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Lecture Notes Chapter 5 Market Segmentation (Forming segments) Breaking up a product market into meaningful segments is usually a very important marketing activity PRIOR to making marketing decisions. (NOTE What we are talking about here is about dividing a product market in the relevant market, or the market you do or will compete in, into smaller segments.) Segmenting product markets is often addressed in a situational analysis in order to later guide target market decisions and developing suitable marketing mixes. A generic market is a market with broadly similar needs and sellers offering various, often diverse, ways of satisfying those needs. In contrast, a product-market is a market with very similar needs and sellers offering various close substitute ways of satisfying those needs. For example, one generic market might be the Entertainment Market. Entertainment seekers have many different ways to satisfy their needs. There are many product-markets operating within the generic entertainment market such as movie theaters, television programs, e-book readers, theme parks, and etc. Market segmentation begins with your defined product market for a defined geographic market or your relevant market (the market you compete in) and is an attempt to break up the relevant market into smaller, more homogeneous segments each with different needs, responses and characteristics. Once you have divided the market into potential segments, you can then begin to decide which segment or segments you want to target if any or whether you want to just follow a mass market strategy. Segmenting a relevant market is only important if it gives you insights to make more effective marketing decisions How do you best develop and define Market Segments There are three important steps in the market segmentation process Identify homogeneous segments that differ from other segments. Your efforts should identify one or more relatively homogeneous groups of prospective buyers with regard to differences in their needs and wants and/or their likely responses to differences in the elements of the marketing mix the 4 Ps (Product, Price, Promotion, and Place). Specify criteria that define the segment. The segmentation criteria should measure or describe the segments clearly enough so that members can be readily identified and accessed, in order for the marketer to know whether a given prospective customer is or is not in the market segment and in order to understand how to reach the prospective customers in a segment with advertising or other marketing communication messages directed to the segment. Determine segment size and potential. Finally, the segmentation process should estimate the size and market potential of each defined segment for use in prioritizing which segments to pursue, a critical topic we address in more detail in Chapter 6, Market Targeting and Strategic Positioning. Given these basic objectives, what kinds of segmentation criteria, or descriptors, are most useful to consider when formulating possible segments Developing a set of segments for a market often involves considering four basic factors involving who the customers are, where they are located, purchase behavior, and/or needs and wants. These four basic factors can be considered for both consumer and business to business markets. Lets summarize some of the factors you might consider as possible criteria when trying to develop and describe a set of segments within a product market. NOTE These are just potential criteria to consider when developing your segments. Normally you might only use 1 -3 criteria across all potential segments if it is relevant to the product or service. The text goes into more detail in identifying market segments Who are they Demographics (including age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, social class, etc. to name a few) Lifestyle or personality characteristics (e.g. Culture oriented, sports-oriented, outdoor-oriented or compulsive, gregarious, authoritarian, ambitious) Where are they Geographic (including geographic region, geographic size, density, climate, and etc.) Geodemographic (involves both demographic and geographic factors) How they behave Purchase or Choice criteria used Usage rate (e.g. Light, medium, or heavy user) Product use (How the product is used in different ways) What are their needs and wants Benefits sought Buyer needs I personally believe that the best approach to use, when possible, to define segments is to start at the bottom of the above list and work your way up. If, for example, you can segment the market by benefits sought or need or wants, it is probably the most powerful guide to helping with effective market decision making. Demographics, on the other hand are nice, but alone they often dont provide sufficient insights to help with decision making. This is an effort that takes skill and creativity. Coming up with creative, innovative ways of segmenting a market and defining each segment effectively can provide better guidance to market targeting, positioning, and marketing mix decisions and can lead to opportunities to provide greater value and to gain a sustainable competitive advantage. No two competitors may segment their markets the same and I cant underestimate the importance of this step in the marketing planning process. Following up on this idea of starting with buyer needs and benefits sought, let me give you an idea of following a Needs-based market segmentation approach Needs-Based Market Segmentation Usually understanding customer needs is an important aspect of market orientation and developing effective marketing strategies. Thus, it should be the first step in successful market segmentation. While demographics, lifestyle, and use behaviors help shape customer needs, it is usually not best to start the segmentation process with these variables. For example, lets say you want to segment the market for investment services for female investors. How would you go about doing that The first step might be to determine the customers investment needs and the benefits they hope to derive from their investment decisions. Lets say your market research uncovered the possibility for four different needs-based segments Segment A Investors who sought investments to build retirement assets to use as a revenue stream when they retire. Segment B Investors who sought investments that will provide a college fund for their children. Segment C Investors who sought investments that would build wealth to enjoy the good life. Segment D Investors who sought investments to build an estate that they could leave to their