Market Segmentation

McDonalds market segmentation in the US:

Mass marketing: here, the seller mass produces, mass distributes, and mass promotes one product to all buyers.  

In the very beginning, McDonald’s offered just one type of hamburger to everyone. 

Mass marketing leads to lowest costs and prices and create the largest potential market.

Product-variety marketing: here, the seller produces two or more products that have different features, styles, qualities, sizes…

McDonald’s produced the Big Mac to offer variety to buyers rather than appealing to different market segments. 

Product-variety marketing supports that consumers seek variety and change over time.

Target marketing: here, the seller identifies market segments, selects one or more of them, and develops products and marketing mixes for each. 

 Methods of market segmentation:

Companies may divide the market into different geographic units such as nations, countries, regions, cities…

A company may decide to operate in one or more geographic locations but it must pay attention to the geographical differences in needs and wants.

E.g. McDonald’s serve corn soup in Japan, pasta salads in Rome, wine in Paris...

http://www.mcdonalds.co.jp/ 
Demographics:

Age and life-cycle: needs and wants change with age, that is why, a company may use different marketing approaches for different age and life-cycle groups.

Gender

Income

Psychographic segmentation

This is based on lifestyle

Behavioural segmentation

Promoting Products to Satisfy a Real or Perceived Customer Need

Perception:

A belief or opinion, often held by many people and based on how things seem.

Need:

To have to have something, or to want something very much.

Are perceptions always right?

Click on the picture:

What perceptions are being used here?



Perception / Need: Value or quality

The customer’s perception of the price charged is an important determinant of the final pricing decision. 

McDonalds classifies its products into 3 categories namely the branded affordability (BA), branded core value products (BCV) and premium (Pr).

Branded affordability:

Branded core value:

Premium:

How is this demonstrated on their website. Look here.

This has been done to satisfy consumers with different perceptions of the importance of price or quality.

Perception / Need: to eat a healthy diet
Click on the picture.

Are the following needs real or perceived?

Explain the Stages in the Marketing Planning Process

A marketing plan is a comprehensive document or blueprint that outlines a company's advertising and marketing efforts for the coming year.

It describes business activities involved in accomplishing specific marketing objectives within a set time frame.

More details about the marketing planning process here.

Ansoff's Matrix

Ansoff's Matrix



The Ansoff Matrix is a strategic planning tool that provides a framework to help executives, senior managers and marketers devise strategies for future growth.



     Market penetration
In market penetration strategy, the organisation tries to grow using its existing offerings (products and services) in existing markets.

• Advertise, to encourage more people within your existing market to choose your product, or to use more of it
• Introduce a loyalty scheme
• Special offer promotions
• Increase your sales force activities
• Buy a competitor company

Market development

In market development strategy, a firm tries to expand into new markets (geographies, countries etc.) using its existing products.

• Target different geographical markets at home or abroad
• Use different sales channels, such as online or direct sales if you are currently selling through the trade
• Target different groups of people, perhaps different age groups, genders or demographic profiles from your normal customers.

   Product development

In product development strategy, a company tries to create new products and services targeted at its existing markets to achieve growth.

• Extend your product range by producing different variants, or packaging existing products it in new ways.
• Develop related products or services (for example, a toothpaste producer starts selling mouthwash).

    Diversification

In diversification an organisation tries to grow their introducing new offerings in new markets. It is the most risky strategy since both product and market development is required.

There’s often little scope for using existing expertise or achieving economies of scale, because you are trying to sell completely different products or services to different customers.

Its main advantage is that if the new business fails, the other is unlikely to be affected.
Ansoff's Matrix and McDonald's. Details here.

Product Life Cycle

Marketing implications of each stage of the product life cycle - details here. You need to know this.

Extension strategies extend the life of the product before it goes into decline. Try clicking on the pictures.

Advertising – try to gain a new audience or remind the current audience.

Price reductions – making a product more attractive to customers.

