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ANSOFF’S MATRIX:

This well known marketing tool was first published in the Harvard Business Review (1957)
in an article called 'Strategies for Diversification'. It is used by marketers who have
objectives for growth. Ansoff's matrix offers strategic choices to achieve the objectives.
There are four main categories for selection.

Market Penetration
Here we market our existing products to our existing customers. This means increasing our
revenue by, for example, promoting the product, repositioning the brand, and so on.
However, the product is not altered and we do not seek any new customers.
Market Development
Here we market our existing product range in a new market. This means that the product
remains the same, but it is marketed to a new audience. Exporting the product, or
marketing it in a new region, are examples of market development.
Product Development
This is a new product to be marketed to our existing customers. Here we develop and
innovate new product offerings to replace existing ones. Such products are then
marketed to our existing customers. This often happens with the auto markets where
existing models are updated or replaced and then marketed to existing customers.
Diversification
This is where we market completely new products to new customers. There are two types
of diversification, namely related and unrelated diversification. Related diversification
means that we remain in a market or industry with which we are familiar. For example, a
soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated
diversification is where we have no previous industry or market experience. For example a
soup manufacturer invests in the rail business.
Ansoff's matrix is one of the most well know frameworks for deciding upon strategies for
growth.

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BOSTON MATRIX ( B CG ):
Like Ansoff's matrix, the Boston Matrix is a well known tool for the marketing manager. It
was developed by the large US consulting group and is an approach to product portfolio
planning. It has two controlling aspect namely relative market share (meaning relative to
your competition) and market growth.
You would look at each individual product in your range (or portfolio) and place it onto the
matrix. You would do this for every product in the range. You can then plot the products of
your rivals to give relative market share.

This is simplistic in many ways and the matrix has some understandable limitations that
will be considered later. Each cell has its own name as follows.
Dogs.
These are products with a low share of a low growth market. These are the canine version
of 'real turkeys!'. They do not generate cash for the company, they tend to absorb it. Get rid
of these products.
Cash Cows.
These are products with a high share of a slow growth market. Cash Cows generate more
than is invested in them. So keep them in your portfolio of products for the time being.
Problem Children.
These are products with a low share of a high growth market. They consume resources and
generate little in return. They absorb most money as you attempt to increase market share.
Stars.
These are products that are in high growth markets with a relatively high share of that
market. Stars tend to generate high amounts of income. Keep and build your stars.
Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash Cows,
Problem Children and Stars need to be kept in a kind of equilibrium. The funds generated
by your Cash Cows is used to turn problem children into Stars, which may eventually
become Cash Cows. Some of the Problem Children will become Dogs, and this means that
you will need a larger contribution from the successful products to compensate for the
failures.

Bowman's Strategy Clock


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The Strategy Clock: Bowman's Competitive Strategy Options
The 'Strategy Clock' is based upon the work of Cliff Bowman (see C. Bowman and D.
Faulkner 'Competitve and Corporate Strategy - Irwin - 1996). It's another suitable way to
analyze a company's competitive position in comparison to the offerings of competitors. As
with Porter's Generic Strategies, Bowman considers competitive advantage in relation to
cost advantage or differentiation advantage. There are six core strategic options:

Option one - low price/low added value.


likely to be segment specific.
Option two - low price.
risk of price war and low margins/need to be a 'cost leader'.
Option three - Hybrid.
low cost base and reinvestment in low price and differentiation.
Option four - Differentiation.
(a)without a price premium:
perceived added value by user, yielding market share benefits.
(b)with a price premium:
perceived added value sufficient to to bear price premium.
Option five - focussed differentiation.
perceived added value to a 'particular segment' warranting a premium price.
Option six - increased price/standard.
higher margins if competitors do not value follow/risk of losing market share.
Option seven - increased price/low values.
only feasible in a monopoly situation.
Option eight - low value/standard price.

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loss of market share.

Core Competences
Marketing and Core Competences
A core competence is the result of a specific unique set of skills or production techniques
that deliver value to the customer. Such competences give an organization access to a wide
variety of markets. Hamel and Prahalad (1990) refer to a number of organizations and their
products to support their concept including NEC, Honda and Canon.
Core competences are interesting from a traditional marketing point of view since it could
be argued that they take a product or production orientation rather than a market orientation.
If you focus on production techniques and skills then aren't you looking at your business
from an internal point of view? The answer is yes. However, the core competences give a
business a competitive advantage in a number of markets, markets where customers
perceive a benefit from the product. So if needs are being met better than the competition,
there is an argument that core competences are indeed market-oriented. There are at least
three tests of a core competence.
Three tests of core competence.
Provides potential access to a wide variety of markets.
Should make a significant contribution to the perceived customer benefits of the end
product.
Should be difficult for competitors to imitate.

