Chapter 7
Target marketing: Dividing the total market into different segments based on customer characteristics, selecting one or more segments, and developing products to meet those segments’ needs
Market segmentation is the process that companies use to divide large heterogeneous markets into small markets that can be reached more efficiently and effectively with products and services that match their unique needs.
Segmentation: Identify and describe market segments
Targeting: Evaluate segments and decide which one to pursue
Positioning: Design a product and marketing mix to meet the segment’s needs
Differentiation: Differentiate the firm’s market offering to create superior customer value
Positioning: A market offering occupying a clear, distinctive, and desirable place relative to competing products in the minds of target consumers.
Geographic segmentation calls for dividing the market into different geographical units such as nations, regions, states, counties, cities, or even neighborhoods.
Demographic segmentation divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, and nationality.
Family Life Cycle
Because family needs and expenditures change over time, one way to segment consumers is to consider the stage of the family life cycle they occupy.
Furniture is a product category that varies with the family life cycle.
Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or personality traits.
Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses, or responses to a product.
Occasion segmentation is grouping buyers according to occasions when they get the idea to buy, actually make their purchase, or use the purchased item.
Benefit segmentation is grouping buyers according to the different benefits that they seek from the product.
User Status is segmenting markets into nonusers, ex-users, potential users, first-time users, and regular users of a product.
Usage Rate is grouping markets into light, medium, and heavy product users.
Loyalty Status is dividing buyers into groups according to their degree of loyalty.
Consumer and business marketers use many of the same variables to segment their markets.
Business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics.
Companies can segment international markets using one or a combination of several variables.
Geographic factors: Nations close to one another will have many common traits and behaviors.
Economic factors: Population income levels and overall level of economic development
Political and legal factors: Type and stability of government, receptivity to foreign firms, monetary regulations, and the amount of bureaucracy
Cultural factors: Common languages, religions, values and attitudes, customs, and behavioral patterns
Substantial: The market segments are large or profitable enough to serve.
Is the market large enough to make a profit? Marketers need to be careful because there is often heavy competition for the larger segments.
Accessible: The market segments can be effectively reached and served.
Is the segment accessible with media in an efficient manner.
Actionable: Effective programs can be designed for attracting and serving the segments.
Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs.
In evaluating different market segments, a firm must look at three factors:
Segment size and growth
Segment structural attractiveness, and
Company objectives and resources.
The largest, fastest-growing segments are not always the most attractive ones for every company. The company also needs to examine major structural factors that affect long-run segment attractiveness.
A segment is less attractive if it already contains many strong and aggressive competitors. The existence of many actual or potential substitute products may limit prices and the profits.
The relative power of buyers also affects segment attractiveness. A segment may be less attractive if it contains powerful suppliers who can control prices.
A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve.
An undifferentiated strategy is one that essentially avoids segmentation, appealing to a wide-spectrum of people. Products such as anti-freeze or candy bars use this type of approach.
A company that chooses a differentiated strategy develops separate marketing programs for several segments of the market. This is a costly approach that is usually reserved for larger firms such as Nike, Toyota, or GE.
Differentiated marketing targets several different market segments and designs separate offers for each.
Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations. It includes local marketing and individual marketing.
Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, and even specific stores.
Individual marketing has also been labeled one-to-one marketing, mass customization, and markets-of-one marketing.
Product position is the way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products.
Positioning maps show consumer perceptions of their brands versus competing products on important buying dimensions
The differentiation and positioning task consists of three steps:
Identifying a set of differentiating competitive advantages upon which to build a position,
Choosing the right competitive advantages, and
Selecting an overall positioning strategy.
To the extent that a company can differentiate and position itself as providing superior customer value, it gains competitive advantage.
Important: The difference delivers a highly valued benefit to target buyers.
Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way.
Superior: The difference is superior to other ways that customers might obtain the same benefit.
Communicable: The difference is communicable and visible to buyers.
Preemptive: Competitors cannot easily copy the difference.
Affordable: Buyers can afford to pay for the difference.
Profitable: The company can introduce the difference profitably.
Value proposition is the full mix of benefits upon which a brand is positioned.
Chapter 8
A product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need.
Broadly defined, “products” also include services, events, persons, places, organizations, ideas, or mixes of these.
To differentiate their offers, marketers create and manage customer experiences with their brands or company.
Services are a form of product that consist of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything.
A company’s market offering often includes both tangible goods and intangible services.
