Notes

Identifying Markets - Marketing Process Marketing is a process for value creation.

• Companies can't appeal to all consumers in the markets.
• To create customer value, companies need to understand different types of consumers.

Customer-Driven marketing Strategy

How to Analyze Markets?

• Market Level Analysis Gain Market & Competitive Insights
• Consumer Level Analysis Gain Customer Insights

Market & Competitive Analysis Understanding Market Characteristics and Competitors

• Market Size = Sales of all firms in the market.
• Market Growth = ($Sales_t$ - $Sales_{t-1}$)/$Sales_{t-1}$.
• Market Turbulence = SD of 3 or 5 years Sales/Mean of 3 or 5 years Sales.
• Where are more opportunities?
• What does market turbulence suggest?

How to Analyze Markets?

• Competition: Number of Competitors
• Are number of competitors a good measure for competition?
• Herfindahl-Hirschman Index (HHI): Market concentration
• How do we interpret this metric?
• Which market is more competitive or more concentrated?
• The closer a market is to a monopoly, the higher HHI.
  • Only one firm in a market, a firm's market share = 100% then HHI = 10,000
  • Thousands of firms in a market, then HHI = approx. 0.

What is the advantage of HHI? It's simple and easy to calculate. What is the disadvantage> Fails to take into account the complexities of various markets.

Alternative Perspective? Text-Based Analysis for Competition **Product Market Fluidity **

• Text-based algorithm to capture product similarity.
• Measuring the extent to which words in a firm's product description in a firm's financial reports (i.e., 10K reports) overlap with those words in the product market universe: similarity score.
• This measure indicates competitive threats in product markets.

Fundamentals of Marketing Plan: STP

• Segmentation
  • Determine segmentation basis & method
  • Create segments
  • Describe segments
• Targeting
  • Select one or more segments
• Positioning
  • Develop strategy & tactics for selected target segment(s)...Differentiation!

Aim

Market Segmentation involves:

• Viewing a heterogeneous market as a number of smaller homogenous markets.
• Building marketing strategy based on the differences between segments.

Good Segments?

Market Segmentation

There are many ways to segment a market. The following can be used alone or in combination:

• Geographic Segmentation

  • Dividing the market into different geographical units. (Nations, regions, states, cities or neighborhoods).

• Demographic Segmentation

  • Divides the market into segments based on: Age, life-cycle stage, income, occupation, education, religion, ethnicity, generation.
  • The most popular approach
    • Easier to measure than most of other approaches
    • Needs tend to vary with demographic variables.

• Psychographic Segmentation

  • Divides consumers into the segments based on: Lifestyles, Personality.
    • Lifestyles: The products people buy reflect their lifestyles.
    • Personality: Practical, do-it-yourself, outgoing, etc.
  • Same demographic groups but different psychographic characteristics.
  • May be observable or not.

• Behavioral Segmentation

  • Divides consumers into segments based on: Knowledge, Attitudes, Uses or responses to a product.
  • Occasions
    • When do consumers buy or use the product?
    • Gift-giving.
  • Benefits
    • A powerful form of segmentation, example: segmentation based on benefits (ipad configuration)
  • User Status: non-user, ex-user, potential users, first-time users, regular users.
  • Usage Rate
    • Light, Medium and heavy users.
    • Heavy users are a small percentage of the market but account for a high % of total consumption.
  • Loyalty status
    • The degree of loyalty.
    • Brand-level (Tide), Store-level (Esselunga), Company-level (Apple).

Requirements for Effective Segmentation

• Measurable: size, purchasing power and profiles of the segments.
• Accessible: effectively reached and served.
• Substantial: large or profitable enough to serve.
• Differentiable: distinguishable and responding differently to marketing mix.
• Actionable: effective marketing programs can be designed.

Segmentation Methods How can we form clusters?

• A Priori (Naïve)
  • Segments determined by a researcher
  • E.g., young and old customers, female/male customers.
• Post-Hoc
  • Based on analyses: cluster analysis.

Targeting and Positioning Evaluating Segments

• Segment size
• Segment growth
• Segment structural attractiveness
  • Competitors and new entrants
  • Substitute products
  • Power of buyers
  • Powerful suppliers

Selecting Target Markets

Choosing a Target Market

Choosing a Targeting Strategy

• The company's resources
  • Limited or abundant?
• The degree of product variability
  • Grapefruit or steel?
  • Cameras, cell phones, or cars?
• Product Life Cycle (undifferentiated differentiated)
• Market variability: the extent to which consumer preference is different.
• Competitors' marketing strategies.

Positioning

• A Value Proposition
  • How does a company create differentiated value for targeted segments?
  • What position does a company want to occupy in those segments?
• Product Position
  • The way a product is defined by consumers on important attributes: the complex set of perception, impression and feeling.
  • The place a product occupies in consumers' minds relative to competing products.
• Consumers are overloaded with information about products and services
  • Limited attention and limited cognitive resources.
  • Can't reevaluate products every time.

Positioning Maps

• Perceptual maps
  • Consumer perceptions of the brand versus their competing brands on important dimensions.

Differentiation and Positioning Strategy Should provide superior customer value, how?

• Lower Price
• More benefits

Answer the question, "Why should I buy your brand?" Case of IKEA.