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Marketing – SM122
Product
Consumers Have Different Needs
Market: Aggregate of people who, as
individuals or as organizations, have
needs for products in a product class
and who have the ability, willingness,
and authority to purchase such products
Segment: Group of individuals, groups,
or organizations that share one or more
similar characteristics which make them
have relatively similar products needs
and have high probability of responding
to a similar marketing mix
Segmentation: Process of identifying
segments or groups of people /
organizations that exist within the larger
market
How to Segment Consumer Markets
Common
Bases for
Segmenting
Markets
Psychographic
Demographic
Behavioral /
Product
Usage
Geographic
All Four P’s Contribute to the Whole
Product
Price
Place
Position
Selection
of Target
Market
Promotion
© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Approaches to Serving Markets
Approach
Description
Examples
Mass Marketing
A single marketing mix for
the entire market
Commodity products
Segment
marketing
A single marketing mix for
one segment of the market
(Concentrated Marketing)
Women's Workout World (exercise
facilities for women); American
Association for Retired Persons
(lobbying and membership services
for people over 50)
Separate marketing mixes
for two or more segments of
the market (Multisegment
Marketing)
McDonald’s (Happy Meals for young
children, Big Macs for Teens, Arch
Deluxe for adults); Toshiba copiers
(several sizes and features to meet
different levels of business needs)
A marketing mix
customized for an
individual or organization
Personalized amenities for repeat
guests at Ritz-Carlton hotels;
management consulting services
tailored to an organization’s needs
Individual
marketing
Consumers Buy Benefits Not Features
•Consumers buy:
•Consistency, convenience
McDonald’s
•Fun, hip, cool
Reef Flip - Flops, Pacific Sunwear of CA
•Aspirational, escape, illusion
Jimmy Buffet, Grateful Dead, Jaguar, Maxim, Cosmopolitan
•Cleanliness, brightness, freshness
Tide Detergent
•Timeliness, safety
SwissAir, Airport Security
Product
The good or service that is offered has basic
functionality and features. It may be offered in
one or multiple varieties.
But, not just the good or service you offer, but a
much broader definition to include warranties,
after-sales service, installation, image,
Products are Goods and Services
Service
Pure
Service
G
S
S
G
Good
Pure
Good
Product Levels
Augmented Product
Installation
Brand
Name
Delivery
& Credit
Quality
Packaging
& Labeling
Features
Core Benefit
Or
Service
AfterSale
Service
Styling
Warranty
Actual/Expected Product
Core/Generic Product
Classification of Consumer Goods
Basis of
comparison
Type of Consumer Good
Convenience
Shopping
Cameras, TV’s
briefcases,
Product
appliances,
clothing
Fairly
Price
expensive
Large number
Place
of selective
outlets
Price,
Differentiation
availability,
from
Promotion and awareness competitors
stressed
stressed
Toothpaste,
cake mix, hand
soap, laundry
detergent
Relatively
inexpensive
Widespread;
many outlets
Specialty
Unsought
Rolls Royce
Burial
cars,
insurance,
Rolex watches thesaurus
Usually very
expensive
Very limited
Varies
Often limited
Uniqueness of Awareness is
brand and
essential
status stressed
Classification of Consumer Goods
Basis of
comparison
Type of Consumer Good
Convenience
Aware of
Brand loyalty brand, but will
of consumers accept
substitutes
Frequent
Purchase
purchases;
behavior of
little time and
consumers
effort spent
shopping;
routine
decision
Shopping
Specialty
Prefer specific
brands, but
will accept
substitutes
Infrequent
purchases;
comparison
shopping;
uses decision
time
Very brand
loyal; will not
accept
substitutes
Infrequent
purchases;
extensive time
spent to decide
and get the
item
Unsought
Will accept
substitutes
Very
infrequent
purchases;
some
comparison
shopping
Diffusion
or
Why does everyone have (will have) an MP3 player.
1.0
Cumulative
Probability of
Adoption up to
Time t
Introduction
of product
F(t)
What happens
when everybody
that is going to
acquire a product
has it?
Time (t)
From a presentation given by Professor David Berkowitz
Slide
9-5
Consumer Life Cycle
Figure
9.2
1.0
F(t)
Innovators Early
(2.5%)
Adopters
(13.5%)
Irwin/McGraw-Hill
Early
Majority
(34%)
Late
Majority
(34%)
Laggards
(16%)
© The McGraw-Hill Companies, Inc., 1998
Bass Model of Product Diffusion


St = p * Remaining +
Potential
Innovation
Effect
q * Adopters
Imitation
Effect
where:
St
=
sales at time t
p
=
“coefficient of innovation”
q
=
“coefficient of imitation”
# Adopters
=
S0 + S1 + • • • + St–1
Remaining
Potential
=
Total Potential – # Adopters
From a presentation given by Professor David Berkowitz
Examples of Innovation and Imitation Parameters
Product/
Technology
B&W TV
Color TV
Air conditioners
Clothes dryers
Water softeners
Record players
Cellular telephones
Steam irons
Motels
McDonalds fast food
Hybrid corn
Electric blankets
Innovation
parameter
(p)
Imitation
parameter
(q)
0.028
0.005
0.010
0.017
0.018
0.025
0.004
0.029
0.007
0.018
0.039
0.006
0.25
0.84
0.42
0.36
0.30
0.65
1.76
0.33
0.36
0.54
1.01
0.24
A study by Sultan, Farley, and Lehmann in 1990 suggests an
average value of 0.03 for p and an average value of 0.38 for q.
From a presentation given by Professor David Berkowitz
Slide
9.1
The Product Life Cycle
Dollars
Total Market Sales
Total Market Profits
Introduction
Growth
Maturity
Decline
Time
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Factors affecting the rate of diffusion
 Product-related – diffusion will be faster if…
 High relative advantage over existing products
 High degree of compatibility with existing approaches
 Low complexity
 Can be tried on a limited basis
 Benefits are observable
 Market-related – diffusion is influenced by …
 Type of innovation adoption decision (eg, does it involve
switching from familiar way of doing things?)
 Communication channels used
 Nature of “links” among market participants
 Nature and effect of promotional efforts
From a presentation given by Professor David Berkowitz
Product Life Cycle for Wine Coolers
$1000
Source: Figure drawn from Wine and Liquor Handbook statistics
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
$500
1982
Millions of dollars
$1500
Vinyl
Compact
disks
Source: Figure drawn from Recording Industry Association of America statistics.
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
Cassettes
1975
650
600
550
500
450
400
350
300
250
200
150
100
50
0
1973
Millions of units sold
Recording Industry
Product Form Life Cycles
How stages of the product life cycle relate to marketing
mix decisions
Sales revenue
or profit
Stage of the product life cycle
Introduction
Growth
Maturity
Decline
Total industry
sales revenue
+
0
–
Total industry profit
Marketing
objective
Gain
Awareness
Stress
differentiation
Maintain
brand loyalty
Harvesting,
deletion
Competition
None
Growing
Many
Reduced
Product
One
More versions
Best sellers
Price
Skimming or
penetration
Gain share, deal
Full
product line
Defend share,
profit
Promotion
Inform, educate
Stress
competitive
differences
Reminder
oriented
Minimal
promotion
Place
(distribution)
Limited
More outlets
Maximum
outlets
Fewer outlets
Stay profitable