Main Chapter 5: STP and Market Research STP : segmenting, targeting and positioning. - Process of looking through and finding “segments” of consumers and designing marketing strategies and mixes to take advantage of this grouping Segmentation: essentially made up of variances between groups of people when it comes to the 4 P’s, (paying different prices, buying aty different places.) Marketers do their best to understand these factors. - - Good segmentation includes - Large enough group - Identifiable - Distinctive - Minimal overlap with others Common factors within segmentation - Age - Geographical location - Psychographics - Activities, interests, opinions - Gender - Income - Behavioural - Loyalty, usage rate, benefits sought Developing a different marketing mix for each group is very time consuming and expensive, hence why customers are separated into groups. - Ex. the internet, where different online businesses tailor their websites to fit their target market segment Overall def of segmentation: process of dividing a heterogenous market for a product or service into segments with similar characteristics that can be taken advantage of when marketing (homogenous groups) Example: Air travel is one company serving many groups. - Busines executives are a small group but insensitive to price changes, they travel often - Leisure traveler or student, price sensitive, huge segment - Comfort trravelors value conditions such as space and good food, moderately insensitive to price, as a premium service is expected Targetting: deciding who to target once groups have been separated Some factors that need to be considered when picking target markets in the long term, or when viewing the big picture include: - Compatibility with the organizations goals and image - Size of group in scale with a businesses resources and size - Enough sales to make a profit - Ideally somewhere the business has or can gain a competitive advantage (ex. They are already specialized) - Growth rate Criteria for segmentation - Profit potential - Competition - Alignment Positioning: relates to the use of various marketing techniques and variables to create a image that the business wants itself to be viewed. (ex. Mcdonalds want to be cheap and convenient, also fun) “Positioning involves designing an offering so that the targetted members perceive it in a distinct and valued way relative to competitors) (Lillien and Rangaswamy) The 3 ways to position a product - Unique (only product or service with …) - Difference (more than twice as *** than ) (ex. Bounty quicker picker upper) - Similarities (same as ***, lower price) Positioning statement: who you target, what you do, and what makes you different. Ex. “for (target segment) our product offers (key benefit) unlike (competitor), providing (unique value) Positioning strategies: what positions are of greatest values or are already taken by competitors - By attribute - baking soda in toothpaste - By benefit - ‘24 hour relief’ - By price - Hudsons Bay vs Dollarama - By use/occasion - nyquil - nighttime relief - By product users - Toddler, babies - By competitor - Avis position as the #2 rental company - By emotion - “Got milk?” (appeals to nostalgia) - By product class - 7 up Positioning analysis: determining consumer needs along the dimension of benefits and then finding their perception of other brands and companies. Target market selection: ● Does the product fit company objectives, competencies, customer base, and resources? For Example 5 segments of gas customers: 1. Road warriors - premium gas, use credit cards, sometimes gets a carwash. 2. True Blues - Mid-high income. Loyal to brands, often pay cash 3. Gen F3 - Constantly on the go, drives a lot, will often get snacks 4. Homebodies - Often mothers. Will get whatever gas is convenient and on the way. 5. Price Shoppers - Not brand loyal and will buy whatever gas is cheap This is closely related to establishing a brand, positioning may be done on attributes (ex. Lower price, safer car, bigger screen), Benefit (better for your skin, saves money, etc), usage situations, or product class. 4 Main tools - Factor Analysis - Cluster Analysis - Discriminant Analysis - Perceptual maps Market Research: any activity that involves collecting analyzing for interpreting market information. Types of research include - Exploratory - Small samples, non structured, data collection - Provides initial insignia to a problem - Should not be used in order to determine a final action due to small sample size and broad issue finding - Projective techniques: indirect questioning that encourages the exposure of underlying motivations, beliefs, etc. - Ex. complete this sentence - Pros: honest responses - Cons: spur of the moment responses may be confusing to interpret - Observatory: - Systematic recording of behavioural patterns - Butt brush effect, dressing room purchases - Pros: tracking info people do not tell you - Cons: no data or information explaining why, unless combined with other methods 2 main ways of collecting information include asking (ex. Interviews and surveys) and observing (data analysis) Example: digital cameras - One potential way of