heirs. The primary benefit of needs-based market segmentation is that segments start out created around customer needs and benefits sought. The primary disadvantage is that you do not yet know who these customers are Thus, the second step after grouping customers into needs-based segments is segment identification and determining which characteristics differentiate one segment of customers from another based upon the other segmentation variables like demographics, lifestyle characteristics, and useage behaviors. This second step is essential for a segmentation scheme to be actionable, that is for it to be used by marketing managers for purposes of targeting, positioning, and making effective marketing mix decisions. NOTE Although we tend to discuss market segmentation most often in terms of consumer markets, segmentation is just as important in business to business markets. The only differences are in the key identifiers used. Instead of demographics a more appropriate term might be what I call firmographics that might include factors like number of employees, sales volume, industry SIC, number of locations, and etc. Similar to lifestyle in consumer markets, businesses have a culture (style of doing things) which might include technological orientation, growth orientation, attitude toward innovation and risk, centralized vs. decentralized decision-making, and etc. Finally, as in consumer markets, use behavior can play a key role in shaping needs like how much a business buys, how it is used, how often it makes purchases, and etc. Getting back to our example, lets say through market research on current women investors Segment A consists primarily of women over the age of 40 who earn under 100,000 per year and no longer have children living with them and are primarily interested in building retirement income. Segment B consists primarily of women under the age of 40 who also earn under 100,000 and have young children still at home and are primarily interested in growing a college fund for their kids. Segment C consists of women under the age of 40 who earn under 100,000 per year and have no children at home and want to invest to be able to enjoy the good life. . Segment D consists of women over the age of 40 who earn over 100,000 and have children but not living at home anymore who are most interested in providing an inheritance to their kids. One thing that students often dont easily understand is that when you consider using meaningful segmentation variables they have to be used consistently across ALL segments. So using the above example we used a combination of behavioral and demographic segmentation variables. We focused on benefits sought as well as the demographic variables of age, income, and family life style. Every segment includes measures of EACH of these four variables. I think that these two SEQUENTIAL steps above in the segmentation process are critical. If you fail to have both needs-based segments COMBINED with some of the other segmentation criteria, efforts to develop successful target market strategies will fail for one of two important reasons Forming segments that are demographically and behaviorally unique but are NOT built around meaningful differences in needs will often fail because the resulting marketing strategies may not be responsive to the unique needs of these customers. Forming segments that are based on meaningful differences in customer needs but lack clear segment identification may fail because the segment identity will not be known and an actionable set of marketing strategies cannot be developed. Remember, segmenting a relevant market is NOT the same thing as making target market decisions. All market segmentation and forming segments do is break up the total relevant market into possibly more meaningful market segments. After developing a set of segments that ideally cover 100 of the relevant market, the firm then is in a position to determine which segment or segments they will pursue. You should be able to segment any defined product-market or relevant market even if you dont compete in that market yet with a product offering. Later, you determine if your product or service satisfies the needs of one or more segments and determine whether you have the resources to pursue one or more of these segments as target markets. This is why market segmentation is part of a situational analysis and should be included as part of your market analysis. Dont mix up market segmentation or forming segments with what many call market segmentation strategies which deals more with focus strategies and target market decisions. Criteria for evaluating any proposed set of segments for a product-market Once you come up with some type of creative approach to segment a market, it is critical that the approach be meaningful. Therefore, it is important that any suggested approach satisfy certain minimum criteria. The text does a good job on pg. 134 of describing five criteria useful for evaluating a potential segmentation strategy. In summary, they are as follows Response differences Identifiable segments Actionable segments Cost/Benefits of Segmentation Stability over Time Students often come up with a set of segments they think are creative but often dont look at the above criteria objectively. Instead of finding ways to define the criteria to support your proposed segments, it is best to really use the criteria to determine if it really isnt a meaningful way to segment the market before you invest a lot of efforts in target marketing and marketing mix decisions that will only waste money and not accomplish anything. As an example, lets assume you are the product manager for a product called Grey Away, a mens product to eliminate grey hair. You are considering segmenting the mens hair color market by hair color (eg. black, brown, red, and blonde). Might this be a good basis for segmenting the product market by hair color If you look at the above criteria, the different segments would be identifiable and stable over time but what about responds differently Will men with black hair respond differently or have different needs than men with brown hair or is the interest in getting rid of grey hair regardless of your hair color Are segments by hair color actionable Could you develop different promotional efforts towards men with black hair vs. men with brown hair Do men with different hair color read different magazines or watch different TV programs or share different friends on Facebook So how do you reach men by hair color I suspect if you objectively consider the criteria, you would determine that segmenting the mens market by hair color probably doesnt make much