At one extreme, the offer may consist of a pure tangible good, such as soap or toothpaste.
At the other extreme, the offer may consist of a pure services.
A product is made up of the core product, the actual product, and the augmented product.
Core Product: all the benefits the product will provide for consumers or business customers
Actual Product: the physical good or the delivered service that supplies the desired benefit; also includes the unique features of the product, such as its appearance or styling, the package, and the brand name
Augmented Product: the actual product plus other supporting features such as warranty, credit, delivery, installation, and repair service after the sale
There are two main classification of products: consumer products and industrial products.
Marketers classify products based on how customers shop for them.
Convenience products are consumer products and services that customers usually buy frequently, immediately, and with a minimum of comparison and buying effort.
Shopping products are less frequently purchased consumer products and services that customers compare carefully on suitability, quality, price, and style.
Specialty products are consumer products and services with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort.
Unsought products are consumer products that the consumer either does not know about or knows about but does not normally think of buying.
Industrial products are those purchased for further processing or for use in conducting a business.
The three groups of industrial products and services are: materials and parts, capital items, and supplies and services.
Materials and parts include manufactured materials and parts, and raw materials, like farm products and natural products.
Capital items are industrial products that aid in the buyer’s production or operations, including installations and accessory equipment.
Supplies and services include operating supplies and maintenance and repair services.
Person marketing consists of activities undertaken to create, maintain, or change attitudes and behavior of target consumers toward particular people
Place marketing consists of activities undertaken to create, maintain, or change attitudes and behavior of target consumers toward particular places.
Social marketing is the use of commercial marketing concepts and tools in programs designed to influence individuals’ behavior to improve their well-being and that of society.
Developing a product involves defining its attributes such as quality, features, and style and design.
Product Quality has two dimensions: level and consistency. The quality level means performance quality or the ability of a product to perform its functions. Quality conformance means quality consistency, freedom from defects, and consistency in delivering a targeted level of performance.
Product Features are a competitive tool for differentiating the company’s product from competitors’ products.
The company should periodically survey buyers who have used the product and ask these questions: How do you like the product? Which specific features of the product do you like most? Which features could we add to improve the product?
Product Style and Design is another way to add customer value.
Style describes the appearance of a product. Design contributes to a product’s usefulness as well as to its looks.
A brand is a name, term, sign, symbol, or design, or a combination of these, that identifies the maker or seller of a product or service.
Brand names:
–help consumers identify products that might benefit them.
–say something about product quality and consistency.
–become the basis on which a whole story can be built about a product.
–provide legal protection for unique product features.
–help the seller to segment markets.
A package is the covering or container for a product, but it is also a lot more.
Packaging protects the product. It makes it easy for consumers to handle and store the product. Packaging also plays an important role in communicating brand personality.
Labels identify the product or brand, describe attributes, and provide promotion.
Companies must continually assess the value of current services to obtain ideas for new ones. They also need to develop a package of services to satisfy customers and provide profit to the company.
Product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges
Product line length is the number of items in the product line.
Product line filling involves adding more items within the present range of the line.
Product line stretching occurs when a company lengthens its product line beyond its current range. Companies located at the upper end of the market can stretch their lines downward. Companies located at the lower end of the market can stretch their product lines upward. Companies located in the middle range of the market can stretch their lines in both directions.
A company’s product mix has four dimensions: width, length, depth, and consistency.
Product mix width refers to the number of different product lines the company carries.
Product mix length refers to the total number of items the company carries within its product lines.
Product mix depth refers to the number of versions offered of each product in the line.
Product mix consistency refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way.
The company can increase its business in four ways.
1. It can add new product lines, widening its product mix.
2. It can lengthen its existing product lines.
3. It can add more versions of each product, deepening its product mix.
4. It can pursue more product line consistency.
Brand represents the consumer’s perceptions and feelings about a product and its performance. It is the company’s promise to deliver a specific set of features, benefits, services, and experiences consistently to the buyers.
Brand strategy decisions include:
–Product attributes
–Product benefits
–Product beliefs and values
A good brand name should suggest something about the product’s benefits and qualities. Examples: Beautyrest, Die Hard, Intensive Care, Curves (women’s fitness centers)
It should be easy to pronounce, recognize, and remember: Tide, Silk, iPod Touch, JetBlue.
The brand name should be distinctive: Lexus, Zappos.