asking questions is “rate the following terms on a scale of 1-10 based off how important they are to you when buying a camera) - Could also ask this question but replace attributes with brands to see how popular they are with each brand / competitor) - We could take this data across many people and average it, determining which attributes are important for us to prioritize marketing. Factor Analysis: turns out that not all the attributes we used are important to analyzse the cameras, factor analysis is a mathematical technique that looks at all the responses from all the respondents who think that: for example: image stabilisation is important and also white balance, we can combine these 2 similar attributes due to their results and form a new factor called “proffesional features”. This allows uys to use less attributes and gives us less data to use time and resources on while maintaining the same level off accuracy, without loss of information. Cluster analysis: we can also find that there are patterns among responses from different groups of customers. For example, we can find a group that rates mega pixels and professional features high, but LCD and price low. Cluster analysis is a mathematical method of looking for these groups, and thus is a tool used for segmentation. Using this method, we are segmenting consumers based off of “need variables” (those of the productt or iterms that represent the consumers needs) and not demographical variables like age and income. Discriminant Analysis: identifying groups. We want to link the “needs variables” in order to find an observable factor, such as age, income, or magazines read. These are descriptor variables and are used to identify and target different segments of customers. The mathematical technique that lets us link groupings of customers with descriptor variables is called discriminant analysis. Some examples could be finding that a specific cluster (similar answers) has incomes below a certain amount, or they all watch a certain tv channel. These can help us target ads for different media sources. If we conducted a survey, these factors would be included as questions to ask about things like gender or income. Perceptual Maps: based off data we have collected, we can get an idea of what the average consumer thinks about us. This is known as the “position” we have in the consumer’s mind. The above figure is an example including 3 brands (the different shapes) and how important a group of consumers or the average consumer thinks about each brand in terms of each attribute. This info can be simplified into 2 dimensions (the the perception map). On the perceptual map, the 2 main dimensions are (simple- advanced) and (high price-low price). The lines with variables represent different attributesm with higher correlation attributes being closer (more customers think alike on them) and the length of the arrow symbolizes how important the attribute is. Summary: factor analysis is for reducing data, cluster is for segmenting, discriminant analysis is to identify and target, and perception maps are for positioning, making up STP. Chapter 6: Product Product: good service or idea, consisting of tangible and intangible attributes satisfying consumer needs in exchange for money or any other unit of value - Any item that can be exhcanged for a price Types of products Main 2 ways of differentiating products - Consumer vs industrial goods - Durable vs non durable goods Consumer goods - Consumer is also the customer (user buys and then uses) Can be classified in a couple different ways including the following. Convenience goods - Frequently purchased without high amount of shopping effort (milk, gum, pop). - Generally cheap, can be bought as many tpes of stores - Consumers of these are typically not very brand loyal, with high price consciousness and low levels of brand loyalty. - Marketers here focus on building brand awareness and recognize the importance of availability Shopping Goods - Comparatively more expensive - More brand improved, with higher effort and thought before purchases are made - Can only be purchased in certain types of storefronts - Generally consumers pass through all 5 stages of the decision process - High involvement iterms like cars and electronics - Often brand conscious - Marketers focus on differentiation Specialty Goods - Very expensive, can only be purchased at a very limited number of stores. (ex harley davidson motorcycles, vintage cars, specialty pens) - Availability is not important, exclusiveness is a wanted attribute (premium consumer perspective) - Differentiation and status are stressed by marketers Unsought goods - Not characterized by price or availability - Purchased rarely - Are not looked for by consumers - Could also be classified as niche products, but even rarer as there is no market for them - Some examples include life insurance and education bonds. Industrial goods - Purchased by other firms (intermediaries) that then produce products for consumers - Providing products for resale - Sale of industrial goods is the result of derived demand (demand due to demand by the firms which are being sold to, which have