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Strategic Marketing Instructor: Michael Cooke

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1 Strategic Marketing 052 430 Instructor: Michael Cooke
Address: Office: IC room 817 Class hours: Friday 13:00-16:00 Class Location: IC room 806 Web: home/

2 Strategic Market Management Global Perspectives
David A. Aaker and Damien McLoughlin ISBN: © Copyright 2010 John Wiley & Sons Ltd

3 External and Customer Analysis
Chapter Two External and Customer Analysis © Copyright 2010 John Wiley & Sons Ltd

4 “The purpose of an enterprise is to create and keep a customer.”
Theodore Levitt

5 “You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new.” Steve Jobs

6 “Without a specific reason for the consumer to behave, without a reward or benefit, the overwhelmed consumer will refuse.” Seth Godin

7 External Analysis Analysis of factors external to a business that affect strategy Volume of external analysis material can be unlimited Avoidance of useless material requires discipline Why do we need to know this? Choosing what is relevant is the most difficult task for any analyst Need for analysis to have direction and purpose relevant to strategy Existing business strategy New business areas Customer value propositions Asset/competencies creation, enhancement, maintenance Functional area strategies (distribution, brand-building, etc.)

8 The Role of External Analysis
Strategic Decisions Where to compete How to compete External Analysis Identification Trends/future events Threats/opportunities Strategic uncertainties * Analysis Information-need areas Scenario analysis Figure 3.1

9 Strategic Uncertainties
Will a major firm enter? Will a tofu-based dessert product be accepted? Will a technology be replaced? Will the Euro strengthen against other currencies? Will computer-based operations be feasible with current technology? How sensitive is the market to price? Strategic Decisions Investment in a product market Investment in a tofu-based product Investment in a technology Commitment to off-shore manufacturing Investment in a new system A strategy of maintaining price parity

10 Strategic Uncertainties
Performance improvements? Competitive technological developments? Financial capacity of health care industry? What will the future demand?

11 Practical Difficulties
Successful businesses know their customers Revenues generated by customer Costs associated with each customer Direct product costs Customer service and acquisition costs Indirect costs Customer profitability See Your Biggest Customers Your Biggest Losers.docx Many organizations ‘fly blind’ Revenues may be in different parts of the organization Costs must be ‘transfer priced’ – a difficult task Organizational culture must support analytical approach Major IT investment

12 Determining Customer Profit
Revenue Product 1 Revenue Product 2 Total Customer Revenue Cost Process A Cost Process B Direct Product Costs Total Customer Cost Total Revenue – Total Cost = Customer Profit

13 Customer Analysis Segmentation
Who are the biggest customers? The most profitable? The most attractive potential customers? Do the customers fall into any logical groups based on needs, motivations, or characteristics? How could the market be segmented into groups that would require a unique business strategy? Figure 3.2

14 Customer Analysis Customer Motivations
What elements of the product/service do customers value most? What are the customers’ objectives? What are they really buying? How do segments differ in their motivation priorities? What changes are occurring in customer motivation? In customer priorities? Figure 3.2

15 Customer Analysis Unmet Needs
Why are some customers dissatisfied? Why are some changing brands or suppliers? What are the severity and incidence of consumer problems? What are the unmet needs that customers can identify? Are there some of which consumers are unaware? Do these unmet needs represent leverage points for competitors? Figure 3.2

16 An 1861 Map Lincoln would look at the map and send his armies to free blacks in some of the highest density areas in order to destabilize Southern order. Segmenting and then attacking the opponent’s weak points?

17 Communicating Complexity
Though many Americans knew that dependence on slave labor varied throughout the South, these maps uniquely captured the complexity of the institution and struck a chord with a public hungry for information about the rebellion. The map uses what was then a new technique in statistical cartography: Each county not only displays its slave population numerically, but is shaded (the darker the shading, the higher the number of slaves) to visualize the concentration of slavery across the region. Conversely, the map illustrated the degree to which entire regions—like eastern Tennessee and western Virginia—were virtually devoid of slavery, and thus potential sources of resistance to secession. The map quickly caught the public’s attention, and was reproduced throughout the war. The map gave a clear picture of what the Union was up against, and allowed Northerners to follow the progress of the war and the liberation of slave populations. Though the president had abundant maps at his disposal, only this one allowed him to focus on the Confederacy’s greatest asset: its labor system. After January 1, 1863—when the Emancipation Proclamation became law—the president could use the map to follow Union troops as they liberated slaves and destabilized the rebellion. Source: This map was used in several ways Military strategy targeted areas with large numbers of slaves for disruption Political strategy targeted areas with low numbers of slaves with enticements to break from the Confederacy

18 Segmentation Variation in customer needs is the primary motive for market segmentation. Most companies will identify and target the most attractive market segments that they can effectively serve. In global marketing, market segmentation becomes especially critical because of wide divergence in cross-border consumer needs and lifestyles. Once management has chosen its target segments, management needs to determine a competitive positioning strategy for its products.