For example, Microsoft has expertise in many IT-based innovations and technologies.
Customers perceive many benefits in relation to Microsoft's products. For a variety of
reasons including unique skills, it is difficult for competitors to imitate Microsoft's core
competences.

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When trying to identify a core competence, it is often easy to mistake them for scarce or
unique resources i.e. resources rather than skills or production technologies. Also often
skills and production technologies do not amount to a core competence or resource because
they do not comply with one or more of the three tests. They are the thresholds that the
organization must achieve to remain competitive. Threshold competences and scarce
resources may not provide access to a variety of markets, may not be so significant to
customers and may be less difficult to imitate.
In summary there are core competences and scarce resources, and threshold competences
and threshold resources.

In order to be competitive an organization needs material resources such as premises, a


factory or offices - depending on the nature of business of course. Material resources tend
to be the most straightforward to achieve. Then an organization needs to achieve the right
balance between Human Resources, training and recruitment. This state is more difficult to
achieve. Intangible resources, including core competences are the most difficult and
challenging to achieve. This is depicted in the diagram above. In fact they drive competitive
advantage.

Five Forces Analysis


IT helps the marketer to contrast a competitive environment. It has similarities with other
tools for environmental audit, such as PEST analysis, but tends to focus on the single,
stand alone, business or SBU (Strategic Business Unit) rather than a single product or
range of products. For example, Dell would analyse the market for Business Computers i.e.
one of its SBUs.
Five forces analsysis looks at five key areas namely the threat of entry, the power of buyers,
the power of suppliers, the threat of substitutes, and competitive rivalry.
The threat of entry.
Economies of scale e.g. the benefits associated with bulk purchasing.
The high or low cost of entry e.g. how much will it cost for the latest technology?
Ease of access to distribution channels e.g. Do our competitors have the distribution
channels sewn up?
Cost advantages not related to the size of the company e.g. personal contacts or knowledge
that larger companies do not own or learning curve effects.
Will competitors retaliate?

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Government action e.g. will new laws be introduced that will weaken our competitive
position?
How important is differentiation? e.g. The Champagne brand cannot be copied. This
desensitises the influence of the environment.
The power of buyers.
This is high where there a few, large players in a market e.g. the large grocery chains.
If there are a large number of undifferentiated, small suppliers e.g. small farming businesses
supplying the large grocery chains.
The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to
another.
The power of suppliers.
The power of suppliers tends to be a reversal of the power of buyers.
Where the switching costs are high e.g. Switching from one software supplier to another.
Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft.
There is a possibility of the supplier integrating forward e.g. Brewers buying bars.
Customers are fragmented (not in clusters) so that they have little bargaining power e.g.
Gas/Petrol stations in remote places.
The threat of substitutes
Where there is product-for-product substitution e.g. email for fax Where there is
substitution of need e.g. better toothpaste reduces the need for dentists.
Where there is generic substitution (competing for the currency in your pocket) e.g. Video
suppliers compete with travel companies.
We could always do without e.g. cigarettes.

Competitive Rivalry
This is most likely to be high where entry is likely; there is the threat of substitute products,
and suppliers and buyers in the market attempt to control. This is why it is always seen in
the center of the diagram.

GAP ANALYSIS:
Gap analysis is a very useful tool for helping marketing managers to decide upon marketing
strategies and tactics. Again, the simple tools are the most effective. There's a
straightforward structure to follow. The first step is to decide upon how you are going to
judge the gap over time. For example, by market share, by profit, by sales and so on.
This will help you to write SMART objectives. Then you simply ask two questions -
where are we now? and where do we want to be? The difference between the two is the
GAP - this is how you are going to get there. Take a look at the diagram below. The lower
line is where you'll be if you do nothing. The upper line is where you want to be.
What is Gap Analysis?

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Your next step is to close the gap. Firstly decide whether you view from a strategic or an
operational/tactical perspective. If you are writing strategy, you will go on to write tactics -
see the lesson on marketing plans. The diagram below uses Ansoff's matrix to bridge the
gap using strategies:

Strategic Gap Analysis.