Adding value – add new features to the current product, e.g. Spy phone app on mobile phones.

Explore new markets – try selling abroad.

New packaging – brightening up old packaging, or subtle changes such as putting crisps in foil packets.

Product life cycle multiple choice questions. Click on the picture:

Advantages and disadvantages of product life cycle theory. Details here.

Marketing Strategies for the Different Stages of the Product Life Cycle

Introduction

The need for immediate profit is not a pressure.

The product is promoted to create awareness and develop a market for the product.

The impact on the marketing mix and strategy is as follows:

·        Product branding and quality is established and intellectual property protection, such as patents and trademarks are obtained.

·        Pricing may be low (penetration pricing) to build market share rapidly or high skim pricing to recover development costs.

·       Distribution is not widespread until consumers (or retailers) show acceptance of the product.

·        Promotion is aimed at innovators and early adopters. 

    Marketing communications seeks to build product awareness and educate potential consumers about the product.

Growth

Competitors are attracted into the market with very similar offerings. In the growth stage, the firm seeks to build brand preference and increase market share.

·       Product quality is maintained and additional features and support services may be added.

·       Pricing is maintained as the firm enjoys increasing demand with some competition.

·       Distribution channels are added as demand increases and customers accept the product.

·       Promotion is aimed at a broader audience.

Maturity

Those products that survive the earlier stages tend to spend longest in this phase. At maturity, the strong growth in sales diminishes. Competition may appear with similar products. The primary objective at this point is to defend market share while maximising profit.

·       Product features may be enhanced to differentiate the product from that of competitors.

·       Pricing may be lower because of the new competition.

·       Distribution becomes more intensive, and incentives may be offered to sellers to encourage preference over competing products.

·       Promotion emphasises product differentiation.

Decline

At this point, there is a downturn in the market.

For example, more innovative products are introduced or consumer tastes have changed.

There is intense price cutting, and many more products are withdrawn from the market.

Profits can be improved by reducing marketing spending and cost cutting.

As sales decline, the firm has several options:

·      Maintain the product, possibly rejuvenating it by adding new features and finding new uses (Extension strategies).

·      Maintain the existing product–reduce costs and continue to offer it, possibly to a loyal niche segment.

·      Discontinue the product, liquidating remaining inventory or selling it to another firm that is willing to continue the product.

By imaginatively repositioning their products, companies can change how customers mentally categorise them.

They can rescue products struggling in the maturity phase of their life cycles and get them back to the growth phase.

And in some cases, they might be able take their new products forward straight into the growth phase. (Remember how the makers of Lucozade did this)

The disadvantage of using product life cycles to direct strategies:

According to Harvard Business School professor Youngme Moon, though the product life cycle concept has been used successfully over the past 40 years, it has made marketers assume that there is only one trajectory for successful products.

By viewing the product life cycle in the same way, marketers pursue similar positioning strategies for products and services during each stage of the life cycle.

In the process, they miss out on opportunities to differentiate themselves.

The Boston Matrix

BCG Matrix

This places a firms products into one of four categories.

Star products have a high market share in a fast growing market.

Products may generate cash but because of the fast growing market, stars require huge investments to maintain their lead.

Net cash flow is usually modest. 

Products in this category  are attractive as they are located in a growing industry and these products are highly competitive in the industry.

Example:

If successful, a star will become a cash cow when the industry matures.

Cash Cows have a high market share in a slow growing market.

Cash cows require little investment and generate cash that can be utilised for investment in other products.

These products are the corporation’s key source of cash, and are specifically the core business. They are the base of an organisation. 

Example:

Problem Children products have a low market share in fast growing markets.

These products require huge amount of cash to maintain or gain market share.

Problem children / Question marks are generally new goods and services which have a good commercial prospective. 

Most products start as question marks as the company tries to enter a high growth market.

Example: 

If ignored, then question marks may become dogs, while if huge investment is made, then they have potential of becoming stars.