products that are being demanded by the final consumer) - Ex. motorcycle wheel producers only have demand due to motorcycle sales Durable and Non-durable goods - Durable as mentioned lasting for a extended period of tine - Ex. washing machines and cars - Non durables (consumables) are used once or twice and discarded and repurchased - Ex. would be printer cartridges - Behaviour between these 2 is different - Consumer have to encouraged repeatedly for consumables while consumers for durable goods need to be convinced right at one point in time before they purchase something. New Products Launching is seen as the riskiest part a company can do, 80% of product launces fail. Below are the main reason why new products fail - Poor concept (no one wants it, dosent satisfy needs) - Inadequate selection and targeting (wrong consumers being targeted) - Inadequate differentiation (percieved by consumers as being too similar to existing products) - Marketing mix issues - Poor execution - Poor quality - Bad timing - No access to buyers (place and distribution) We can go back to marketing concepts of satisfying customers to prevent failures in new products (aka product development), most involving creative ways of keeping track as well as idea generation as well as development. In terms of new opportunities, a firm has 4 main options. Key element of the new product development process is the tradeoffs among attributes (it is impossible for everything to be good). If we ascertain customers' ideal products, we would for sure find that some attributes want more and more of, such as low prices. The “ideal product” would thus be something very impractical, ex: people always want a larger tv, but obviously don't want to spend more. If we offer these tradeoffs, we can have a much more useful level understanding what attributes would be better. Conjoint Analysis is a technique that elicits this trade off information from consumers. This is a technique that ionvolves having consumers make choices between different attribute levels, such as cheese on pizza (vs upcharges) or what they are willing to give up for a cheaper printer. Product Life Cycle General trend for the product life cycle, showing sales in each phase. Some exceptions include Fads, which are products that become popular very fast but also fade away very fast (narrow peaks), and other long standing products such as ketchup have cycles that can last decades. Introduction: product introduced to customers that are unfamiliar. Due mostly to start up costs and R&D, the company is generally losing money. There is usually not much competition and the company focuses on building awareness. Growth: marks the point where sales take off, usually once some level of awareness has been reached, usually has more competition, company must continue to inform potential customers about their advantages (differentiation). Maturity: sales peaking and levelling off, profits usually peak, businesses go on the defensive for their market share and remind consumers of the value and USP from the rest of the market. Decline: sales of the product will begin to drop, as well as profits. At this stage, the firm takes advantage of all the profit left to be gained and eventually leads to the stoppage of production (product death) Diffusion of Innovation: The shape of the life cycle is linked to how quickly a new product or service (innovation) spread throughout the population (diffusion). The figure below is a curve showing the different categories of consumers who adopt new things at different speeds. Innovators: are motivated by being pioneers and buying the newest products. This small group is rather price insensitive, ad can be inclined to pay a higher price. Referred to being at the “bleeding edge”. Usually have high tolerance for risk. The early adopters: are a slightly larger group who also like trying new things, but not as informed about new products. Still well before the masses. The above 2 groups have been realized as receivers for price skimming which is when the price is set higher initially. This works because of their willingness to pay these prices. It helps recoup initial costs quicker, but does slow the spread of the product to the rest of the population due to the financial barrier. The Majority: of consumers buy the new product when it has been tried and true, and the hidden issues have been discovered and fixed. This group has an average tolerance for risk, and is generally price sensitive. The Late Adopters: (aka Laggards) are the last segment of the market to adopt the new product, obviously risk averting, and seek a competitive price. Certain characteristics can effect the chances of adoption and how long it can take: - Complexity, more complex -> longer to adopt - Compatibility in use with present behaviour ajnd complements. (similar products to those existing -> adopted faster - If the features are easy to see, or the benefits are well communicated a product is more likely to be adopted - Degree of risk (physical, social, financial) is high compared to existing products, the rate of adoption will not be high, ex. Higher price= slower adoption curve - Extent