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You can close the gap by using tactical approaches. The marketing mix is ideal for this. So
effectively, you modify the mix so that you get to where you want to be. That is to say you
change price, or promotion to move from where you are today (or in fact any or all of the
elements of the marketing mix).
Tactical Gap Analysis.

This is how you close the gap by deciding upon strategies and tactics - and that's gap
analysis.

PEST Analysis
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It is very important that an organization considers its environment before beginning the
marketing process. In fact, environmental analysis should be continuous and feed all
aspects of planning. The organization's marketing environment is made up of:
1. The internal environment e.g. staff (or internal customers), office technology, wages and
finance, etc.
2. The micro-environment e.g. our external customers, agents and distributors, suppliers,
our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural
forces, and Technological forces. These are known as PEST factors.

Political Factors.
The political arena has a huge influence upon the regulation of businesses, and the spending
power of consumers and other businesses. You must consider issues such as:
1.How stable is the political environment?
2.Will government policy influence laws that regulate or tax your business?
3.What is the government's position on marketing ethics?
4. What is the government's policy on the economy?
5. Does the government have a view on culture and religion?
6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or
others?
Economic Factors.
Marketers need to consider the state of a trading economy in the short and long-terms. This
is especially true when planning for international marketing. You need to look at:
1. Interest rates.
2. The level of inflation Employment level per capita.
3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so
on.
Sociocultural Factors.
The social and cultural influences on business vary from country to country. It is very
important that such factors are considered. Factors include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?

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6.How long are the population living? Are the older generations wealthy?
7.Do the population have a strong/weak opinion on green issues?
Technological Factors.
Technology is vital for competitive advantage, and is a major driver of globalization.
Consider the following points:
1. Does technology allow for products and services to be made more cheaply and to a better
standard of quality?
2.Do the technologies offer consumers and businesses more innovative products and
services such as Internet banking, new generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books via the Internet, flight
tickets, auctions, etc?
4.Does technology offer companies a new way to communicate with consumers e.g.
banners, Customer Relationship Management (CRM), etc?

Value Chain Analysis


The value chain is a systematic approach to examining the development of competitive
advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980).
The chain consists of a series of activities that create and build value. They culminate in
the total value delivered by an organisation. The 'margin' depicted in the diagram is the
same as added value. The organisation is split into 'primary activities' and 'support
activities.'

Primary Activities.
Inbound Logistics.
Here goods are received from a company's suppliers. They are stored until they are needed
on the production/assembly line. Goods are moved around the organisation.

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Operations.
This is where goods are manufactured or assembled. Individual operations could include
room service in an hotel, packing of books/videos/games by an online retailer, or the final
tune for a new car's engine.
Outbound Logistics.
The goods are now finished, and they need to be sent along the supply chain to wholesalers,
retailers or the final consumer.

Marketing and Sales.


In true customer orientated fashion, at this stage the organisation prepares the offering to
meet the needs of targeted customers. This area focuses strongly upon marketing
communications and the promotions mix.
Service.
This includes all areas of service such as installation, after-sales service, complaints
handling, training and so on.
Support Activities.
Procurement.
This function is responsible for all purchasing of goods, services and materials. The aim is
to secure the lowest possible price for purchases of the highest possible quality. They
will be responsible for outsourcing (components or operations that would normally be done
in-house are done by other organisations), and ePurchasing (using IT and web-based
technologies to achieve procurement aims).
Technology Development.
Technology is an important source of competitive advantage. Companies need to innovate
to reduce costs and to protect and sustain competitive advantage. This could include
production technology, Internet marketing activities, lean manufacturing, Customer
Relationship Management (CRM), and many other technological developments.
Human Resource Management (HRM).
Employees are an expensive and vital resource. An organisation would manage recruitment
and selection, training and development, and rewards and remuneration. The mission and
objectives of the organisation would be driving force behind the HRM strategy.
Firm Infrastructure.
This activity includes and is driven by corporate or strategic planning. It includes the
Management Information System (MIS), and other mechanisms for planning and control
such as the accounting department.

