question requires students to integrate means-end chains, a key concept from Section 2 (Affect and Cognition), with market segmentation. By now, students should recognize means-end chain analysis as an important tool for understanding consumers' product/self relationships. As this chapter points out, understanding the consumer/product relationship is essential for developing effective marketing strategies. Thus, one of the first things that a marketer might do after identifying potential target markets is to use laddering interviews to determine consumers' means-end chains for the product category. Students should be able to think of possible means-end chains for different types of consumers. Answers, of course, will be speculative, but can be interesting, nonetheless. Spend a few minutes discussing the various possible means-end chains. These should clearly reveal that different segments may exist who "see" candy in rather different ways. These various meanings or perceptual orientations toward candy may be the basis for market segments. Show Exhibit 15.1 and ask students to discuss how means-end chain analyses would be used in the segmentation process. The flow of steps in Exhibit 15.1 is not fixed or rigid. For instance, a marketer might begin with a simple means-end analysis and then derive market segments from the results. These "perceptual" segments would then be described in more traditional terms (demographic factors such as age and income or usage volume). Alternatively, marketers might first define segments in more traditional ways (see Exhibits 15.2 and 15.3). Then, means-end chain analysis could be used to more thoroughly understand how consumers in the various groups see the product.