It should be extendable: Amazon.com began as an online bookseller but chose a name that would allow expansion into other categories.
The name should translate easily into foreign languages. Before changing its name to Exxon, Standard Oil of New Jersey rejected the name Enco, which it learned meant a stalled engine when pronounced in Japanese.
A manufacturer has four sponsorship options:
–product launched as a manufacturer’s brand (or national brand)
–manufacturer sells to resellers who give it a private brand
–manufacturer can market licensed brands
–two companies can join forces and co-brand a product
National Brands Versus Store Brands
In the battle of the brands between national and private brands, retailers have many advantages.
–Retailers price their store brands lower than comparable national brands.
–Store brands yield higher profit margins for the reseller.
–Store brands give resellers exclusive products.
Co-branding occurs when two established brand names of different companies are used on the same product. Co-branding also allows a company to expand its existing brand into a category it might otherwise have difficulty entering alone.
A company has four choices when it comes to developing brands:
Line Extensions occur when a company extends existing brand names to new forms, colors, sizes, ingredients, or flavors of an existing product category.
Brand Extensions extend a current brand name to new or modified products in a new category.
Multibranding introduces additional brands in the same category.
New Brands.
Services: Are acts, efforts, or performances exchanged from producer to user without ownership rights.
Intangibility: customers can’t see, touch, or smell a service. Services cannot be inspected or handled before purchase, making evaluation difficult.
Inseparability: it is impossible to separate the production of a service from the consumption of that service.
Variability: the same service, even if performed by the same individual for the same customer, can vary.
Perishability: it is impossible to store a service for later sale or consumption.
Service-profit chain consists of five links:
Internal service quality: superior employee selection and training, a quality work environment, and strong support for those dealing with customers, which results in…
Satisfied and productive service employees: more satisfied, loyal, and hardworking employees, which results in…
Greater service value: more effective and efficient customer value creation and service delivery, which results in…
Satisfied and loyal customers: satisfied customers who remain loyal, repeat purchase, and refer other customers, which results in…
Healthy service profits and growth: superior service firm performance.
Internal marketing means that the service firm must orient and motivate its customer-contact employees and supporting service people to work as a team to provide customer satisfaction.
Internal marketing must precede external marketing
Interactive marketing means that service quality depends heavily on the quality of the buyer-seller interaction during the service encounter.
Service companies face three major marketing tasks: They want to increase their service differentiation, service quality, and service productivity.
Managing Service Differentiation
Service companies can differentiate their service delivery by having more able and reliable customer-contact people, by developing a superior physical environment in which the service product is delivered, or by designing a superior delivery process.
Service companies can work on differentiating their images through symbols and branding.
Managing Service Quality
Service quality is harder to define and judge than product quality. Service quality will always vary, depending on the interactions between employees and customers.
Good service recovery can turn angry customers into loyal ones.
Managing Service Productivity
Service firms are under great pressure to increase service productivity. They can train current employees better or hire new ones who will work harder or more skillfully.
Chapter 9
Competition in our global marketplace makes it essential for firms to continuously offer new products to attract consumers.
However, successful new-product introductions are becoming more and more difficult. Problems include the high costs of R&D and competition for retailer shelf space.
New product development refers to original products, product improvements, product modifications, and new brands developed from the firm’s own research and development
Many new products fail because of meager competitive advantages, overestimation of market size, poor product positioning, poor marketing mix, or bad timing.
Idea generation is the systematic search for new-product ideas.
Marketers use a variety of sources to come up with ideas that provide strong customer benefits and that are compatible with the company mission. These ideas can come from customers, salespeople, service providers, etc. Research is often conducted to come up with new product ideas.
Internal Idea Sources: here the company finds new ideas through formal research and development. Or it can pick the brains of employees—from executives to scientists, engineers, and manufacturing staff to salespeople.
External Idea Sources: good new-product ideas can also emerge from sources such as distributors, suppliers or even competitors.
Perhaps the most important source of new-product ideas is customers themselves.
The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as possible.
In screening, ideas are expanded into more complete product concepts. When screening, marketers and researchers examine the chances that the product concept might achieve technical and commercial success.
In concept development, several descriptions of the product are generated to find out how attractive each concept is to customers. From these concepts, the best one is chosen.
A product idea is an idea for a possible product that the company can see itself offering to the market.
A product concept is a detailed version of the idea stated in meaningful consumer terms.