Balance scorecard

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Black box model
ENVIRONMENTAL FACTORS BUYER'S BLACK BOX
BUYER'S
Marketing Environmental Buyer Decision RESPONSE
Stimuli Stimuli Characteristics Process
Problem
recognition
Information
Attitudes Product choice
Product Economic search
Motivation Brand choice
Price Technical Alternative
Perceptions Dealer choice
Place Political evaluation
Personality Purchase timing
Promotion Cultural Purchase
Lifestyle Purchase amount
decision
Post-purchase
behavior

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Chapter 1- Defining marketing for 21st Century
Marketing: It is about identifying and meeting human and social needs.
It is a societal process by which individuals and groups obtain what they need and want
through creating and offering and freely exchanging process and services of value with
others.
It is an organizational fn and a set of processes for creating communicating and delivering
value to customers and managing customer relationships in ways that benefit organization
and its stakeholders.

Holistic Marketing: Development, design and implementation of marketing programs,


process and activities that recognize the breadth and interdependence of today’s
marketing environment.

Marketing Management: It is the art and science of choosing target markets and getting,
keeping and growing customers through creating, delivering and communicating superior
value.

Marketing environment: The actors engaged in producing, distributing and promoting the
offering.

Marketer: Someone who seeks response, attention, a purchase, vote, donation from
another party called prospect.

NEGATIVE DEMAND: Consumers dislike the product and may even pay a price to avoid it.
NONEXISTENT DEMAND: Consumers may be unaware or uninterested in the product.
LATENT DEMAND: Consumers may share a strong need that may not be satisfied by an
existing product.
DECLINING DEMAND: Consumers begin to buy the product less frequently or not at all.
IRREGULAR DEMAND: Consumer purchases vary on a seasonal, monthly, weekly daily or
even on hourly basis.
FULL DEMAND: Consumers are adequately buying all the products put into the
marketplace.
OVERFULL DEMAND: More consumers would like to buy the product than can be satisfied.
UNWHOLESOME DEMAND: Consumers may be attracted to the products that have
undesirable social consequences.

Needs are basic human requirements.


Wants when they are directed to specific objects that might satisfy the need.
Demands are wants for specific products backed by an ability to pay.

Stated needs: The customer wants an inexpensive car.


Real needs: Unstated needs: Delight needs: Secret needs

Value proposition: The whole cluster of benefits the company promises to deliver.

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Value: reflects the sum of perceived tangible and intangible benefits and costs to
customers.
Customer Value triad: QSP- Quality, service and price.
Satisfaction: reflects a person’s judgements of a product performance or outcome in
relationship to expectations.

Competition: Includes all the actual and potential rival offerings and substitutes a buyer
might consider.

Production concept: Consumers will prefer products that are widely available and
inexpensive.

Product concept: Consumers favor those products that are available with superior quality,
performance and innovative features.

Selling concept: Consumers and businesses, if left alone won’t buy enough of
organization’s products. It is with unsought gods, goods that buyers do not think of buying,
such as insurance and encyclopedias. It is used when the company has overcapacity.

Marketing concept: the key to achieving organizational goals is being more effective than
competitors in creating, delivering and communicating superior customer value to your
chosen target markets.

Reactive market orientation: Understanding and meeting customer’s expressed needs.


Proactive market orientation: When the focus is on customer’s latent needs, which would
create advanced and high-level innovation.

Relationship marketing: aims to build mutually satisfying long-term relationships with


key constituents in order to earn and retain their business.

Holistic Marketing

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Chapter 2- Developing Marketing Strategies and Plans
3V’s approach to Marketing:
1. Define value segment or customers and their needs
2. Define the value proposition
3. Define the value network that will deliver the promised service
OR
1. Value-defining process such as market research and company analysis
2. Value-developing process such as new-product development, sourcing strategy and
vendor selection
3. Value-delivering process such as advertising and managing distribution

Value Chain as per Michael Porter: Primary activities such as inbound logistics or
bringing material into business; operations or converting them into final products; outbound
logistics or shipping out final products, marketing them, which includes sales and service.
Support activities include procurement, technology development, hrm, firm infrastructure.

Core competencies: Areas of special technical and production expertise.

Value exploration: Customer’s cognitive space, company’s competence space,


collaborator’s resource space.

Customer’s cognitive space: reflects existing and latent needs and includes dimensions
such as need for participation, stability, freedom and change.
Company’s competence space: In terms of breadth-broad versus focused scope of
business and depth- physical versus knowledge based capabilities.
Collaborator’s resource space: Includes horizontal partnerships with partners chosen for
their ability to exploit market related opportunities, and vertical partnerships, with partners
who can serve the firm’s value creation.