19 Reasons for International Market Segmentation
Country Screening (consideration of a market is based on initial screening criteria) Global Market Research Cluster countries across relevant characteristics Focus research efforts on a representative sample Market Entry Decisions Product launches based on shared relevant characteristics across countries Country differences on other dimensions can hinder success Positioning Strategy (influencing customer perception of the product relative to competitors) Where will marketing efforts have greatest impact? Target market segments might change due to consumer preferences or population changes How the products or service is positioned will follow the opportunity Resource Allocation Market share clusters (increase penetration) Consumption clusters (developing the market) Marketing Mix Policy Countries in same segment might have similar mix strategy (design, pricing, promotion, distribution) Similarities on one dimension might be offset by differences on another (such as price sensitivity)

20 Requirements for International Market Segmentation
Identifiable Should be easy to define and measure Value or lifestyle measures typically difficult to gauge Sizable Segments should be large enough to be worth pursuing Small segments aggregated across countries might work Accessible Segments should be easy to reach Infrastructure differences across countries Stable target market behavior and composition Responsive – segments have unique responses Actionable – the required marketing mix is consistent with the company goals and competencies Chapter 7 Adapted from 2009 John Wiley & Sons, Inc.

21 International Market Segmentation Approaches
Country-as-segments or aggregate segmentation (Exhibits 7-2 & 7-3.) Geographic single dimension or several dimensions Marketing irrelevance of many country boundaries Difficulty of determining which variables to use for geo segments Disaggregate international consumer segmentation Consumer segments defined by similarities along chosen characteristics Consumer bases might be geographically disbursed – logistical issues Two-stage international segmentation First aggregate countries (macro level) screens out countries Second segment consumers within the country cluster (micro) Market oriented and accessible Copyright (c) 2009 John Wiley & Sons, Inc.

22 Exhibit 7-2: Nestlé’s Geographic Segmentation of the Americas
Chapter 7 Copyright (c) 2009 John Wiley & Sons, Inc.

23 Exhibit 7-3: Macro-Level Country Characteristics
Chapter 7 Copyright (c) 2007 John Wiley & Sons, Inc.

24 Psychological Basis Information filtering (sensory filtering)
Occurs among even lowest organisms (react to heat, light. Other aspects of environment ignored by primitive senses) Highest life forms still limited in gathering and processing information from environment We learn to filter information irrelevant to a situation Often the most highly educated among us filter most We fail to see/hear or recall much of what is available to us Under the right conditions (context) we might recall what we otherwise would not Our filtering and recall changes through life and with circumstances Marketers try to determine which audiences might be receptive to the product message, and how to enable recall Distances between high SES among countries might be less than between SESs within a country (life circumstances and education factors)

25 International Segmentation Scenarios
Universal or global segments (go beyond boundaries) Customers belonging to universal segments have common needs Could be a universal niche (example: global elite, business travelers) Common customer needs higher in some product categories (high-tech or travel related) Regional segments Differentiated versus undifferentiated strategies apply to global segments as well Differentiated strategy tailors marketing to local market conditions An undifferentiated strategy is often followed by some high-tech companies – uniform worldwide marketing, scale economies Unique (diverse) segments Substantial differences in cross country customer preferences Localized marketing mix programs Food products may have country specific segments Degrees of segmentation often follow degrees of market development (emerging markets usually have a simple consumer market structure – high price or low price only)

26 Demographics Segmentation
Easy to measure Fairly accurate and easy to obtain The elderly are an often overlooked segment Unique needs Self perceptions (active, not old) Global middle class family is highly sought Definition is tricky HH income figures ignore purchasing power differences Vast differences between countries in how income is spent Chinese spend less than 5% on rent, transport, health US consumers spend 50% Income distinctions ignore education and values

27 Economic Forces Lower number means more income equality
Demographic variables are a factor in country wealth Working age population relative to non-working China and Thailand will soon have shrinking % working age Often overlooked implications of large % population = elderly Socioeconomic Variables Per Capita income Issues in using per capita income as an indicator: Transactions are valued in an international currency (monetization of transactions) Official exchange rates seldom reveal true buying power within a country Services are provided in-country using local currency Goods not traded across borders (housing, etc) Use Purchasing Power Parity to estimate buying power Gray and Black Market sectors of the economy (cash or barter) Income inequality – Gini index Lower number means more income equality Scandinavian countries have least inequality Thailand, China, USA relatively unequal (higher index)

28 World Income Inequality

29 World Gini Compared to USA
The Atlantic

30 Income Inequality in Selected Countries
South Africa (2) 65 (2005) (1994) Thailand (12) (2009) (2002) China (27) 48 (2009) (2007) USA (42) 45 (2007) (1997) Germany (124) 27 (2006) (1994) Sweden (136) 23 (2005) (1992) Implication: Low per capita GNP can mask affluent areas/segments.