marketing sense and targeting segments by hair color would be ineffective and unnecessarily more costly. Instead, it might make more sense to just follow a mass market strategy with variety where you perhaps package your Grey Away product line by hair color like many cosmetic companies do with say lipstick colors, nail polish, and etc. IF even one criteria is not satisfied it brings into question the viability of your bases of segmentation. To this list I would add two additional optional goals. First, every customer or potential customer in the product market should ideally fit into at least one proposed segment. It is nice, but not essential or always possible, to fit every single person into a proposed segment. Also, it is ideal if every person fits into one and only one segment. Again, this is not always possible. So defining a method of segmenting a product-market is a very creative process within a company and the results may be very different from what a competitive company develops. Sometimes firms gain an advantage over competitors because they creatively defined market segments in a way that gave them more insights and, thus, opportunities to development more effective marketing strategies than their competitors in the product market they compete in. For some product markets it might be fairly easy to determine the best way to segment the entire market. For example, in the prescription drug industry I suspect most pharmaceutical companies will develop a method of segmenting the broad prescription drug market around disease or illness categories. People with prostrate cancer have very different needs than those with heart problems. Drug companies that develop a method of segmenting markets by disease/illness can easily decide which segments to target with drugs and how best to promote the drug to each segment based upon these very different needs. For other markets, like the e-book reader market, developing a method of segmenting the market is not so easy and I suspect Sony, Amazon, and Barnes and Noble all might come up with very different approaches. Whatever approach is used, that will be the basis for making your target market decisions. Additional insights into segmenting markets using Segmentation Trees Segmenting Differences in the Same Consumer Market Even firms operating within the same industry can segment the market in different ways (often for strategic reasons). Using the breakfast cereal market as an example, the following diagrams highlight some different possible approaches. HYPERLINK http//www.segmentationstudyguide.com/wp-content/uploads/2012/06/segmentation_tree_breakfast_cereals.png This first segmentation example uses age group (demographics) and then benefits sought to construct nine different market segments. Obviously, each of these segments would be of different sizes and attractiveness, but it does give a good overview of the range of consumer needs in the market. Lets now look at another approach using the same market. HYPERLINK http//www.segmentationstudyguide.com/wp-content/uploads/2012/06/segmentation_tree_example2_cereals.png In this example, two quite distinct segmentation variables have been used. The first base is a geographic variable of weather/climate and the second is a psychographic (lifestyle) variable relating to whether the breakfast meal is typically consumed in a family setting (people eating together) or whether the household members usually eat alone. Remember the point of these examples is to demonstrate that the same market can be segmented and viewed in many different ways. By doing so, the marketer gains a greater understanding of the overall market and is more likely to identify unmet needs (sometimes referred to as market gaps, which are identified through using perceptual maps). Segmenting Business Markets To help explain this concept further, lets look at a couple of examples of business market segmentation. The first is for an IT firm that produces accounting software for businesses. The following diagram outlines a possible segmentation tree for them. HYPERLINK http//www.segmentationstudyguide.com/wp-content/uploads/2012/06/segmentation_tree_business_example.png In this business market segmentation example, the firm has used two segmentation variables to construct six market segments. The first variable used is a basic business description, splitting the market into the broad categories of manufacturing, services, and retailing. Then the firm has applied a cultural variable and considered whether the potential customers tend to adopt new products (in this case, major accounting software) early or late. Lets look at one more business segmentation example, this time we will use a manufacturer of tomato paste that is suitable for use as a pizza topping. Here is a possible segmentation approach for this firm HYPERLINK http//www.segmentationstudyguide.com/wp-content/uploads/2012/06/segmentation_tree_business_example2.png In this example, a variety of segmentation variables have been used in order to construct an interesting definition of market segments. The first variable considered is a business description, which broadly splits the potential market into food service, manufacturing, and supermarkets. Then, for each broad group, a different variable has been injected. For instance, food service was then further split by business description (restaurant/caf or pizza outlet) and then by operating practice (whether or not they are a franchised operation). Manufacturers are further defined by whether they use pizza sauce as a key ingredient (say for frozen pizza) or may use this style of sauce in other products (frozen or microwavable pasta for example). And finally supermarkets were further defined by whether or not they already sell a private label pizza sauce through their stores. In summarizing market segmentation lets use a map of the United States as an example. The map of the U.S. consists of 50 identifiable states that make up the entire United States. There arent any areas of the U.S. that arent in part of a state. Some states are big and some are small. When trying to segment a broad relevant market that you compete in, you are trying to accomplish the same thing. You try to develop a set of segments, using some combination of segmentation variables that covers the entire market. Some of the potential segments may be small and other large. Not all segments will be of interest to you. All market segmentation does is provide you with a set of segments to consider before making your target market decisions. Target Marketing As your text discusses, deciding which buyers in the market to target and how to position a