Dogs are products with a low market share in slow growing markets.

These products neither generate cash nor require huge amount of cash.

Due to low market share, these business units face cost disadvantages. 

These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc.
Example:

 

Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share. The number of dogs should be avoided and minimized in an organization.

You need to know about the implications for a firm of having products in each category.

Limitations of the Boston Matrix:

1. The matrix classifies market share and market growth as low and high, but generally businesses can be medium also.
2. High market share does not always leads to high profits. There are high costs also involved with high market share.
3. Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability.
4. At times, dogs may help businesses. They can earn even more than cash cows sometimes.
5. This four-celled approach is considered as to be too simplistic.

Implications for specific products:

1. “Stars” should have the best employees, and first priority for investments. Critical to the future of the business, they must be defended at all costs. The typical investment stance for Stars should be “Invest” – prevent market share loss at all costs, and if possible grow share while the market is still expanding.
2. “Cashcows” generate the funds required to invest in the higher growth parts of the portfolio. Ensure enough investment to sustain their leadership position – don’t milk them dry! The typical investment stance for cashcows should be “Milk and Defend” – spend the minimum to maintain relative leadership, but don’t invest to increase market share – you are already getting the benefit of market leadership, and this discretionary money could be better spent investing in higher growth markets.
3. The third quadrant is either called “Problem Children” or “Questionmark”. They are the toughest businesses to know what to do with. The market is growing, however we are starting from a position of relative weakness. A binary decision must be taken. Selected bets will be made with very heavy investment to grow market share and make them the Stars of the future. Because they are coming from behind, they will not deliver the short term returns of the stars. Therefore the business must make these bets very selectively where they genuinely believe they can achieve a leadership position, and make the tough decision to ignore other high growth opportunities.  The best name for this binary investment stance is “Double or Quits”
4. “Dog” quadrant has a typical investment stance or “Harvest/Exit”. In reality though,  it will not make sense to divest or exit businesses rapidly in this quadrant beacuse they will have low value and will distract management during the sale process. Frequently their weak competitive position leaves them incapable of being “harvested” either – if investment is reduced they may disappear very quickly. Rather they could be set up to operate with minimal resource drain on the rest of the portfolio, as the best people and all discretionary resources are diverted to more attractive businesses. Over time they will become a diminishing portion of the portfolio.

Market Positioning or Market Mapping

Market mapping:

A market map (perceptual map) is a diagram that identifies all the products in the market using two key features.

Competitive advantage of a product or service:

Why buy Coca Cola.......

......rather than Pepsi?

Competitive advantage is a set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition.

There are two different types of competitive advantage:

1.Cost competitive advantage.
Creating maximum value for consumers.
In retailing: Lidl / Aldi

In snacks:

Airlines:



2. Product / service differentiation.

A unique design.

A unique product function.

A unique taste

Superior performance.

The second type of differentiation involves creating differences that exist in the minds of consumers.

A powerful brand can make a product stand out.

The most powerful brands in the world. Details here.

A reputation for quality can also make a product stand out.

Adding value:

                                       

Inputs, outputs and the nature of the transformation of resources into finished products.

Frozen pepperoni pizza is the output. 

    What would be the required inputs? 

    Watch this: https://youtu.be/tM4n4upANvQ

Abimbola Balogun  started her business in Nigeria with an investment of just 400 naira (£1.60) which bought her enough beads to make two necklaces. 

She sold them for 5,000 naira - more than 1,100% profit - reinvested the money and never looked back. Click on the picture.

The transformation process:

Pizza and a necklace are manufactured products. We

call manufacturing the secondary sector.

But the transformation process also occurs in the primary and

tertiary parts of the economy. How?

Let me know by leaving a comment below.

Added value = Price of finished product – cost of resources

                           

Adding value can occur through the transformation process or can occur in the mind of the consumer.

Why might people pay more for Polo mints?

                          

$56,000 for a mobile phone?