KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
Segmentation, Targeting & Positioning to achieve Customer Advantage
1. Marketing is a process – S T P (Segmentation, Targeting, Positioning).
2. We're talking at the product/brand level, not the company's level.
2.1. Objectives – where do we want to go? Increase…. Maximize…. Minimize…
- Usually quantifiable.
2.2. Strategy – A plan of how to get there. ("To become number 1" is not a
strategy – it's an objective).
2.2.1. Who? – who's the target? Who do you want to have as your customer?
Exmaple: apple commercials with idiot IBM guy – they're advertising to
the IBM guys – do you want to get with the new world and switch?
This is the S & T.
2.2.2. What? – The benefits & needs of the target customer. Benefits are not
features. Exmaple: high-class residential project – security is a benefit,
how to deliver it is the functionality and not the benefit and that can
create differentiation. Don't start at the solutions level (functionality)
since it might lead to same benefits and then there's no differentiation.
2.2.3. How? – The company's value proposition. Delivering the what to the
who. The basis for this is that different targets have different needs.
2.2.4. Competition - The competition might be doing the same stuff. You
need to worry about the competition. How do we deliver the value better
than the competition.
2.2.5. PLC – Product Life Cycle – See chart in P 17. Strategy must change
with the life cycle.
2.3. Tactics
2.3.1. Marketing mix - How many products, distributors, customer service,
etc'… To offer a feature as standard is a tactical decision.
2.3.2. Example: Amazon.com – no phone number…
3. Example: Compaq CEO stated in 93 that he wants to be the no. 1 PC company by
96. No.1 was IBM – 2.3 million. No. 2 Apple – 1.9. No 3. Compaq – 1.5, Dell –
0.9.
3.1. CEO wanted to be no. 1 in units. You can't give it away – you still want to
make money on it. To price low is not a solution. Price low if customers come
in anyway.
3.2. Who - We need to segment and then decide on which segments to target
3.3. Computer market segmentation
3.3.1. Corporate
3.3.2. Government/Military
3.3.3. SME (small/medium enterprise)
3.3.4. Consumer
3.3.5. Education
3.3.6. Nerd (nasa, "power users")
3.3.7. What do we want to know about the segment? Need to prioritize. Need
to know, at a rough level, which segment is the most attractive.
3.3.7.1.Size
3.3.7.2.Growth (I have a 3 year window to become no. 1)
3.3.7.3.Competition – who's doing what, what's the market share.
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KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
3.3.7.4.Buying process
3.3.7.5.Profitability – average price in the segment and average cost to sell.
3.3.7.6.For each of the aforementioned – need to weigh them to reach a
final number.
3.3.8. After segmenting, need to understand the needs (need to break down
segments).
3.3.9. Only AFTER segmentation needs to ask what are out capabilities and
can we go after that segment. This is crticial but shouldn't be the first
level of screen. My current capabilities are reflected in my market share.
3.4. What – What are the benefits in each target segment. What do we need the
product to do and how do we deliver it to produce these benefits.
3.4.1. Corporate – Reliability, peach of mind (service is a way of delivering
this – not the benefit itself), compatibility, connectivity, scalability, low
TCO. Different decision makers have different views on what are the
benefits.
3.4.2. Consumer – Affordability, ease of use, Aesthetics, edutainment,
prestige (1st on the block), Reliability, peach of mind (can't sent a service
guy to your house!)
3.5. How do we deliver this?
3.5.1. Corporate
3.5.1.1.Reliability – recovery button, redundant system
3.5.1.2.Productivity – speed but also training
3.5.1.3.Compatibility – Software/hardware
3.5.2. Consumer
3.5.2.1.
3.6. How do I go to the market?
3.6.1. Corporate
3.6.1.1.Via VARs (Value added resellers)
3.6.1.2.Directly to the company
3.6.2. Consumer
3.6.2.1.Retail, stores
3.6.2.2.Communications – mass media.
3.6.2.3.Open Compaq store – not for selling but for showing the benefits.
Apple is doing this today because their distribution is limited.
3.7. Notes:
3.7.1. Government – low cost!
3.8. Best segmentation method is the one which most discriminates between the
segments. Benefits is usually one of them.
3.9. Compaq picked the home market (3rd in size, fasted projected growth rate,
low penetration, nobody that dominated the market considered it to be critical
– except for Packard-Bell which was their key competitor).
3.10.
How will Compaq go to market?