companys products for each market target are some of the most critical decisions of any market-driven strategy. As discussed, targeting decisions determine which customer groups an organization will serve and such decisions fall into two major categories 1) targeting one or more segments based upon effective marketing segmentation or 2) targeting the mass market without concern for segments based on product differentiation and/or low cost. A growing use of the term differentiated marketing refers to targeting based on segmentation and undifferentiated marketing based on targeting the mass market. A key thing to remember is that differentiated marketing is a target market strategy and that is different from product differentiation that is primarily a competitive strategy. Probably a good starting point for discussing market target decisions is by first discussing mass marketing strategies. In mass marketing, the seller engages in the mass production, mass distribution, and mass promotion of one product line for all buyers. Toshiba or Samsung are probably following a mass marketing approach with variety for their line of HDTVs. Especially in such a high growth market, it would probably not make sense to segment markets at this time. The argument for following a mass marketing strategy is that it creates the largest potential market, which leads to the lowest costs, which in turn can lead to lower prices or higher margins. However, many critics point to the increasing splintering of the market, which makes mass marketing more difficult. The proliferation of advertising media, including online, and new types of distribution channels is making it difficult and increasingly expensive to reach a mass audience. Some experts claim that mass marketing is dying. In the past mass marketing was a very common strategy. Probably Henry Ford first epitomized this strategy when he offered the Model-T Ford in one color, black. Cola-Cola also practiced mass marketing when it sold only one kind of Coke in a 6.5 ounce bottle. Campbell Soup used to following a mass market strategy with variety when they offered 23 different favors. Since then all of these firms have evolved to segmentation strategies. Coke now has regular Coke and diet Coke, for example, which are separate products focused on separate market segments. Segmentation strategies can offer variety too. As you decide on market target strategies, target markets based on segmentation has become by far the most common approach used by large and small firms alike. That is why effective segmenting of markets is so critical to effective target market decisions. However, there are many products, especially food products like milk or sour cream, for example, that will continue to use mass marketing with variety offered because it just doesnt make sense to target different segments. For example, Lucerne milk is offered as 4, 2, 1 and non-fat options. Each of these is not targeted to separate market segments with different needs and wants. Instead, Lucerne follows a mass market strategy with variety. Lucerne focuses on selling milk to anyone who needs or wants milk with options to choose from. They dont target people who prefer 1 vs. people who prefer whole milk at 4 and develop specific marketing efforts toward consumers in each of these segments. Thus, mass marketing is always an option to consider vs. a segmented approach. Five Patterns of Target Market Selection In evaluating different market segments for targeting, the firm must look at two key factors the segments overall attractiveness and your firms objectives and resources. How well does a potential segment score on the five criteria discussed under Segmentation (Remember the key criteria included responds differently, identifiable, actionable, cost/benefit, and stability.). Does a potential segment have characteristics that make it generally attractive, such as size, growth, profitability, scale economies or low risk Does investing in the segment make sense given the firms objectives, competencies, and resources Some attractive segments may not mesh with the firms long run objectives, or the firm may lack one or more necessary competencies to offer superior value. Just because segments may have a lot of potential doesnt mean that you are in a good position to capitalize on it. Philip Kotler, a highly recognized author and marketing expert, suggests that firms often select target market target strategies based upon one of five different patterns of target market selection Single Segment Concentration M1M2M3 P1 P2 P3 Porsche concentrates on the sports car market segment. Through concentrated marketing, the firm gains a strong knowledge of the segments needs and achieves a strong market presence. Porsche offers only one single product line intended to appeal primarily to the needs and wants of this segment. If it is able to capture a segment leadership position, the firm can earn a high return on its investment. Selective Specialization M1M2M3P1 P2 P3 A firm selects a number of segments, each objectively attractive and appropriate. There may be little or no synergy among the segments, but each promises to be a moneymaker. This multi-segment strategy has the advantage of diversifying the firms risk. This typically suggests different products or product lines to satisfy the different needs of each segment. Product Specialization M1M2M3 P1 P2 P3 The firm makes a certain product line that it sells to several different market segments. An example would be a microscope manufacturer who sells to university, government, and commercial laboratories. The firm makes different microscopes in one product category for the different customer groups and builds a strong reputation in the one specific product area. Market Specialization M1M2M3P1 P2 P3 The firm concentrates on serving many needs of a particular customer group or market segment. An example would be a firm that sells an assortment of different products only to university laboratories. The firm gains a strong reputation in serving this customer group and becomes a channel for additional products the customer group can use. Full Market Coverage M1M2M3P1 P2 P3 Full market coverage would typically be considered a mass marketing strategy IF each product is targeted to one mass market without separate marketing efforts toward each segment. However, there could be instances where multiple products or product lines were targeted to the same segments and each product was marketed toward each segment separately. Using this example, that would involve 9 separate target market strategies. Although some type of market target strategy based upon segmentation has