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Marketing – SM122

Product

Consumers Have Different NeedsMarket: Aggregate of people who,

as individuals or as organizations, have needs for products in a product class and who have the ability, willingness, and authority to purchase such products

Segment: Group of individuals, groups, or organizations that share one or more similar characteristics which make them have relatively similar products needs and have high probability of responding to a similar marketing mix

Segmentation: Process of identifying segments or groups of people / organizations that exist within the larger market

How to Segment Consumer Markets

CommonBases for

SegmentingMarkets

Geographic

Psychographic

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© 2003 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

All Four P’s Contribute to the Whole

ProductProduct

PricePrice

PlacePlace

PromotionPromotion

Selectionof TargetMarket

Selectionof TargetMarket

Position

Approaches to Serving MarketsApproaches to Serving Markets

Approach

Mass Marketing A single marketing mix for the entire market

Segmentmarketing

Description Examples

Individualmarketing

Commodity products

A single marketing mix for one segment of the market (Concentrated Marketing)

Women's Workout World (exercise facilities for women); American Association for Retired Persons (lobbying and membership services for people over 50)

McDonald’s (Happy Meals for young children, Big Macs for Teens, Arch Deluxe for adults); Toshiba copiers (several sizes and features to meet different levels of business needs)

Personalized amenities for repeat guests at Ritz-Carlton hotels; management consulting services tailored to an organization’s needs

A marketing mix customized for an individual or organization

Separate marketing mixes for two or more segments of the market (Multisegment Marketing)

Consumers Buy Benefits Not Features

•Consumers buy:•Consistency, convenience

McDonald’s•Fun, hip, cool

Reef Flip - Flops, Pacific Sunwear of CA•Aspirational, escape, illusion

Jimmy Buffet, Grateful Dead, Jaguar, Maxim, Cosmopolitan•Cleanliness, brightness, freshness

Tide Detergent•Timeliness, safety

SwissAir, Airport Security

Product

The good or service that is offered has basic functionality and features. It may be offered in one or multiple varieties.

But, not just the good or service you offer, but a much broader definition to include warranties, after-sales service, installation, image,

Products are Goods and Services

GoodGoodServiceService

PureService

PureGood

G

S

S

GG

Product LevelsProduct Levels

Core BenefitOr

Service

BrandName

Quality

Packaging& Labeling

Styling

Features

Delivery& Credit

Installation

Warranty

After-Sale

Service

Actual/Expected ProductActual/Expected Product Core/Generic ProductCore/Generic Product

Augmented ProductAugmented Product

Classification of Consumer Goods

Toothpaste,cake mix, handsoap, laundrydetergent

Relativelyinexpensive

Widespread;many outlets

Price,availability,and awarenessstressed

Convenience Shopping Specialty Unsought

Type of Consumer GoodBasis ofcomparison

Product

Price

Place

Promotion

Cameras, TV’sbriefcases,appliances,clothing

Fairlyexpensive

Large numberof selectiveoutlets

Differentiationfromcompetitorsstressed

Rolls Roycecars,Rolex watches

Usually veryexpensive

Very limited

Uniqueness ofbrand andstatus stressed

Burialinsurance,thesaurus

Varies

Often limited

Awareness isessential

Classification of Consumer Goods

Aware ofbrand, but willacceptsubstitutes

Frequentpurchases; little time andeffort spentshopping;routinedecision

Convenience Shopping Specialty Unsought

Type of Consumer GoodBasis ofcomparison

Brand loyaltyof consumers

Purchasebehavior ofconsumers

Prefer specificbrands, butwill acceptsubstitutes

Infrequentpurchases;comparisonshopping;uses decisiontime

Very brandloyal; will notacceptsubstitutes

Infrequentpurchases;extensive timespent to decideand get theitem

Will acceptsubstitutes

Very infrequentpurchases;somecomparisonshopping

Diffusion or

Why does everyone have (will have) an MP3 player.