to which the product can be tried on a limited basis before being adopted permanently, trials help reduce risk Diffusion varies on the persons definition of perceived risk. Will be faster if the benefits if a product are well communicated. Process Awareness -> knowledge-> evaluation-> trial -> adoption Each stage has its own diffusion curve, important to know each curve influences the succeeding ones. Ex. previous slow, next one slow as well. Chapter 7: Price Price is the value exchanged for a product. Often but not always monetary, price is a key variable to consider because it determines the inflow of revenue. The 3 main approaches to setting price, each relating to the one of the 3 C’s in Chp1 Cost Plus Pricing (Company) Competitive Parity Pricing (competition) Value based pricing (Customer) Cost-Plus Pricing The demand curve describes the relationship between price and quantity demanded for, or the number of units people will buy at that price. Demand curve generally downward, due to the consideration that people will buy less if the price is higher. On the graph it can be seen that revenue maximizes at a point which is at around 25$. We produce until marginal revenue = 0 (ex we stop making money). We also need to take into account the costs, which include fixed and variable costs. Marginal cost is the amount of cost it takes for us to produce one extra unit. The area between marginal cost and marginal revenue represents the gain from producing an additional unit, therefore we should increase the quantity to where marginal revenue = marginal costs. After this point, we begin losing money. Breakeven Analysis We are now looking at the optimal price from the view of profit. This will include consideration of variable costs as well as fixed costs. The analysis is simple but very powerful (pictured below). Total cost= fixed cost( variable cost per unit x quantity produced) Profit = quantity (price - variable costs)- fixed costs This is where the concept of breakeven costs comes in. The breakeven point is the point where we need to produce enough to cover our costs. We obtain the break even point by setting total revenue to total costs. Can be measured either in dollars or quantity. Used to calculate the break even point for various levels of price and quantity, to see the effect of price levels on profitability. In conclusion, the breakeven analysis provides us with a simple tool to incorporate costs into pricing decisions and helps us to pick the best ones. Value Based Pricing Value based or demand based pricing looks at the point of view that the purpose of price is to capture the perceived revenue of the product in minds of consumers. This can be characterized by charging “what the market will bear” or focusing on the value we are offering consumers. The basis for this approach is to use the consumer perception of value rather than the companies cost. Once we know the price we wish to change, we can work backwards to create the appropriate cost structure. To know this we need to understand the difference between reservation price and reference price. Reservation price is the economic term that is “the highest a customer is willing to pay”. It is the same as customer perceptions of a product (marginal utility). It is the highest price one would pay, meaning that paying any higher would be detrimental to them. Reference price is a more behavioural concept and can be defined in several ways, often thought as one or a combo od the following - Fair price - Frequently changed price - Last price paid - Price of brand usually bought - Average price for similar products - Expected future price - Typical discounted price Price sensitivity (elasticity) The availability of alternatives, substitutes, reference points, switching costs, all contribute to the level of price sensitivity. Sometimes, consumers may perceive higher prices to be a signal of quality and therefore would not be price sensitive. Overalls, we know the economic assumption of a rational consumer is not always true, we can see others do things that are not completely rational. For example, seeing discounted items being bought more regardless of whether it is actually cheaper. Another example is more purchases for a 49,99$ product rather than a 50$ one, even though there is a negligible difference. Daniel Kahneman and Amos Tervsku studied some of the breakdowns of rational behaviour and proposed the “prospect theory” to account for some of the deviations, which was so profound it led to a Nobel Prize in economics. Prospect Theory says that the consumer response to gains and losses is asymmetrical, meaning that consumers value losses higher than gains, meaning that losses of the same amount as gains will feel worse more than the gain feels better. An important part of this theory is that we evaluate gains and losses relative to a subjective reference point (so something that is large to one can be small to another). This framing effect means that the way a particular issue is presented can determine how it is viewed. Ex. a ad for a new brand next to a very expensive brand can convince customers that a brand is good value, rather than