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Strategic Marketing 052 430  Instructor: Michael Cooke  Address:  Office:IC room 817  Class hours:Friday 13:00-16:00.

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Presentation on theme: "Strategic Marketing 052 430  Instructor: Michael Cooke  Address:  Office:IC room 817  Class hours:Friday 13:00-16:00."— Presentation transcript:

1 Strategic Marketing  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 2

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

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.) 7

8 The Role of External Analysis External Analysis External Analysis Strategic Decisions Where to compete How to compete Strategic Decisions Where to compete How to compete Analysis Information-need areas Scenario analysis Analysis Information-need areas Scenario analysis Identification Trends/future events Threats/opportunities Strategic uncertainties * Identification Trends/future events Threats/opportunities Strategic uncertainties * 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 What will the future demand? What will the future demand? Performance improvements? Competitive technological developments? Financial capacity of health care industry? Performance improvements? Competitive technological developments? Financial capacity of health care industry?

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 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 12 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. 18

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. 20

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. 21

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

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

24  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) 25

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 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) 27

28 World Income Inequality

29 World Gini Compared to USA The Atlantic

30 Income Inequality in Selected Countries South Africa (2)65 (2005) 59.3 (1994)South Africa Thailand (12)53.6 (2009) 42 (2002) China (27)48 (2009) 41.5 (2007)China USA (42)45 (2007) 40.8 (1997) Germany (124)27 (2006) 30 (1994)Germany Sweden (136)23 (2005) 25 (1992) Implication: Low per capita GNP can mask affluent areas/segments.

31 Low population growth rate, falling rate by 2050 – 69MM 2010 world 6.9BB Thailand = 1.00% of world – 73MM 2030 world 8.3BBThailand = 0.88% of world – 68MM 2060world 9.6BBThailand = 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: / Thailand Statistics


33 Population Pyramids

34 Population Pyramid Thailand

35 Population Pyramid China

36 Population Pyramid Philippines 2008 population 96MM2050 population 172MM

37 Population Pyramid Malaysia 2008 population 25MM 2050 population 43MM

38 Population Pyramid Cambodia 2008 population 14MM2050 population 24MM

39 Population Pyramid Japan 2008 population 127MM 2050 population 94MM

40 Ethiopia 2008 population 83MM 2050 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 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 Chapter 7 Copyright (c) 2007 John Wiley & Sons, Inc. 43 Exhibit 7-7: Benefit Segments of Toothpaste Market in the U.S.A., China, and Mexico

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

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

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) 50

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

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