Value Creation: Includes identifying new customer benefits from customer’s view,
utilizing core competencies from its business domain and selecting and managing business
partners with its collaborative networks.

Central Role of Strategic Planning: Understanding customer value, creating customer


value, delivering customer value, capturing customer value and sustaining customer value.

Marketing Plan (MP): Central instrument for directing and coordinating marketing effort.
It operates at two levels: Strategic MP and Tactical MP.
Strategic MP: Lays out the target markets and value proposition the firm will offer based
on the analysis of the best market opportunities.
Tactical MP: Specifies the marketing tactics, including product features, promotion,
merchandising, pricing, sales channel and service.
4 Organizational levels:
1. Corporate Level Planning
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2. Division Level Planning
3. Business unit Level Planning
4. Product Level Planning

Strategic Planning, Implementation & Control Process:


Planning Implementing Controlling
Corporate Organizing Measuring results
Division Implementing Diagnosing results
Business Taking appropriate
Unit action
Product

Corporate & Division Planning:


1. Defining Corporate mission
2. Establishing SBU’s
3. Assigning resources to each SBU
4. Assessing growth opportunities

Business Unit Planning:


1. Business Mission
2. SWOT Analysis
3. Goal Formulation
4. Strategy Formulation
5. Program Formulation
6. Implementation
7. F/b & control

Mission: Mission statements focus on limited number of goals, stress on company’s


major policies and procedures, and define major competitive spheres in which the
company will operate.
Goal Formulation: Goals are objectives that are specific w.r.t magnitude and time. Goals
indicate what a business unit wants to achieve.
Strategy Formulation: It is a game plan for achieving the goals. The business should have
marketing strategy, compatible technology strategy, sourcing strategy.
Porter’s Generic Strategies: Overall Cost Leadership, Differentiation & Focus.
Overall Cost Leadership: Lower production & distribution cost. Cost is usually lesser than
their competitors.
Differentiation: It is achieved in terms of performance, quality.
Focus: It has focus on one or more narrow market segments.
Strategic group: Firms pursuing same strategy directed to same target market.
According to Porter, Strategy is the creation of unique and valuable position involving
a different set of activities.

F/b & Control: Acc to Peter Drucker,


To do right thing – Effective
To do things right - Efficient

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Partner relationship management: Ability to manage partnerships to keep the strategic
alliance thriving.
Activity Based Cost (ABC): Determines whether each marketing program is likely to
produce sufficient results to justify its cost.

Acc to Mckinsey, Strategy, system and structure are hardware of success AND Style,
skills, staff and shared values are software of success.

Product Planning:
Marketing Plan: A written document that summarizes what the marketer has learned about
the marketplace and indicates how the firm plans to reach its marketing objectives.
Executive Summary & Table of contents
SWOT Analysis
Marketing Strategy – Mission, 4P’s, Target Market
Financial Projections – Break-even analysis
Implementation controls

Chapter 3 Gathering Information & Scanning the environment


Marketing Information System (MIS): Consists of people, equipment and procedures to
gather, sort, analyze and distribute needed, timely and accurate information to marketing
decision makers. It relies on Internal company records, Marketing intelligence activities and
Marketing research.
Internal company records: Order to payment cycle, Sales information system, Databases,
Data warehousing and Data mining.

Carpet Bombing: Mailing of every new offer to every customer in its database.

RFM: Purchase Recency, Frequency and Monetary value.

Market Intelligence System (MIS): Set of procedures and sources managers use to obtain
everyday information about developments in its marketing environment.

Secondary data source: Statistical outline of India, CMIE, marketing whitebook,


Readership Surveys (NRS - National & IRS - Indian), NCAER.

Macroenvironment: Political, Social, Technological, Economical, Demographics.


Microenvironment: Customers, suppliers, intermediaries, competitors.

Fag: Unpredictable, short-lived and without social, economical and political significance.
Trend: Direction or sequence of events that has momentum and durability.
Megatrends: “Large” social, economical and political changes that are slow to form and
once in place, they influence us for sometime b/n 5 to 7 yrs or longer.

Demographic environment: Marketers must be aware of population characteristics, the


age mix of population, literacy and education levels.