presenting it beside a low quality brand. This explains the on sale phenomenon, The price we pay for a product is a loss from the consumers perspective. However, if we present a 100$ watch as a 80$ watch on discount, customers will be attracted by the seeming gain. Marketers also try to frame purchases as gains denied rather than losses. The marginal utility of gains is decreasing. For example, a 100$ bill in a poor persons pocket than someone with 1000$. This also implies something like 2 distinct gains of 10 is worth less than one time gain of 20. Two losses on another hand are worse than one combine loss. Therefore as a marketer it is better to raise your price in one big jump rather than in many steps. The lesson from this is that the perceptions of price have a base in concepts and psychology rather than simply economics. Competition based pricing Pricing in competition is treated like a game (aka Game theory). Often there are winners and losers (usually winning and losing market shares). If your price is lowered, your competitors likely will be as well. This can lead to price wards which are typically bad for all parties, generally worse for the company with the higher initial market share. Strategically, when fixing price you need to anticipate competitor response and account for it. Conclusion Cost analysis typically leaves with a floor or a minimum we need to charge to meet our costs. Value analysis gives us a ceiling or maximum price that they would be willig to pay. In between these 2 (based off of competitors and behavioural considerations) is where we will actually price our product. Chapter 8: Place Place AKA Distribution AKA Channels. Channels Distribution is how the product gets from the producer to the consumer. A dist. Channel is the set of companies and individuals who participate in getting the product from P2C. Getting a product to its location is not only important geographically, but also across time, (ex. Out of season vegetables still being in stores year round) Functions The main use of dist. Channels is to provide efficiencies in interactions between producers and consumers. There are usually about 50000 different items sold as the average grocery store. If the manufacturer of each of items had to access the consumers directly, the number of interactions would be huge. Grocery stores simplify these interactions to simple ones under one roof and reduce the number of consumer interactions. This increases convenience for both parties. Intermediaries (dist. Channel members) also provide the following functions - Assuming ownership of products - Physical storage of products - Risk taking - Gathering sorting and deliuvering - Providing information (marketing) - Facilitating purchases, including things like financing. Ex. channel members for tomates store them, transport them, sort them, and deal with the ones left unsold, all while keeping them looking fresh. Some examples of intermediaries include wholesalers, retailers, dealers, distributors, brokers, franchise, agents, etc. All channels dont have the same number or even levels of consumers. Ex, dell sells D2C, meaning there are no intermediaries. As opposed to this, P&G sells many brands and typically has wholesalers and retailers between consumers, making this a 2 level channel. Shorter channels occur when there are less consumers, higher needs, or if the product is complex or perishable. Longer channels are required when consumers are highly dispersed, products are standardized and inexpensive, or if the producer does not have expertise in distribution, and control is not high. Control A key issue in the discussion on channels is control. WHen the product goes through a longer channel, the company needs to make sure the intermediaries interests align with its own. Ex. a grocery store has several brands of cereal, but revenue comes from all of them so it dosent care which ones they sell the most of. For example, this could lead to shelving of some cereals could be done worse than others, which does not align with the interests of the brand being shelved (max. profit). Franchising agreements offer another example of a situation where the company needs independent agents to reach the customers and has to give up a certain degree of control. Contracts and monitoring become vital in this structure. A shorter structure (like Dell’s) offers the company a great degree of control, but includes the challenges of resources and capital spent for that D2C channel. Conclusion It is important to remember the functions of intermediaries and the issues that accompany the lack of control and alignment of incentives. Good decision making on dist. Channels can be a huge competitive advantage, and can be a key determinant of corporate success. Chapter 9: Promotion the last element of the marketing mix. it is a term that is commonly misused, and includes all of the following: ● advertising ● sales promotion ● personal selling ● public relations it is important to realize that these are all strategically integrated and related What is Promotion? Advertising is any paid form of non- personal presentation and promotion of ideas, goods and