3.10.1. Need ease of use. Compaq Presario – computer with monitor – take it
out of the box, plug it in and turn it on. Examples: where's the serial
number, cable color coding.
Added software in Windows 3.1 to allow enter commands. Added
localization. Preloaded software! Plug it in and it works.
This was due to looking at the product as "As the customer, what do I
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KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
have to do to use the product?, How do I use it?". Packard-bell didn't do
all these things although they were in the market.
3.10.2. Peace of mind – I'm spending 3000$ and I could but a TV. Compaq
offered a 3 year warranty and not 6-12 months as was in the market. This
move, on the retail segment, is problematic because you need the
retailer's agreement for this move (he's the front).
3.10.3. In 1993, Compaq was not in retail and at no store. So there was no
capability to sell to retail customers.
3.11.
Compaq became no 1. in 1995.
3.12.
The lifecycle kicks in – different features collapse. Different channels
don't add value but rather cost!
3.13.
Dell took over in 1999 – 2004 pushing their cost down.
3.14.
Today more are buying laptops and not desktops.
4. Example: Vodafone
4.1. U.S penetration – 70% so how to you grow?
4.2. Customers are intimidated by the complexity of the phone. Don't need
camera, browser, music, email, can't understand icons, buttons too small.
Need message to recharge the battery. When I have a message – why doesn't
it blink? How do I find it if I lost it and it's off. Why can't there be a cradle for
it? I don't want to store a lot of numbers.
4.3. Designed Vodafone Simply – volume button, cradle, no stuff, message for
recharging, bigger keys, "tips button", software to backup the contact list.
4.4. Customers said that they do not relate to all these advertisements. The sales
representatives are young people talking using complicated language – I don't
want to go to the store. Need to change the way you communicate with the
customer.
5. Strategy possibility:
5.1. Competitive advantage – starting point is what competitor has. You want to
beat it. This is a-la porter.
5.2. Customer advantage – starting point is the customer and his benefits.
Innovation is much easier starting with a clean-slate and not with an existing
template.
6. Example: Yamaha and piano business. Declining market (5%/year). How do you
grow?
6.1. 3 sources of growth – always the customer.
6.1.1. New customers – notbody serves
6.1.2. Existing customers – you serve, other might
6.1.3. Competitor's customers – you don't serve, other do
6.2. Growth methods:
6.2.1. Existing customers - Increase share of wallet (they only spend with
you) – new products, product line extension. Sell service in addition to
product (start by bundling). Don't discount on price except for volume.
Long-term goal – build relationship, sell solutions and not product.
Become preferred vendor
6.2.2. Competitor customers - Buy a competitor (Compaq could buy dell…)
or get the competitor customers to switch. Why aren't they our
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KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
customer? Could be lack of awareness, don't have the right product line,
switching costs – I'm OK with my supplier. We need to see if this
customer is important/valuable enough to "assist" in switching.
Current example: Dell with AMD processors – AMD gave them a good
deal. Can do this via trial – use it for free. NEED TO REDUCE THE
CUSTOMER'S RISK!
6.2.3. New customers – Get them to try. Why haven't they tried it? No
awareness. It might not have been reachable.
6.3. For Yamaha – since the market is declining – need new customers. I'm in
Japan – high wage! Looking at china. But in the future – everyone will be in
China so what's the advantage?
The point is – you might HAVE to go to china to provide low prices but that
might not be enough. They talked to EXISTING customers. Don't use it that
much. The wished something could be done! Came up with a new product
that attached to an existing piano (called retrofit) and could play it
automatically or manually. This created an additional market share of 10Mil
X 2500$ (=9Bil). Now the kids will hear it play automatically and want to use
it and buy additional products – software, mini keyboards, etc'…
They didn't get the solution from Yamaha. They asked about the problems.
They didn't look at it from a competitive point of view since that only means
going to china.
Today there are pianos interconnected (pianist in NY and another piano
replaying the strokes in Tel-Aviv).
7. The conclusion – marketing, as opposed to R&D, finance, manufacturing is the
only action that extends beyond the company – connects the inside and the outside
of the company. Marketing should be involved with everything – interpreting
customer needs to R&D, characterizing "great server" – answer the phone in 3
rings! The evaluation is via marketing which is the customer's representation in
the company.
7.1. When you meet – "Did you talk about the customer in the meeting?"
7.2. R&D meetings – "Have you reflected the customer's requirement in the
meeting?"