become the most dominant target market strategy alternative, there are a few other variations of market segmentation based target market strategies that you should be aware of Niche Marketing A niche is often a more narrowly defined customer group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a market segment into sub-segments. For example, Progressive, a Cleveland auto insurer, sells nonstandard auto insurance to risky drivers with a record of auto accidents, charges a high price for coverage and makes a lot of money in the process. An attractive niche is characterized as follows The customers in the niche have a distinct set of needs they will pay a premium to the firm that best satisfies their needs the niche is not likely to attract many other competitors the nicher gains certain economies through specialization and the niche has adequate size, profit, and growth potential. Whereas segments are often fairly larger and normally attract several competitors, niches are fairly small and normally attract only one or two if any. Niche marketers presumably understand their customers needs so well that the customers are willing to pay a price premium. Has anyone ever used Toms Toothpaste Toms of Maine all-natural personal care products sometimes commands a 30 premium on its toothpaste because of its unique, environmentally friendly products and charitable donation programs which appeal to consumers who have been turned off by big businesses. People in marketing often talk about marketing to a single segment or niche marketing interchangeable. I dont think it really matters when developing your market target strategies and also depends upon how you initially defined your product market and defined your initial set of market segments. However, technically there is this subtle difference and sometimes they are two distinct strategy alternatives. Let me just give you an example of how important it is again to have a very clear understanding of the possible market segments and how you define them. It makes a difference between labeling your target market strategy as a segmentation strategy or a niche strategy. Lets take the washing machine market in the United States. In example one the new Xeros Waterless Washing Machine company may determine that there are two distinct market segments (Consumers and commercial). In the consumer segment they determine that there are three sub segments (environmentally oriented, cost oriented, and innovation oriented consumers) and in the commercial segment there are three sub segments (builders, commercial services, and institutions). If the company only decided to market to the consumer segment through retailers it would be considered a single segment strategy. If, however, they elected to focus only on the environmentally oriented sub segment, it would be technically a niche strategy. In example two the new Xeros Waterless Washing Machine company may instead determine from the beginning that there are six market segments (Environmental oriented consumers, cost oriented consumers, Innovation oriented consumers, Builders, commercial services, and institutions). In this case, if they decided to target only the environmental oriented consumers, this would be an example of a single segment strategy. So in both examples, the broad product-market they compete in is the washing machine market in the United States (remember that most market definitions include a geographic component). In both examples they decided to go after the environmentally oriented consumers. However, based upon how they initially defined market segments vs. sub segments determined whether they were following a segmentation strategy or a niche strategy. Its all in the definition Forming segments and sub-segments is only important and valuable IF it gives you insights to make more effective target market and other marketing decisions. Local Target Marketing Local target marketing is leading to marketing programs tailored to the needs and wants of local customer groups (trading areas, neighborhoods, even individual stores). In many cases this is a secondary level of target marketing that focuses on the geographical component of the product market. This is more common in certain consumer markets or as part of retail strategies. Citibank provides different mixes of banking services in its branches, depending on neighborhood demographics. Kraft helps supermarket chains identify the cheese assortment and shelf positioning that will optimize cheese sales in low, middle, and high income stores, and in different ethnic neighborhoods. This often is just another form of niche marketing by geography. Local marketing reflects a growing trend called grassroots marketing where marketing activities concentrate on getting as close and personally relevant to individual customers as possible. Much of Nikes initial success has been attributed to the ability to engage target consumers through grassroots marketing such as sponsorship of local school teams, expert-conducted clinics, and provision of shoes, clothing, and equipment. Customized marketing (or one-to-one marketing) The ultimate level of segmentation leads to segments of one. Again, this is often a secondary level of segmentation strategies. With the advances in technology an increasing number of firms are able to provide interactive online systems that allow individual customers to design their own products and services by choosing from a menu of attributes, components, prices, and delivery options. The customers selections send signals to the suppliers manufacturing system that set motion the wheels of procurement, assembly, and delivery. One example of a firm using this micro-segmentation strategy down to the individual level is Andersen Windows. Andersen Windows of Bayport, Minnesota, the home-building industrys leading window and patio door manufacturer, has developed an interactive computer version of its catalogs for distributors and retailers that is linked directly to the factory. With this system, now in over 650 showrooms, salespeople can help customers customize each window, check the design for structural soundness, and generate a price quote. From there Andersen went on to develop a batch of one manufacturing process in which every window and door part is made to order, thus reducing its finished parts inventory (a major cost to the company). Their primary segmentation strategy might be to the homeowner segment of the window and patio door segment of the product market and customized marketing becomes the secondary and ultimate sub-segment target market strategy. 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Midterm Exam