services by an identified sponsor. The key is that these sponsor is not anonymous and the advertising is paid for. Sales Promotion are short term incentives to encourage the purchase or sale of a good. These are temporary Personal Selling is an oral presentation in a conversation for the purpose of making sales. This requires P2P contact. Public relations is building good relationships with the businesses various public’s by obtaining good publicity and good corporate image (ex. deterring rumours, or contributing to social causes). FREE! Direct marketing is when the company contacts the consumer directly through methods such as mail, phone, or the internet. Offers the chance to implement personalized aspects into marketing Integrated Marketing Communications (IMC) In the past experts in separate departments handled different functions, whereas nowadays IMC involves all the elements of a promotional mix to be connected. This allows for the advertising message to be the same despite various distribution channels. IMC makes the point that promotions are about every single way messages can be received a consumer. With any communication, the message should always be consistent. The purpose of this is linked to branding. branding is the image a consumer has in their mind about a product, and IMC plays into a consumers perspective when they see their products. 2 main focuses of IMC Consistency (making sure the message is the same across all points of contact) Complementarity (make sure the different elements of the message complement each other and work well together, often the strengths showed in one form of communication can negate the disadvantages of another) ideally the best communications program involves picking several media options that fit with the target market (ex. if you were targeting GenZ the internet is better than newspapers). The messages should share some core meaning, or an umbrella concept that can come across in all forms of messaging, and should reflect the core branding strategy. The 5 M’s The elements of IMC can be broken into the 5 M’s Mission The goal must be well defined, involving devising what the objectives of the campaign can be. A push strategy aimed at channel members may be used when brand loyalty is low and most purchases are made as point of sales or impulse buys. A pull strategy aimed at the final customer is used when there is high brand loyalty, there is high involvement in the category, and purchase decisions are generally made before you even head to the store. Could be things like apple devices or milk Money Deciding how much to spend is vital. Companies usually use percentages of sales and modifications of past budgets to determine one for promotion. The following factors should be considered more heavily as opposed to the above 2, which are not the best ways to determine budget. - Stage of product in its life cycle - Market share and consumer base - Competition and clutter - Advertising frequency - Product substitution Message The key part of the IMC program. This is what we wish to convey to our consumer. Usually the main approach is to keep it short and simple. Message generation involves picking and balancing between desirability, believability, and exclusiveness of the message. Message Evaluation and Selection involves choosing between rational and emotional positioning strategies. We may use a cognitive appeal aimed at the rational side of customers of an affective (affection) appeal for the emotional side. Message execution involves selecting the style, tone, words and format of the message Media Selection of the medium is almost as important and the message itself. The determinants of an appropriate medium are: - reach - - Number of people or households exposed to an ad Rating - (only for TV/ radio) is the percentage of households in a market that are tuned to particular TV or a radio show - Frequency - - Is the average number of times an individual is exposed to an advertisement Gross Rating Points - Is an equation which is - reach (%) mult by frequency (#) - And CPM (cost per thousand) is also an equation, expressed as - The cost of advertising ($) / number of thousands of individuals or households exposed (#) The main media options Measurement No campaign can be effective, unless we figure out a way to judge or measure if it worked or not. It is important to set up criteria to test whether the campaign met objectives or not. Typically these criteria involve either the communication impact or sales impact. The communication impact is harder to measure because the item of measure is within consumer minds (awareness or interest). As opposed to this sales can easily be measured but linking it to a particular campaign can be difficult since there is often a lag between the messages release and the impact of said message. Further, the impact of most campaigns lingers for various periods after said campaign has ended, making it difficult to pinpoint which campaign had the observed effect, or which ones had the highest amount of effect. Conclusively, promotion (IMC involves communicating a simple coordinated message through mediums directly to consumers.