7.3. Peter Drucker – the company exists for customer. Also said we need
innovation. Innovation can be achieved by talking to customers.
7.4. Example – Google – Existed since 1999. Google started as Yahoo's search
engine. Had a better algorithm. Yahoo was first, then came 3 more in 6
months – they all tried to improve speed. In Yahoo, they structured the
results. Time was not the issue – the accuracy was the issue. Then google
figures out that people came to search but want added services so they got in
to the Advertising business. They were the first to offer positioning in the
search and lower cost for small scale campaigns.
7.5. You ALWAYS need strategy.
7.6. Google's strategy might not be applicable in any other business space.
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KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
Lots of food… :)
Second Part
1. Customer vs. Competitive Advantage
1.1. Customer advantage helps achieve the profit margin.
1.2. You need to be in the ball-park of the competition but customer advantage is
the better differentiator.
1.3. Customer preferences are ever fragmenting -> product lifecycles shortening,
larger number of segments and niche markets.
1.4. How do we win? Need unique customer insight. Insight can be achieved by
studying data.
1.5. Example: Tesco in the UK.
1.5.1. Largest retailer.
1.5.2. They have a info card for customers and they use this.
1.5.3. Ethnic food in location with population concentrates. Hindu and
Pakistani people buy in bulks so you need it available.
1.5.4. Need rice, dipers and…. beer to drink at home when looking over the
kids – they have a mail coupon for beer.
1.5.5. Other companies work with Tesco – They want to know if you buy a
detergent do you but a softener? Then we can cross coupon. Tesco
supplies this information. This is data-intensive, insight marketing.
1.5.6.
2. Developing Strategy (slide 9)
2.1. Small companies might not be able to do the entire segmentation, etc' process.
2.2. These companies focus on the product they manufacture and then seek the
customers that need this product and how to leverage it. This is working
backwards – you start with the benefits and then target the customers.
2.3. This is a starting point – you get your foot in the door and then you are asked
to do something and then you hire people that can do that…
This is a linear solution.
2.4. A micro framework (slide 10)
2.4.1. A loop framework for exploiting opportunities and bringing them to
market. SWOT – Strengths, Weaknesses, Opportunity & threats.
2.4.2. Design Strategy – segmentation, etc'…
2.4.3. Implementation Strategy - Marketing mix - 4 Ps – Place, Product,
Promotion, Pricing.
2.4.4. Measure your outcome
2.5. Conceptual Framework (slide 11)
2.5.1. Steps for forming the strategy.
2.6. Segmentation (slide 15)
2.6.1. From easiest to most difficult (requires in-depth information):
2.6.1.1.Usage – find the heavy user (beer – 18-30 y. old male). These are
targeted by all. If you're a small(er) player and they're outspending
you on advertising – it's not going to work!
This is easy with B2B or with WEB – amazon has this info and
directly markets to its users.
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KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
2.6.1.2.Demographic – age, sex, martial status, income, etc'… Critical for
media placement from an advertising point of view (one of the view
hard facts in that area).
2.6.1.3.Geography – where do they live. Using zipcodes, we can map
demography to geography.
2.6.1.4.Psychographics – attitude, likes, dislikes, preferences, lifestyle.
2.6.1.5.Benefits - !! The key to gaining an edge over competitors.
2.7. B2B segmentation (slide 17)
2.7.1. Need to know profitability of the customer. 20% of the customers
provide 80% of your volume. What about your profits?
2.7.1.1.Some provide the core profit
2.7.1.2.Some are maintenance – balanced
2.7.1.3.Some make you lose the profits
2.7.1.4.Need P&L (profitability & loss) index at the customer level
2.7.1.5.If you have a customer which consistently, over time, looses
money then you should consider terminating the customer. This is
unless the customer is considered a strategic account (but even then
think about it carefully…).
2.7.2. Firmographics – company type, size, locations… Easy to measure in
B2B scenarios.
2.7.3. Operating variables/benefits – Example: miniature gears – I make
plastic gears but there's a metal gear customers. Do we try to convert
them? What are their switching costs (new machinery…).
Another example: chemicals are commodity (no differentiation) so you
can offer using your testing facilities as a value-added service.
Another example: helping a constructor client with bonds and improving
his cash-flow.
Another example: 1 cashier/ATM convenient store – they need an extra
backup layer equipment – might be profitable to sell to them in spite of
their low volume.
2.7.4. The point is: Broad-level segmentation is not enough – look deeper
and find the winning solution/combination.