Midterm Exam

Question # 00563030 Posted By: burgerrubio Updated on: 07/19/2017 02:07 PM Due on: 07/01/2017
Subject Marketing Topic Marketing Tutorials:
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Attached is 5 out of 8 documents including the questions for a Midterm Marketing Exam. 
I will email the remaining 3 attachments in the next email.

Midterm Exam

Summer 2017

Name:

Directions: Complete and return this exam. Be sure to “attach” a Word or PDF document using the Assignment link provided under Week 7. Most of these questions can be answered correctly with very short answers so if you are writing a very long essay you are probably doing something unnecessary. Ideally, it would help if you used this exam and added your answers after each question.

In many cases your support is more important and worth more than the answer itself. Please do not try to find outside information about any of the companies discussed in this exam. All of the company or situation specific information you need is provided in the exam questions and may not always reflect current realities. I have referenced the location of course material relevant to the question, to the best of my ability, to help you save time. Each question is worth 15 points. Good luck.

(1)Iron Mountain recently acquired Recall Holdings. When Iron Mountain, the U.S. based data storage giant tried to buy its Australian based rival, Recall Holdings, in December, Recall rebuffed the $1.8B bid. Not only did Iron Mountain raise its offer, but a strengthening dollar sweetened the deal for Recall, which accepted a bid of $2B. The companies both compete in the global data storage market and are #1 and #2 respectively in market share in the global industry. Together, the merged firms will employ about 25,000 people.

(a) Which of the 9 Corporate Growth Strategies was Iron Mountain following with this acquisition? (b) Explain why your strategy choice is the correct one? (Week One Lecture Notes)

(2) S.C Johnson Co. offers dozens of different brands worldwide such as Off, Pledge, Raid, Ziploc, Windex and Glade.

(a) What primary type of brand identity strategy does S. C. Johnson follow as a corporation?

