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
7External AnalysisAnalysis of factors external to a business that affect strategyVolume of external analysis material can be unlimitedAvoidance of useless material requires disciplineWhy do we need to know this?Choosing what is relevant is the most difficult task for any analystNeed for analysis to have direction and purpose relevant to strategyExisting business strategyNew business areasCustomer value propositionsAsset/competencies creation, enhancement, maintenanceFunctional area strategies (distribution, brand-building, etc.)
8The Role of External Analysis Strategic DecisionsWhere to competeHow to competeExternalAnalysisIdentificationTrends/future eventsThreats/opportunitiesStrategic uncertainties *AnalysisInformation-need areasScenario analysisFigure 3.1
9Strategic 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 DecisionsInvestment in a product marketInvestment in a tofu-based productInvestment in a technologyCommitment to off-shore manufacturingInvestment in a new systemA strategy of maintaining price parity
10Strategic Uncertainties Performance improvements?Competitive technological developments?Financial capacity of health care industry?What will thefuture demand?
11Practical Difficulties Successful businesses know their customersRevenues generated by customerCosts associated with each customerDirect product costsCustomer service and acquisition costsIndirect costsCustomer profitabilitySee Your Biggest Customers Your Biggest Losers.docxMany organizations ‘fly blind’Revenues may be in different parts of the organizationCosts must be ‘transfer priced’ – a difficult taskOrganizational culture must support analytical approachMajor IT investment
12Determining Customer Profit Revenue Product 1Revenue Product 2Total Customer RevenueCost Process ACost Process BDirect Product CostsTotal Customer CostTotal Revenue – Total Cost = Customer Profit
13Customer 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
14Customer 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
15Customer 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
16An 1861 MapLincoln 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?
17Communicating 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 waysMilitary strategy targeted areas with large numbers of slaves for disruptionPolitical strategy targeted areas with low numbers of slaves with enticements to break from the Confederacy
18SegmentationVariation 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.
19Reasons for International Market Segmentation Country Screening (consideration of a market is based on initial screening criteria)Global Market ResearchCluster countries across relevant characteristicsFocus research efforts on a representative sampleMarket Entry DecisionsProduct launches based on shared relevant characteristics across countriesCountry differences on other dimensions can hinder successPositioning 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 changesHow the products or service is positioned will follow the opportunityResource AllocationMarket share clusters (increase penetration)Consumption clusters (developing the market)Marketing Mix PolicyCountries 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)
20Requirements for International Market Segmentation IdentifiableShould be easy to define and measureValue or lifestyle measures typically difficult to gaugeSizableSegments should be large enough to be worth pursuingSmall segments aggregated across countries might workAccessibleSegments should be easy to reachInfrastructure differences across countriesStable target market behavior and compositionResponsive – segments have unique responsesActionable – the required marketing mix is consistent with the company goals and competenciesChapter 7Adapted from 2009 John Wiley & Sons, Inc.
21International Market Segmentation Approaches Country-as-segments or aggregate segmentation(Exhibits 7-2 & 7-3.)Geographic single dimension or several dimensionsMarketing irrelevance of many country boundariesDifficulty of determining which variables to use for geo segmentsDisaggregate international consumer segmentationConsumer segments defined by similarities along chosen characteristicsConsumer bases might be geographically disbursed – logistical issuesTwo-stage international segmentationFirst aggregate countries (macro level) screens out countriesSecond segment consumers within the country cluster (micro)Market oriented and accessibleCopyright (c) 2009 John Wiley & Sons, Inc.
22Exhibit 7-2: Nestlé’s Geographic Segmentation of the Americas Chapter 7Copyright (c) 2009 John Wiley & Sons, Inc.
23Exhibit 7-3: Macro-Level Country Characteristics Chapter 7Copyright (c) 2007 John Wiley & Sons, Inc.