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Economic environment: marketers need to focus on income distribution, level of savings,
debt and credit availability.
Socio-cultural environment: Marketers must understand influence of religion, languages,
customs that shape the values and attitudes of consumer preferences, habits and behavior.
Natural environment: Marketers must be aware of the public’s increased concern about
the health of the environment. (Green marketing programs)
Technological environment: marketers should take into account the accelerating pace of
technology, opportunities for innovation, varying R&D budgets, increased governmental
regulation brought about by technological change.
Political-Legal environment: Marketers must work within many regulating laws, business
practices and with various special interest groups.

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Chapter 8 Identifying Market Segments & Targets
Mass Marketing: The seller engages in mass production, mass distribution & mass
promotion of one product for all buyers.

Market Segment: Consists of group of customers who share a similar set of needs and
wants.
Homogenous preferences: When all consumers have roughly the same preference, the
market has no natural segments.
Diffused preferences: Vary greatly in their preferences.
Clustered preferences: When natural segments emerge from groups of consumers with
shared preferences.

Flexible market offering: Consists of 2 parts - Naked solution containing the product and
service elements that all segment members value & Discretionary options that some
segment members value.

Niche marketing: A narrowly defined customer group seeking a distinctive mix of


benefits.
Local marketing: Marketing programs tailored to the needs and wants of local customer
groups in trading areas, neighborhoods and individual stores.
Individual marketing: segment of one, customized marketing, one-to-one marketing

Basis for segmenting Markets: Geographic, Demographic, Psychographic.


Geographic segmentation: Division of markets into different geographical units such as
nations, states, regions, countries or cities.
Demographic segmentation: Division of markets on the basis of variables such as age,
family size, family life cycle, gender, income, occupation, education, religion, race,
generation, nationality and social class.
Psychographic segmentation: Psychographics is the science of using psychology and
demographics to better understand consumers.

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SRIC-BI VALS (Values & Lifestyle) framework. (Psychographic study)

Innovators
Primary Motivation High Resources
High innovation

Ideals Achievement Self-expression

Thinkers Achievers Experiencers

Believers Strivers Makers

Low Resources
Low innovation
Survivors

Consumer Motivation (Horizontal dimension) & Consumer Resources (Vertical


dimension)

The four groups with higher resources are:


Innovators: Successful, sophisticated “take charge” people with high self-esteem.
Purchases often reflect cultivated tastes for relatively upscale, niche-market oriented
products & services.
Thinkers: Mature, satisfied and reflective people who are motivated by ideal and who
value order, knowledge and responsibility. They seek durability, functionality and value
in products.
Achievers: Successful, goal-oriented people who focus on career and family. They favor
premium products that demonstrate success to their peers.
Experiencers: Young, enthusiastic, impulsive people who seek variety and excitement.
They spend comparatively high income on fashion, entertainment and socializing.

Successful, sophisticated, take charge


Innovators ppl
Mature, satisfied and reflective ppl
Thinkers (ideals)
Achievers Successful, goal-oriented ppl
Experiencers Young, enthusiastic and impulsive ppl

The four groups with lower resources are:


Believers: Conservative, conventional and traditional people with concrete beliefs. They
prefer familiar products and are loyal to established brands.
Strivers: Trendy and fun-loving people who are resource constrained. They favor products
that emulate the purchases of those with great material wealth.
Makers: Practical, self-sufficient people, down-to-earth who like to work with their hands.
They seek products with functional or practical purpose.
Survivors: Elderly, passive people who are concerned about change. They are loyal to their
favorite brands.

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Believers Conservative, traditional and conventional ppl
Trendy and fun-loving ppl with resource
Strivers constrained
Makers Practical, down-to-earth, self-sufficient ppl
Survivors Elderly, passive ppl concerned about change

Chapter 9 Dealing with Competition


Porter’s Five Forces Model (Five forces determining Segment Structural
Attractiveness)

1. Threat of intense segment rivalry – segment unattractive if it contains numerous


strong & aggressive competitors
2. Threat of new entrants – most attractive segment has high entry & low exit barriers
3. Threat of substitute products – segment unattractive when there are actual/potential
substitutes for product (placing limit on prices)
4. Threat of buyers’ growing bargaining power – segment unattractive if buyers
possess strong bargaining power
5. Threat of suppliers’ growing bargaining power

Share of market: The competitor’s share of target market.