31 Population forecast:
Thailand Statistics Low population growth rate, falling rate by 2050 69MM world 6.9BB Thailand = 1.00% of world 73MM world 8.3BB Thailand = 0.88% of world 68MM 2060 world 9.6BB Thailand = 0.71% of world Low birth rate 12.8/1,000 is similar to China 20.1/1,000 is replacement rate Declining family size. Declining % under 15 years of age. More women delay marriage or never marry Low urbanization, high rate of change Thailand 34% urban, change 1.8% per year China 47% urban, change 2.3% per year USA 82% urban, change 1.2% per year Longer lives Increasing number of retired (age 65+ =11.4% in 2020) Decreasing number of working age (similar to China) Population forecast:

32 http://link. springer. com/article/10. 1007%2FBF03031794

33 Population Pyramids

34 Population Pyramid Thailand

35 Population Pyramid China

36 Population Pyramid Philippines

37 Population Pyramid Malaysia
2008 population 25MM population 43MM

38 Population Pyramid Cambodia

39 Population Pyramid Japan

40 2008 population 83MM 2050 population 278MM
Ethiopia 2008 population 83MM population 278MM

41 Implications of Demographic Shift
Smaller households require different housing Families with fewer children spend more/child With fewer people of working age Cost of labor will rise Low skill jobs will go to countries with younger populations Need to move to higher value added (skills) Fewer working age offset in urban areas by rural migration More retirees and elderly – a unique market Japanese model Higher value added industries Investment abroad Pressures for immigration from labor surplus countries

42 Bases for Country Segmentation Product Related (Exhibit 7-7)
Attitudes toward product attributes Country of origin Status related (microwaves in living room) Usage rate (product consumption per capita or per HH) Product penetration Percentage of target market that uses the product An often used measure of new sales potential Consumption infrastructure (electricity, etc.)

43 Copyright (c) 2007 John Wiley & Sons, Inc.
Exhibit 7-7: Benefit Segments of Toothpaste Market in the U.S.A., China, and Mexico Chapter 7 Copyright (c) 2007 John Wiley & Sons, Inc.

44 Segmentation Segmentation is the identification of customer groups that respond differently from other customer groups Viable segments are meaningful, enduring, and large enough to generate return on investment How should segments be defined? Benefit Segmentation – what benefits are sought by consumers? Price Sensitivity Loyalty – total profits over life of customer, try to increase intensity Applications – how is the product used? Multiple Segments versus Focus Strategy – Campbell Soup or Wal-Mart?

45 Examples of Approaches to Defining Segments
Customer Characteristics Geographic Type of organization Size of firm Lifestyle Demographics- powerful and predictable Occupation Figure 3.3

46 The Loyalty Matrix: Priorities
Low Loyalty Moderate Loyalty Loyal Medium (switch for price) High Highest Customer Low to Medium (switch for price) Zero (high cost of attracting) Non-customer High Figure 2.4 Figure 3.4

47 Customer Motivation Analysis
Identify Motivations Customer Interviews Group and Structure Motivations Assess Motivation Importance Figure 2.6 Assign Strategic Roles to Motivations Figure 3.6

48 The Customer as Active Partner
Such as: Patients in control of medical issues, access to information and other customers via internet (rather than passive targets) Encourage Active Dialogue of Equals Mobilize Customer Communities, perhaps via internet Manage Customer Diversity (of sophistication) with most sophisticated as most active partners Co-creating Personalized Experiences Beware of information overload

49 Information Overload? For many forms of marketing, the higher the likelihood of getting a sale, the higher the cost per target consumer. Before internet, mailing lists were sold with a price per name. Marketers considered cost of sending mail The more specific the segment (higher likelihood of getting a response) the higher the unit cost How do Google ads fit this model? How does worldwide spam fit into this economic model? How does this rule change when there is no cost to deliver a message? What sort of filtering mechanisms would we have?

50 Determining Unmet Needs Ethnographic Research
Directly observes customers in varying contexts What and why customers do things Deeper level of understanding of needs and motivations Good at identifying breakthrough innovations Typically customers think of current offerings Henry Ford’s faster horses Observations can lead to insights Particularly useful in going beyond cultural boundaries Can be used to improve existing products Business insiders often can’t see past the existing structure (HP executives said PCs were a commodity)

51 Key Concepts External analysis should influence strategy by identifying opportunities, threats, trends, and strategic uncertainties. The ultimate goal is to improve strategic choices – decisions as to where and how to compete. Segmentation (identifying customer groups that can support different competitive strategies) can be based on a variety of customer characteristics, such as benefits sought, customer loyalty, and applications. Customer motivation analysis can provide insights into what assets and competencies are needed to compete, as well as indicate possible Strategic Competitive Advantages. Unmet needs that represent opportunities (or threats) can be identified by projecting technologies, by accessing lead users, by ethnographic research, and by interacting with customers.

52 Social, Cultural, Demographic, and Natural Environmental Forces
Major Impact – Products Services Markets Customers Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

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