2.7.5. Different companies measure things differently – GM and BMW –
both will require specs compliance but then GM will look for the lower
price and BMW will check you out and then decide how much to pay.
2.8. Criteria for Segmentation (slide 20)
2.8.1. Only segment if it creates extra value.
2.8.2. Are the segments distinct?
2.8.3. An example: Northern trust bank for private, rich people. Consider
their customers:
2.8.3.1.Are they identifiable? (country clubs, geography)
2.8.3.2.Do they behave the same?
2.8.3.3.Is the effort (of segmentation) worth it?
2.8.3.4.Is it large enough to build a business on?
2.8.4. There are data gathering companies – ComScore, Nielsen, etc'…
2.8.5. You're only as good as the data. Sometimes, there's no data and you
have to pragmatically produce it.
2.9. Positioning statement (slide 25)
2.9.1. Going in to the customer's head. We want you to only name us.
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KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
2.9.2. People use few suppliers for everything. Otherwise it's hard to track
the quality…
2.9.3. Important aspects:
2.9.3.1.Awareness – need to know the company and the product. Example:
Microsoft's Zune (iPod replica).
Need to be smart when building awareness. There's a consideration
set of products that the customer considers. We need to be
positioned inside the consideration set or change it.
Hyundai sonata mentions their competitor's models in the ads –
Toyota Camri, Honda Accord and they say that they're $3K cheaper
– 3 years of ads gets you to consider them.
Hotels do the same – bring in to the equation the more expensive
hotesl and then yours is cheapest (but it can be ultimately
expensive!).
2.9.3.2.Point of Parity - POP – Must deliver the necessary attributes.
Example: Dish washer detergents that leaves my hands soft – but
does it clean the dishes?
2.9.3.3.Point of Difference - POD (!!!)– why you and not the other guy.
2.10.
Positioning statement (slide 25)
2.10.1. Write it down – make sure you know who you're going after.
2.10.2. Make sure you know the point of difference between you and the
competitors – write it down as well! If you can't – there might be no
point in the product/service.
Some features are not real differentiation points which the customer
considers – 6 or 6.5 airbags…
2.10.3. Positioning is sometimes emotional and not based on pure facts.
2.11.
Positioning on Benefits (slide 27)
2.11.1. Economic – just give me the lowest price (I'll come over and take it
myself) – this is a type of customer and you have to decide if you want
them and if you have the capability to serve them…
2.11.2. Functional – Some customers want the latest stuff (BMW with XPC,
turbo, etc'…) – "good to have". In B2B you buy functionality for the
economic issues – to improve products, reliability, etc'…
2.11.3. Psychological – intangibles – brand, piece of mind, relationship with
the supplier.
As the market/product matures (life cycle), the functional aspects tend to
collapse and then you're left with the psychological stuff – brand, etc…
VERY IMPORTANT.
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KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
Customer intimacy / psychological
Product leadership / for functional
benefits
Operational excellence /
economic benefits
2.12.
The three Value Disciplines or Points of Differences (slide 28)
2.12.1. Customer intimacy drives for psychological benefits
2.12.2. Operational excellence drives economic benefits
2.12.3. Product leadership drives for functional benefits
Some of these take a lot of time to attain.
Coffee & cake ….
Third Part
1. Calyx & Corolla case study
1.1. Started in 1988. The case was written in 1990.
1.2. Traditional-> Grower -> Distributor -> Wholesaler -> Retailer -> Consumer
1.3. Lots of layers – 7-10 days from grower to consumer.
1.4. New idea – Consumer -> C&C -> Grower -> Fed-ex -> Consumer.
Eliminated the chain.
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KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
Grower
Distributor
Wholesaler
Grower
Fed-Ex
C&C
OR
Retailer
Consumer
(receiving)
Consumer
(ordering)
Consumer
Consumer
Consumer
Local florist
1-800
FTD
FTD, …
Delivering Florist
Delivering Florist
Consumer
Consumer
1.5.
1.6.
1.7.
1.8.
C&C transaction prices higher than competitors.
FTD/1-800 do not compete with the local florists.
C&C competes with everyone.
C&C customer advantages
1.8.1. Freshness, quality, longevity
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KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
1.8.2. Certainty of product – In the FTD chain the product's description can
change (pink orchids becomes red). They solve this by having a list of
standard items that must be available. The actual delivery is dependant
on the inventory of the local florist (Idaho is frozen!). C&C can locate
the grower that has the product and they KNOW when it is out.