Share of mind: “Name the first company that comes to your mind in this industry”
Share of heart: “Name the company from which you would prefer to buy the product.”
Companies that make steady gains in mind share and heart share will inevitably make gains
in market share and profitability.

Red ocean strategy:


1. Compete in existing market space
2. Beat the competition
3. Exploit existing demand
4. Make the value/cost trade off
5. Align the whole system of company’s activities with its strategic choice of
differentiation or low cost.

Blue ocean strategy:


1. Create uncontested market space
2. Make the competition irrelevant
3. Create and capture new demand
4. Break the value/cost trade off
5. Align the whole system of company’s activities in pursuit of differentiation or low
cost.

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The McKinsey 7S Framework
Ensuring that all parts of your organization work in harmony

How do you go about analyzing how well your organization is positioned to achieve its intended
objective? This is a question that has been asked for many years, and there are many different
answers. Some approaches look at internal factors, others look at external ones, some combine
these perspectives, and others look for congruence between various aspects of the organization
being studied. Ultimately, the issue comes down to which factors to study.

While some models of organizational effectiveness go in and out of fashion, one that has
persisted is the McKinsey 7S framework. Developed in the early 1980s by Tom Peters and
Robert Waterman, two consultants working at the McKinsey & Company consulting firm, the
basic premise of the model is that there are seven internal aspects of an organization that need to
be aligned if it is to be successful.

The 7S model can be used in a wide variety of situations where an alignment perspective is
useful, for example to help you:

• Improve the performance of a company.


• Examine the likely effects of future changes within a company.
• Align departments and processes during a merger or acquisition.
• Determine how best to implement a proposed strategy.

The McKinsey 7S model can be applied to elements of a team or a


project as well. The alignment issues apply, regardless of how you
decide to define the scope of the areas you study.

The Seven Elements


The McKinsey 7S model involves seven interdependent factors which are categorized as either
"hard" or "soft" elements:

Hard Elements Soft Elements


Strategy Shared Values

Structure Skills

Systems Style

Staff
Types of retailers
1. Specialty Stores

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Narrow product lines with deep assortment (Body Shop)
2. Department Store
Several product lines, with each line operated as a separate department.
3. Supermarket
Relatively large, low-cost, low-margin, high-volume, self-service operation
4. Convenience Store
Relatively small store located near residential area, open long hours, 7 days a week &
carrying a limited line of high-turnover convenience products at slightly higher prices with
take-out sandwiches, coffee, soft drinks (7/11)
5. Discount Store
Standard merchandise sold at lower prices with lower margins & higher volumes (Wal-
Mart
6. Off price Retailer
Factory outlets etc. which sell at prices lower than regular outlets & include sales of
seconds etc.
7. Superstore
About 35000 sq. ft of retailing space aimed at meeting consumer’s total need for routine
items + services such as laundry, shoe repair, check cashing etc (e.g. hypermarket)
 Hypermarkets
Range between 80000 & 220000 sq. ft & combine supermarket, discount & warehouse
retailing. Assortment includes furniture, appliances, clothing etc. There is bulk display &
minimum handling by store personnel, with discounts for customers willing to carry heavy
items out of the store. Concept originated in France (Carrefour).
Catalog showroom
 Broad selection of high-markup, fast-moving, brand-name goods at discount prices.
You order through a catalog & then pick up the goods at a merchandise pickup area
in the store
 Best example : Burlington’s
Franchising
 Franchiser owns a trade or service mark & licenses it to franchisees in return for
royalty payments.
 Franchisee pays for the right to be part of the system.
 Franchiser provides franchisees with a system for doing business.
* Best example – Big Mac

Major wholesaler types


Merchant wholesalers: Independently owned businesses that take title to the merchandise
they handle (distributors). 2 types are:
1. Full service wholesalers (stockist)
2. Limited service wholesalers
Both sell to retailers, but style/scope of operation is different.
 Brokers & agents: Do not take title to goods & perform only a few functions.
Facilitate buying/selling for which they earn a commission on the transaction
amount.
1. Brokers bring buyer & seller together & assist in negotiations. Do not carry
inventory or get involved in financing etc. (real estate).

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2. Agents represent either buyer or seller on more permanent basis. Formal agreement
with producers for selling, purchasing in toto or on part/commission basis.
3. Manufacturer/retailer branch/office: Wholesaling conducted by seller/buyer
themselves & not through independent wholesalers.
4. Compaq setting up own branch offices to sell direct to end-user/customer.
5. Miscellaneous wholesalers: Agricultural wholesalers, auction companies etc.