A product image is the way consumers perceive an actual or potential
Concept testing refers to testing new-product concepts with groups of target consumers
Marketing strategy development is designing an initial marketing strategy for introducing a product to the market.
The marketing strategy statement consists of three parts.
1. A description of the target market; the planned value proposition; and the sales, market share, and profit goals for the first few years.
2. Outline of the product’s planned price, distribution, and marketing budget for the first year.
3. Description of the planned long-run sales, profit goals, and marketing mix strategy.
Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the company’s objectives.
A business analysis is conducted to find out if a product can be profitable. Issues here include potential demand and required firm resources for successful development.
In product development, R&D or engineering develops the product concept into a physical product.
The product development step calls for a large jump in investment.
Test marketing is the stage at which the product and marketing program are introduced into realistic market settings.
Standardized Test Markets occur when the company finds a small number of representative test cities, conducts a full marketing campaign in these cities, and uses store audits, consumer and distributor surveys, and other measures to gauge product performance. Drawbacks include costs, time and risk of competitor scooping up the idea.
Controlled Test Markets track individual consumer behavior for new products from television set to the checkout counter. These markets are composed of stores that have agreed to carry new products for a fee. Such test markets provide in-depth purchasing data not possible with retail point-of-sale data alone. Also, the system allows companies to evaluate their specific marketing efforts.
Simulated Test Markets are basically simulated shopping environments. The company shows ads and promotions for a variety of products, including the one being tested, to a sample of consumers. It gives consumers a small amount of money and invites them to a store where they may keep the money or use it to buy items.
Commercialization is introducing the new product into the market.
Decisions must be made concerning: timing, where to launch the new product, and how to implement the market rollout.
New product development must be customer centered and take a team based and systematic approach.
Customer-centered new product development focuses on finding new ways to solve customer problems and create more customer satisfying experiences
In order to get their new products to market more quickly, many companies use a team-based new-product development approach.
Under this approach, company departments work closely together in cross-functional teams, overlapping the steps in the product development process to save time and increase effectiveness.
Instead of passing the new product from department to department, the company assembles a team of people from various departments that stay with the new product from start to finish.
An innovation management system can be used to collect, review, evaluate, and manage new-product ideas.
The innovation management system approach helps create an innovation-oriented company culture yielding a larger number of new-product ideas.
Product Life Cycle is the way products go through stages from development to death.
The cycle has five distinct stages:
Product development begins when the company finds and develops a new-product idea.
Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.
Growth is a period of rapid market acceptance and increasing profits.
Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition.
Decline is the period when sales fall off and profits drop.
The PLC can be applied to styles, fashions, and fads.
A style is a basic and distinctive mode of expression.
A fashion is a currently accepted or popular style in a given field.
Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity.
During introduction, customers get the first chance to purchase the good or service.
The goal is to get first-time buyers to try the product. Sales usually increase at a steady but slow pace. The company usually does not make a profit during this stage because of heavy costs for R&D and promotion.
An introduction stage can be quite long. Not all products make it past the introduction stage. Nearly 40 percent of all new products fail.
Marketing during this stage often focuses on informing consumers about the product, how to use it, and its promised benefits.
In the growth stage, sales increase rapidly while profits increase and peak. Marketing’s goal is to encourage brand loyalty by convincing the market that this brand is superior to others. In this stage, marketing strategies may include the introduction of product variations to attract market segments and price cuts.
The maturity stage of the product life cycle is usually the longest. Sales peak and then begin to level off and even decline while profit margins narrow.
Competition grows intense when remaining competitors fight for their share of a shrinking pie. Price reductions and reminder advertising may be used to maintain market share. During the maturity stage, firms will try to sell their product through as many outlets as possible because availability is crucial in a competitive market.
The decline stage of the product life cycle is characterized by a decrease in product category sales. Although a single firm may still be profitable, the market as a whole shrinks. Profits decline and suppliers pull out. In this stage, there are usually many competitors, with none having a distinct advantage.
A firm’s major product decision in the decline stage is whether or not to keep the product. If the firm decides to keep the product, advertising and other marketing communications may be decreased to cut costs, and prices may be reduced if the product can remain profitable.
If the firm decides to drop the product, it can either phase it out by cutting production in stages and letting existing stocks run out or simply drop the product immediately.
International product and service marketers face special challenges.
They must figure out what products and services to introduce and in which countries. They must decide how much to standardize or adapt their products and services for world markets.
Packaging also presents challenges for international marketers.