1.8.3. Certainty of Delivery – C&C using Fed-Ex – they WILL deliver. In
FTD they pick out the store whose delivery guy's truck just broke down.
1.8.4. Variety – C&C has 30 growers with a large geographic spread and
variety.
1.9. C&C business advantages
1.9.1. Scalable – no inventory - can handle peak transaction just by manning
the phones.
1.9.2. Once this new channel is established growers will easily join.
1.9.3. High gross margin – 70%-80% - better ability to update prices.
1.9.4. Direct connection with the ordering/receiving consumer – can offer
additional products, etc'…
1.10.
C&C business disadvantages
1.10.1. Awareness creation via catalog (opposed to others spending on
advertising in TV, billboards) – limitation of catalog is reach.
I got the catalog – put it away and I can't remember the Calyx & Corolla
name – I go to 1-800. If I'm out of town and I forgot valentine's then I
use 1-800 (I don't have the catalog).
The exotic name is working against C&C. The catalog is not always
there/available.
1.10.2. Point-of-Difference – freshness is not that obvious or dominant.
1.10.3. The flowers are picked from the ground and they might not bloom for
an extra few days - doesn't cause a WOW.
1.10.4. It comes in a box – unromantic.
1.10.5. Can't deliver same-day.
1.10.6. Might be damaged in transit.
1.10.7. Very dependant on a single courier (fed-ex…).
1.11.
Usage scenarios:
The basic segmentation is women in the age of 30-50, high income – no
variations…
Segment
Casual use
Holiday/entertainment
Sending a gift
Planning for
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Desired benefit
Convenience, ease of
acquisition, spontaneity
Preferred Channel
Retails Florist/supermarket
Other end – less variety,
lower longevity
planned – can buy ahead
of time, might want advise
& turn-key solution
You might care or don't
care about the person so
might need quality.
Need certain delivery.
Using a wedding planner.
Supermarket is no good,
C&C is good
C&C on quality/variety,
Florist/supermarket on
solution
C&C (no same-day),
FTDs/1-800
C&C, FTDs/1-800
22/10/06
KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
weddings/funerals
Corporate – short
Don't need longevity
Need it now, on-time &
with service
Low maintenance (have
the florist come over and
change it), Longevity,
Variety, Price
Corporate – hotels,
consulting
Corporate – tie-ins
Corporate – gift giving
Want high-end products
(quality), Logistics,
delivery
Local florist
C&C on all except
maintenance. For large
quantities – fed-ex works
against us.
Local florist/retailer on
service.
C&C (but need critical
mass & credibility), others
are not a player
1.11.1. It turns out the C&C service might not be important for many of these
scenarios. The benefits seem to not be enough.
2. A great idea needs an intersection between the idea and its viability.
3. Need to have a capability to deliver on the point of differentiation.
4. C&C has lots of expenses – 14$ on fed-ex (X150000 trans), 40c per catalog on
12Mil, costs of goods – about $8.1Mil variable cost we have about $2Mil to cover
fixed cost.
5. For a high variable-cost business you make money by increasing the price. (Note:
High FIXED-cost is subtracted by volume).
6. Let's see what happened since 1990:
6.1. Invested $10M (much more – ad space) in 9/94 for 20%. They did it since
Ruth, the founder, was an excellent PR lady.
6.2. Started an Advertising campaign.
6.3. 1998 - $20M revenue – doubled in 8 years.
6.4. 8/99 – Gerald-Stevens (GS) bought C&C. Established relationships with
growers outside US. Using UPS.
6.5. 4/2001 – GS filed to bankruptcy.
6.6. Moved operation to a little town (much cheaper).
6.7. 2003 – sold for $5Mil. Moved to Vermont. In 2005 went private. After that –
no data.
7. How's the competition doing – focus on 1-800 company:
7.1. Bought a lot of other players
Revenue
Cost of goods
Gross margin
Cost of operation
Operational
income
2004
604
351
253
2005
671
395
276
2006
782
456
326
231
22
264
12
319
7
C&C didn't grow probably because they had to change customer behavior. Customer
had multiple options. C&C could have tried to establish a personal consumer-C&C
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KR11 – Marketing Management – Lakshman Krishnamurthi - Lesson 1
Written by: Joseph Levy (yosi@consiv.com), KR11, Group C.
relationship. Different targeting could have been better harvested (high-end
corporate?).
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