Market Segmentation

Market segmentation is the identification of portions of the market that are different from
one another. Segmentation allows the firm to better satisfy the needs of its potential
customers.

The Need for Market Segmentation

The marketing concept calls for understanding customers and satisfying their needs better
than the competition. But different customers have different needs, and it rarely is possible
to satisfy all customers by treating them alike.

Mass marketing refers to treatment of the market as a homogenous group and offering the
same marketing mix to all customers. Mass marketing allows economies of scale to be
realized through mass production, mass distribution, and mass communication. The
drawback of mass marketing is that customer needs and preferences differ and the same
offering is unlikely to be viewed as optimal by all customers. If firms ignored the differing
customer needs, another firm likely would enter the market with a product that serves a
specific group, and the incumbant firms would lose those customers.

Target marketing on the other hand recognizes the diversity of customers and does not try
to please all of them with the same offering. The first step in target marketing is to identify
different market segments and their needs.

Requirements of Market Segments

In addition to having different needs, for segments to be practical they should be evaluated
against the following criteria:

• Identifiable: the differentiating attributes of the segments must be measurable so


that they can be identified.
• Accessible: the segments must be reachable through communication and
distribution channels.
• Substantial: the segments should be sufficiently large to justify the resources
required to target them.
• Unique needs: to justify separate offerings, the segments must respond differently to
the different marketing mixes.

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• Durable: the segments should be relatively stable to minimize the cost of frequent
changes.

A good market segmentation will result in segment members that are internally
homogenous and externally heterogeneous; that is, as similar as possible within the
segment, and as different as possible between segments.

Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

• Geographic
• Demographic
• Psychographic
• Behavioralistic

Geographic Segmentation

The following are some examples of geographic variables often used in segmentation.

• Region: by continent, country, state, or even neighborhood


• Size of metropolitan area: segmented according to size of population
• Population density: often classified as urban, suburban, or rural
• Climate: according to weather patterns common to certain geographic regions

Demographic Segmentation

Some demographic segmentation variables include:

• Age
• Gender
• Family size
• Family lifecycle
• Generation: baby-boomers, Generation X, etc.
• Income
• Occupation
• Education
• Ethnicity
• Nationality
• Religion
• Social class

Many of these variables have standard categories for their values. For example, family
lifecycle often is expressed as bachelor, married with no children (DINKS: Double Income,
No Kids), full-nest, empty-nest, or solitary survivor. Some of these categories have several
stages, for example, full-nest I, II, or III depending on the age of the children.

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Psychographic Segmentation

Psychographic segmentation groups customers according to their lifestyle. Activities,


interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some
psychographic variables include:

• Activities
• Interests
• Opinions
• Attitudes
• Values

Behavioralistic Segmentation

Behavioral segmentation is based on actual customer behavior toward products. Some


behavioralistic variables include:

• Benefits sought
• Usage rate
• Brand loyalty
• User status: potential, first-time, regular, etc.
• Readiness to buy
• Occasions: holidays and events that stimulate purchases

Behavioral segmentation has the advantage of using variables that are closely related to the
product itself. It is a fairly direct starting point for market segmentation.

Bases for Segmentation in Industrial Markets

In contrast to consumers, industrial customers tend to be fewer in number and purchase


larger quantities. They evaluate offerings in more detail, and the decision process usually
involves more than one person. These characteristics apply to organizations such as
manufacturers and service providers, as well as resellers, governments, and institutions.

Many of the consumer market segmentation variables can be applied to industrial markets.
Industrial markets might be segmented on characteristics such as:

• Location
• Company type
• Behavioral characteristics

Location

In industrial markets, customer location may be important in some cases. Shipping costs
may be a purchase factor for vendor selection for products having a high bulk to value ratio,

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so distance from the vendor may be critical. In some industries firms tend to cluster
together geographically and therefore may have similar needs within a region.

Company Type

Business customers can be classified according to type as follows:

• Company size
• Industry
• Decision making unit
• Purchase Criteria

Behavioral Characteristics

In industrial markets, patterns of purchase behavior can be a basis for segmentation. Such
behavioral characteristics may include:

• Usage rate
• Buying status: potential, first-time, regular, etc.
• Purchase procedure: sealed bids, negotiations, etc.

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