(b) Explain the reason and support for your choice? (Week Six Lecture Notes or Ch. 7 in text)

The following information should be used to help answer Questions 3, 4 and 5:

The Coca Cola Company in 2015 introduced a new brand for their United States market only, Fairlife milk. I’ll bet you didn’t even know that Coke sold milk? I’ll bet it is even less likely that you have actually purchased Fairlife? As you know from Case 1, the Coca Cola Company has become much more than just a soft drink company. They are the worldwide leader in the overall non-alcoholic beverage market. For marketing planning purposes and answering these questions, prior to introducing Fairlife, assume the Coca Cola Company competed in fiveproduct/markets: (1) still the largest and most significant carbonated soft drink market; (2) fruit juice market: (3) sports/energy drink market; (4) bottled teas/coffee market; and (5) bottle water market.

In 2015 the Coca Cola Co. introduced Fairlife with a nationwide rollout. With the Coca Cola Company’s extensive sales and distribution capabilities, they entered the market as a result of a partnership with Dairy Select Milk Producers in Wisconsin and the Coca Cola Company’s Minute Maid division in Texas to form a separate entity, Fairlife LLC. Select Milk Producers and Coke each have a 50% equity share in the new entity. Minute Maid has the sales and distribution capabilities for refrigerated products so Fairlife was the most logical fit to add under this division. The Coca Cola Co. believes that entering the U.S. market with Fairlife provides the opportunity for a lucrative additional revenue stream in the future which will help to offset the growing trend of decreased soft drink consumption. Fairlife is positioned as a premium milk product that costs almost twice as much as regular milk. Recently a half gallon sold for around $3.99. For regular milk you can usually get a gallon of milk for less than $3.99. Fairlife is much richer in proteins, is lactose free, and goes through a unique pasteurization process. It is in a category by itself as a premium milk product and probably competes more with organic milk and dairy free milk substitutes like lactose free milk, soymilk, almond milk, and etc.

(3) Based upon the above information

(a) What is the relevant market that Fairlife is competing in?

(b) Which of the nine corporate growth strategies was the Coca Cola Company following with the introduction of the Fairlife brand?

(c) Explain and support why your strategy choice in

(d) is the correct one? (Week 1 Lecture Notes)

(4) Based on the above information, when Coke partnered with Dairy Select Milk Producers to form Fairlife LLC

(a) which “specific” type of partnership or strategic relationship was used?

(b) Why do you believe that this is the correct type of strategic relationship? (Week 7 Lecture Notes)

(5) A marketing intern at the Coca Cola Co. working on the Fairlife marketing efforts suggested that one way to segment the milk market they compete in was to do it by fat content. Why not segment the milk market and target those who want non-fat, 1%, 2%, or whole milk?

(a) Does marketing Fairlife toward possible segments by fat preferences make sense?

(b) Why or why not? Include in your support an analysis that you describe for each of the five “requirements for effective segmentation” from the text or “criteria for evaluating a proposed bases of segmentation from my lecture notes” as at least partial support for your answer.

(c) Would you recommend that Fairlife follow some other type of segmentation based target market strategy or would it be better to follow a mass market strategy with variety? Explain? (Ch. 5 or Week Three Lecture notes).

(6) Sprout Pharmaceuticals recently received FDA approval to introduce Addyi, the first prescription drug to boost female libido and introduced to the U.S. market in 2016. Other competitors are expected to enter the market in the future that has an estimated market potential of $2 Billion in the U.S. alone. One potential competitor, Palatin Technologies, is close to finishing clinical trials and seeking FDA approval. Analysts estimate that Addyi will generate initial sales of $200 Million in 2017.

(a) At which stage of the “industry” product life cycle did Addyi enter the U. S. market? Explain?

(b) What do the market measurements suggest with regards to the need for pursuing primary vs. selective demand strategies? Explain? (Ch. 4 and Ch. 7 or Week Two and Week Six Lecture Notes)

(7) Providing value is a key objective of market-driven organizations. Based on the formula for providing added value, there are only five “basic”, alternative strategies that a company can consider if their goal is to provide additional value to their customers. This typically involves decisions involving your product offering and/or your price. Let’s consider Time Warner Cable. Time Warner offers a number of different packages. For example, let’s assume one package Triple Play Silver is offered with 175 channels, internet up to 60Mbps and unlimited calling for $49.99 per month. Due to increased competition from streaming and etc. Time Warner wants to pursue a strategy of providing greater value to its customers in the Los Angeles area.