Time (t)

Cumulative Probability of

Adoption up to Time t

F(t)

Introduction of product

1.0

What happens when everybody that is going to acquire a product has it?

From a presentation given by Professor David Berkowitz

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

Consumer Life CycleConsumer Life CycleSlide9-5

Figure9.2

Innovators(2.5%)

EarlyAdopters(13.5%)

EarlyMajority

(34%)

LateMajority

(34%)

Laggards(16%)

F(t)

1.0

St = p * Remaining + q * Adopters Potential

Innovation Imitation Effect Effect

Bass Model of Product Diffusion

where:

St = sales at time t

p = “coefficient of innovation”

q = “coefficient of imitation”

# Adopters = S0 + S1 + • • • + St–1

Remaining = Total Potential – # AdoptersPotential

From a presentation given by Professor David Berkowitz

Examples of Innovation and Imitation Parameters

Innovation ImitationProduct/ parameter

parameter Technology (p) (q)

B&W TV 0.028 0.25Color TV 0.005 0.84Air conditioners 0.010 0.42Clothes dryers 0.017 0.36Water softeners 0.018 0.30Record players 0.025 0.65Cellular telephones 0.004 1.76Steam irons 0.029 0.33Motels 0.007 0.36McDonalds fast food 0.018 0.54Hybrid corn 0.039 1.01Electric blankets 0.006 0.24

A study by Sultan, Farley, and Lehmann in 1990 suggests an average value of 0.03 for p and an average value of 0.38 for q.From a presentation given by Professor David Berkowitz

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998

The Product Life CycleThe Product Life Cycle

Slide

9.1

Dollars Total Market SalesTotal Market Profits

Time

IntroductionIntroduction GrowthGrowth MaturityMaturity DeclineDecline

Factors affecting the rate of diffusion

Product-related – diffusion will be faster if… High relative advantage over existing products High degree of compatibility with existing approaches Low complexity Can be tried on a limited basis Benefits are observable

Market-related – diffusion is influenced by … Type of innovation adoption decision (eg, does it involve

switching from familiar way of doing things?) Communication channels used Nature of “links” among market participants Nature and effect of promotional efforts

From a presentation given by Professor David Berkowitz

Product Life Cycle for Wine Coolers

Source: Figure drawn from Wine and Liquor Handbook statistics

Mil

lion

s of

dol

lars

$1500

$1000

$500

1990

1991

1992

1993

1994

1995

1989

1984

1985

1986

1987

1988

1983

1982

Recording Industry Product Form Life Cycles

Source: Figure drawn from Recording Industry Association of America statistics.

Mil

lion

s of

uni

ts s

old

650600550500450400350300250200150100500

1989

1991

1993

1995

1987

1977

1979

1981

1983

1985

1975

1973

Vinyl

Cassettes

Compactdisks

How stages of the product life cycle relate to marketing mix decisions

Marketing objective

Marketing objective

Gain Awareness

Gain Awareness

Stress differentiation

Stress differentiation

Maintain brand loyalty

Maintain brand loyalty

Harvesting, deletion

Harvesting, deletion

CompetitionCompetition NoneNone GrowingGrowing ManyMany ReducedReduced

ProductProduct OneOne More versionsMore versions Full product line

Full product line Best sellersBest sellers

PricePrice Skimming or penetration

Skimming or penetration Gain share, dealGain share, deal Defend share,

profitDefend share, profit Stay profitableStay profitable

PromotionPromotion Inform, educateInform, educate Stress competitive differences

Stress competitive differences

Reminder oriented

Reminder oriented Minimal

promotionMinimal promotion

Place(distribution)

Place(distribution) LimitedLimited More outletsMore outlets Maximum

outletsMaximum outlets Fewer outletsFewer outlets

Stage of the product life cycleSa

les

reve

nue

or p

rofi

t Introduction Growth Maturity Decline

+0–

Total industrysales revenue

Total industry profit