SOCTRIX 2013 – A CASE STUDY CHALLENGESolution to the Case study – Target the Right Market

Submitted by: -Team No. 545

S.M. Hussain Fatmi (11081)Anuj Peepre (11068)

Team No. 545 S M HUSSAIN FATMIANUJ PEEPRE

1. Introduction and objective of the case

The case is about SparkPlace, a two-year-old provider of online-marketing software, debating its strategic focus. Founder and CEO Dirk Middleton firmly believed that cold calling and spamming were destroying marketing. He focused on a marketing approach that would be not only less annoying to consumers but also be more profitable for the companies. SparkPlace’s software, available for a monthly fee, was designed to let customers manage and measure the effectiveness of that approach.

There were two major markets, small businesses and medium size business.

Issue faced by SparkPlace “which of these two markets to focus upon”.

2. Problem statement

To devise a strategy for SparkPlace so as to identify the correct market segment to position its software out of the two markets in which it is currently working. “Should SparkPlace go after the small Sams, medium Marys, or both?”

3. Identifying target segments and their characteristics

a. The first are small business – small “Sams” – owners who run their own companies, fewer than 20 employees, they are easier to bring on board, sales cost is less than $1000 for each one and are eager for the service.

b. The others are medium size business with 20 to about100 employees – medium “Marys” - the purchaser is a senior manager, not the owner, are more expensive to acquire (about $5,000) but ultimately more valuable as customers because they stayed longer and were willing to pay a higher monthly rate.

4. Product Segmentation Analysis

A comparative statement of each segments’ characteristics and how well SparkPlace’s software meets them.

Characteristics

Small Sams Medium Marys

Needs To reduce complexity for customers and that’s what SparkPlace’s software is meant for. Moreover it educates the Sams about permission based marketing and helps in realizing the mission of the company.

Marys are more savvy customers. They already know about permission based marketing and want access to reports so as to devise strategy for their marketing approach. They really dig into the software and use all the features.

Sustainability The potential with the Sams is Mary’s market is smaller, but

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Team No. 545 S M HUSSAIN FATMIANUJ PEEPRE

greater because bigger-volume business can be done in that market. Sams outnumber Marys by 3 to 1, and that ratio is growing because of the tough economy. However they have a high churn rate.

they’re more committed. They stay longer and require much less hand-holding, which means more profit.

Accessibility Salespeople can easily identify the decision maker and quickly close the deal. No one is having as much success with the Sams as SparkPlace.

It’s the opposite with the Marys. The market is highly competitive and the decision making process is slow.

Market Potential and competitive environment

Market sizing shows a lot more Sams that can be targeted as potential customers—1.3 million, with very less competition

Mary’s market size is less about half a million, who have the right profile. However the numbers show that Marys are more profitable over their lifetime as customers.

From the above analysis it is clear that though the needs of both the segments are a little different but the product is adequately placed to meet them. Sams outnumber Marys by three to one but Marys are more profitable. However they require more dedicated salespeople with a more focused approach.

5. Profitability Analysis

year 1 year 2 year 3 year 4 year 50

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Market Revenue Potential for the next 5 years

samsmarys

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Team No. 545 S M HUSSAIN FATMIANUJ PEEPRE

Profitability Analysis Sales acquisition cost 1000 1000 1000 5000 5000 5000Potential customer in millions 1.3 1.3 1.3 0.43 0.43 0.43Conversion 80% 60% 40% 80% 60% 40%Average contract completion 80% 80% 80% 100% 100% 100%Average market growth rate 14.20% 14.20% 14.20% 14.20% 14.20% 14.20%LTV in dollars 10000 10000 10000 50000 50000 50000Profit 10000 10000 10000 50000 50000 50000Marketing ROI in dollars 5 5 5 2 2 2Total acquisition cost in millions

1040 780 520 1733.33 1300 866.67

Total profit in millions 8320 6240 4160 17333.3 13000 8666.67Investment 1664 1248 832 8666 6500 4333Revenue 9984 7488 4992 26000 19500 13000

Sams Marys

The profitability analysis shows that both the Sams and Marys are profitable for different conversion rates and different contract period, with Mary giving more profitability however it requires more investment. With both the segments good in terms of profitability it would be wise to continue focusing on both.

6. Conclusions and recommendations

From above it is clear that both the segments are attractive in terms of Market Potential and profitability. If SparkPlace concentrates on one segment then it would be just like leaving the other segment on the table for others to grab.

So we propose to continue focusing on both the segments. However positioning techniques and marketing approach would have to be different for the two segments for more adequate results and increased profitability.

Applying Marketing Mix Technique to devise correct strategy for positioning.

Product – The product is simple to use and contains a lot of useful features for both the segments. The focus of the company should be to educate the Sams more about all the features and in turn allow them to become more loyal customers.

Place – The placement of the products would have to be a little different as both segments need different marketing approaches. Marys are more savvy customers who are difficult to get on board so the company needs to approach and handle them with more dedicated and experienced salespeople with a more focused approach so that they are able to position the product better vis a vis the competition in the market.

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Team No. 545 S M HUSSAIN FATMIANUJ PEEPRE

The Sams are not very savvy about all the features of the product and they are easy to get on board. So we do not require very experienced salespeople however the sales force would have to be in adequate nos. so that the company can cater to the full market. Also longer contract terms should be used to increase the lock-in period.

Price – Marys require more investment and their profitability per dollar is less than the Sams (2 as compared to Sams 5), so the company needs to change the pricing structure. It should be based on such parameters so as to reflect the no. of employees of the company which the software is catering to. As far as the Sams are considered their profitability is already high so to increase their conversion rate the prices should be reduced. Also to decrease the churn rate, selective pricing based upon longer contract terms would prove more profitable.

Promotion – as far as promotional techniques are considered it is clear that mass advertisement would be required for the Sams. However for Marys word of mouth technique would be more adequate. So our loyal customers’ recommendations would be more helpful in getting more customers on board.

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