24Psychological 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 environmentWe learn to filter information irrelevant to a situationOften the most highly educated among us filter mostWe fail to see/hear or recall much of what is available to usUnder the right conditions (context) we might recall what we otherwise would notOur filtering and recall changes through life and with circumstancesMarketers try to determine which audiences might be receptive to the product message, and how to enable recallDistances between high SES among countries might be less than between SESs within a country (life circumstances and education factors)
25International Segmentation Scenarios Universal or global segments (go beyond boundaries)Customers belonging to universal segments have common needsCould be a universal niche (example: global elite, business travelers)Common customer needs higher in some product categories (high-tech or travel related)Regional segmentsDifferentiated versus undifferentiated strategies apply to global segments as wellDifferentiated strategy tailors marketing to local market conditionsAn undifferentiated strategy is often followed by some high-tech companies – uniform worldwide marketing, scale economiesUnique (diverse) segmentsSubstantial differences in cross country customer preferencesLocalized marketing mix programsFood products may have country specific segmentsDegrees of segmentation often follow degrees of market development (emerging markets usually have a simple consumer market structure – high price or low price only)
26Demographics Segmentation Easy to measureFairly accurate and easy to obtainThe elderly are an often overlooked segmentUnique needsSelf perceptions (active, not old)Global middle class family is highly soughtDefinition is trickyHH income figures ignore purchasing power differencesVast differences between countries in how income is spentChinese spend less than 5% on rent, transport, healthUS consumers spend 50%Income distinctions ignore education and values
27Economic Forces Lower number means more income equality Demographic variables are a factor in country wealthWorking age population relative to non-workingChina and Thailand will soon have shrinking % working ageOften overlooked implications of large % population = elderlySocioeconomic VariablesPer Capita incomeIssues 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 countryServices are provided in-country using local currencyGoods not traded across borders (housing, etc)Use Purchasing Power Parity to estimate buying powerGray and Black Market sectors of the economy (cash or barter)Income inequality – Gini indexLower number means more income equalityScandinavian countries have least inequalityThailand, China, USA relatively unequal (higher index)
30Income 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.https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html
31Population forecast: http://populationpyramid.net/Thailand/2050/ Thailand StatisticsLow population growth rate, falling rate by 205069MM world 6.9BB Thailand = 1.00% of world73MM world 8.3BB Thailand = 0.88% of world68MM 2060 world 9.6BB Thailand = 0.71% of worldLow birth rate12.8/1,000 is similar to China20.1/1,000 is replacement rateDeclining family size. Declining % under 15 years of age.More women delay marriage or never marryLow urbanization, high rate of changeThailand 34% urban, change 1.8% per yearChina 47% urban, change 2.3% per yearUSA 82% urban, change 1.2% per yearLonger livesIncreasing number of retired (age 65+ =11.4% in 2020)Decreasing number of working age (similar to China)Population forecast:
402008 population 83MM 2050 population 278MM Ethiopia2008 population 83MM population 278MM
41Implications of Demographic Shift Smaller households require different housingFamilies with fewer children spend more/childWith fewer people of working ageCost of labor will riseLow skill jobs will go to countries with younger populationsNeed to move to higher value added (skills)Fewer working age offset in urban areas by rural migrationMore retirees and elderly – a unique marketJapanese modelHigher value added industriesInvestment abroadPressures for immigration from labor surplus countries
42Bases for Country Segmentation Product Related (Exhibit 7-7) Attitudes toward product attributesCountry of originStatus related (microwaves in living room)Usage rate (product consumption per capita or per HH)Product penetrationPercentage of target market that uses the productAn often used measure of new sales potentialConsumption infrastructure (electricity, etc.)
43Copyright (c) 2007 John Wiley & Sons, Inc. Exhibit 7-7: Benefit Segments of Toothpaste Market in the U.S.A., China, and MexicoChapter 7Copyright (c) 2007 John Wiley & Sons, Inc.
44SegmentationSegmentation is the identification of customer groups that respond differently from other customer groupsViable segments are meaningful, enduring, and large enough to generate return on investmentHow should segments be defined?Benefit Segmentation – what benefits are sought by consumers?Price SensitivityLoyalty – total profits over life of customer, try to increase intensityApplications – how is the product used?Multiple Segments versus Focus Strategy – Campbell Soup or Wal-Mart?
45Examples of Approaches to Defining Segments Customer CharacteristicsGeographicType of organizationSize of firmLifestyleDemographics- powerful and predictableOccupationFigure 3.3
46The Loyalty Matrix: Priorities LowLoyaltyModerateLoyaltyLoyalMedium(switch for price)HighHighestCustomerLow toMedium(switch for price)Zero(high cost of attracting)Non-customerHighFigure 2.4Figure 3.4
48The 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 EqualsMobilize Customer Communities, perhaps via internetManage Customer Diversity (of sophistication) with most sophisticated as most active partnersCo-creating Personalized ExperiencesBeware of information overload
49Information 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 mailThe more specific the segment (higher likelihood of getting a response) the higher the unit costHow 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?
50Determining Unmet Needs Ethnographic Research Directly observes customers in varying contextsWhat and why customers do thingsDeeper level of understanding of needs and motivationsGood at identifying breakthrough innovationsTypically customers think of current offeringsHenry Ford’s faster horsesObservations can lead to insightsParticularly useful in going beyond cultural boundariesCan be used to improve existing productsBusiness insiders often can’t see past the existing structure (HP executives said PCs were a commodity)
51Key ConceptsExternal 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.