For your 2018 marketing plans, if you were the Product Manager for cable services for Time Warner and you wanted to provide “additional value to customers” starting January 1, 2018

(a) describe the five possible “general” alternative value strategies that you could consider and state how each alternative provides additional value (using only the value formula primarily as your guide) and

(b) using at least 3 of the 5 alternative value strategies, provide “actual examples specifically related to Time Warner’s current Triple Play offering” describing what you, the Product Manager, might do to the product offering and/or price to deliver more value to customers who sign up for cable services in 2018? (Ch. 10 and Week Seven Lecture Notes)

(8)One of Daimler’s product lines competing in the global automotive market is the Smart car, which has had limited success in primarily urban markets throughout the world. Daimler wants to shore up its image as a city transport specialist rather than just another small auto maker. Thus, Daimler has started a new approach for its Smart brand. In addition to their line of Smart cars, they have also decided to enter the existing markets for e-bikes and e-scooters. They already introduced the “Smart e-bike” and more recently also introduced the “Smart e-scooter”.

(a) Based upon the Booz, Allen, Hamilton study, what specific classification of product innovation would the introduction of e-bikes and e-scooters represent?

(b) Explain?

(c) What type of brand leveraging strategy was being used with the introduction of the Smart e-bikes and Smart e-scooters? Explain why? (Week Four and Week Six Lecture notes)

(9) Gillette, when they release a new shaving system, considers both the sale of the razor and the longer revenue stream from the sale of blades and follows a Captive Pricing strategy. As a result, the concept of Customer Lifetime Value is critical to their marketing planning efforts. Let’s say they are considering introducing a new shaving system. Let’s say the average price of their proposed Gillette He Man Power razor is $16.00. The average customer needs 6 packs of razor blades (8 blade cartridges per pack) per year at $32.00 per pack. From past experience, the average customer loyalty period for a shaving system is 7 years. The estimated, allocated one time marketing costs required to sell each new razor in the first year is $80.00 for sales, distribution and promotional costs. The profit margin on the blades is 40%. Using a Captive Pricing strategy, at $16.00 Gillette will be selling the razor at 50% below cost. (for you accountants don’t look for the flaws in this example. It is only intended to consider a basic marketing concept and planning tool and not necessarily be 100% accurate from an accounting standpoint)

In this example, (a) What is the estimated profit or loss per customer to Gillette in year 1?

(b) Using the concept of lifetime customer value, does it or does it not make sense to introduce this new shaving system?

(c) Demonstrate why or why not by calculating the total estimated customer lifetime value? (Lecture Notes Week Seven).

(10) From 1990 to 2016 the number of inmates in the U.S. state or federal prisons more than doubled to 1.64 million. Benefiting from that surge are corrections contractors such as JPay. The Miami-based company competes only in the prisoner market and offers services such as money transfers, e-mail communications, and video visitations (all of which are monitored by corrections officers) for more than 1 million prisoners in about 35 states. Last year JPay began marketing its own customized line of “prison proof” MP3 players that satisfies the requirements for correctional institutions. The JP3, which family or friends can buy for prisoners online for around $40 is virtually indestructible. Inmates use it to browse Jpay’s library of more than 10 million songs on electronic kiosks the company installs in common areas inside prisons. Downloads run from $1.29 to $1.99 a tune. JPay didn’t pioneer its new line. Keefe Group, a St Louis-based supplier of food and personal care products to prison commissaries, launched its own MP3 player and music download service for prisoners in 2010.

(a) Which of the Five Patterns of Target Market Selection is JPay following with their products and services?

(b) Explain why you made this choice? (Week Three Lecture Notes) and

(c) which of Porter’s 4 Competitive strategies do you think JPay follows and why? (Week 2 Lecture Notes)

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Week_1_Lecture_Notes.doc (162.5 KB)
Week_2_new_lecture_notes.doc (33.5 KB)
Week_3_new_lecture_notes.doc (190.5 KB)
Week_4_new_lecture_notes.doc (207 KB)
Midterm_Exam_Questions_2017.doc (46 KB)
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