Marketing: Session 2

Understanding Customers: Individuals & Organizations

Agenda

• Finish off last day• Key Customer Behaviour Concepts• Market Segmentation, Targeting & Positioning• Case: Rebel Creek• StratSim• Summary • Next Day

Last Day

• Market Orientation – value, requirements• Market Opportunity Identification & Assessment• 6 C’s – particularly Customer, Company, &

Competitor• Market Research – Coors• StratSim, Business

Research Techniques

• Market Mapping• Concept Testing – products/services, ads• Customer Decision Making & Preferences• Media usage• Performance Modeling• Forecasting & Propensity models• Behavioural data - transaction capture, loyalty

programs - need to complement with cognitive/attitudinal

• Surveysite.com

Competitive Intelligence

• Strategic perspective - offensive vs defensive• Direct & indirect competition• Diversity of needs within organization• Diversity of sources - reports, speeches, net,

customers, partners, etc.• Ongoing, captured & communicated - used• Leakage - what you are telling competitors• Specialized skills & resources

Summary - Research & Market Intelligence

• Uncertainty reduction - effective decision making

• Abundance of data - not intelligence

• Behavioural & cognitive/attitudinal

• System - technology & people, ongoing

• Learning organization

• Utilization - capture, communicate/share

Framework for Diagnosing Market Opportunity

Seed Opportunity in Existing or New Value Seed Opportunity in Existing or New Value SystemSystem

Seed Opportunity in Existing or New Value Seed Opportunity in Existing or New Value SystemSystem

Uncover Opportunity Nucleus:Uncover Opportunity Nucleus:Identify Unmet and Underserved NeedsIdentify Unmet and Underserved Needs

Uncover Opportunity Nucleus:Uncover Opportunity Nucleus:Identify Unmet and Underserved NeedsIdentify Unmet and Underserved Needs

Identify Target SegmentsIdentify Target SegmentsIdentify Target SegmentsIdentify Target Segments

Declare Company’s Resource-Based Declare Company’s Resource-Based Opportunity for AdvantageOpportunity for Advantage

Declare Company’s Resource-Based Declare Company’s Resource-Based Opportunity for AdvantageOpportunity for Advantage

Assess Competitive, Technological and Assess Competitive, Technological and Financial Opportunity AttractivenessFinancial Opportunity Attractiveness

Assess Competitive, Technological and Assess Competitive, Technological and Financial Opportunity AttractivenessFinancial Opportunity Attractiveness

Make Go / No-Go AssessmentMake Go / No-Go AssessmentMake Go / No-Go AssessmentMake Go / No-Go Assessment

Investigative Stages

Final Decision

• How can a firm generate new business ideas? • What value can a company unlock or introduce?

• Can the new business fulfill an unmet or underserved

customer need?

• Which segments of the market are most attractive to serve?• What is their profile?

• Does the firm have the resources and capabilities to support the new business and serve the customer needs?

• Is the new opportunity attractive from a financial, competitive and technology standpoint?

• Based on the overall analysis, should the firm launch the new business?

Resources and Resources and Assets NeededAssets Needed Resources and Resources and Assets NeededAssets Needed

Provided by the Provided by the CompanyCompany

Provided by the Provided by the CompanyCompany

Provided Provided Through Through

PartnershipsPartnerships

Provided Provided Through Through

PartnershipsPartnerships

Types of Capabilities:• Customer-facing• Internal• Upstream

Categories of Partners:• Complementor partners• Capability partners

Evaluate Capabilities to Deliver Value

Competitive IntensityCompetitive Intensity Competitive IntensityCompetitive Intensity Customer DynamicsCustomer Dynamics Customer DynamicsCustomer Dynamics

• Number of competitors• Competitors strengths and weaknesses

• Number of competitors• Competitors strengths and weaknesses

• Unconstrained opportunity• Segment interaction • Rate of growth

• Unconstrained opportunity• Segment interaction • Rate of growth

Technology VulnerabilityTechnology VulnerabilityTechnology VulnerabilityTechnology Vulnerability MicroeconomicsMicroeconomics MicroeconomicsMicroeconomics

• Technology adoption• Impact of new technologies

• Technology adoption• Impact of new technologies

• Market size• Profitability

• Market size• Profitability

OpportunityAssessment

Factors to Assess the Opportunity

Overall Opportunity Assessment

PositiveFactor

NeutralFactor

NegativeFactor

CompetitiveVulnerability

TechnicalVulnerability

Magnitude

Unmet Need

InteractionBetween

Segments

Likely Rateof Growth

TechnologyVulnerability

Market Size Level ofProfitabilityof

Business Attractiveness Assessment

Magnitude of the Opportunity

Low High

Realization

Ease

Low

High

Avoid

PrioritySelective

Short-Term

Selective Long-Term

Summary: Assessing Market Opportunities

1. A market opportunity analysis framework helps structure your analyses & thinking

2. Opportunities linked to value provision

3. Customers determine value – need to understand customer decision process

4. Involves identifying & pursuing most attractive customers

5. Need to source the required resources to deliver value to customers

6. Assessing the attractiveness involves looking at a number of factors – 6 C’s

7. Culminates in a go/no-go assessment

Understanding The Customer

• Importance – market oriented, drives decisions, relevance – value

• Key Elements – process, decision context, decision-making criteria, perceived risk & handling behaviour, experience cycle, metamarket, dissonance

• Disciplines/Perspectives for Understanding• Organizational vs. Individual Behaviour• Online vs. Offline

Process

• Who is involved? When? What role/concerns?

• Search process? Where?

• Considered Set of Options? How?

• Decision Criteria? Why?

• Timing? When?

• Varies by decision type/context, risk

Decision Criteria

Possible Factors

Salient Factors

Important

Determinant Factors

Important & Options

Differ – Swing the Business!!

“Bar or Table

Stakes” – Lose if we

don’t Offer

Value Drivers

• Give & Get Factors

• Get - Product & Service Quality Dimensions

• Give - $, time, effort, hassle

• Value types - acquisition, transaction, in-use, redemption

• Best, Lowest Cost, Easiest, Fastest

Customer Experience Cycle - Opportunity Horizon

• Requirement - Need it?• Specification - That’s the one!• Distribution - Who stocks it?• Availability - Who’s got it?• Payment - Credit OK?• Delivery - Want it Now?• Acceptance - All there?• Installation - All Mine• Performance - How’s it going?• Upgrade - Need some more?• Repair - Time For service?• Return - Finished• Evaluation - Was it worth it?

Customer Utility MapCustomer Experience Cycle

Purchase Delivery Use SupplementsMaintenance

Productivity

Disposal

Simplicity

Convenience

Risk

Fun & Image

Environmental

Utilit y L evers

Customer Utility Map:SchwabCustomer Experience Cycle

Purchase Delivery Use SupplementsMaintenance

Productivity

Disposal

Simplicity

Convenience

Risk

Fun & Image

Environmental

Utilit y L evers

24/7

Secure Transactions

One Source

Metamarkets

• Metamarkets - “clusters of cognitively related activities that customers engage in to satisfy a distinct set of needs”

• Major life events - weddings, childbirth, education, career changes, retirement

• Major assets - home ownership, automobile, financial

• Conditions - importance (time, economic), diverse set of providers, mind share (time,$)

What is Cognitive Dissonance? Why should marketers be concerned?

• Post-purchase tension

• Dissonance creation & reduction

• Marketer’s role – reinforcement strategy

• Word of mouth impact

Disciplines

• Sociology, Anthropology, PsychologyExample from behavioural psychology & cognitive psychology

– sequence effects, duration effects, rationalization effects

1. Finish Strong2. Get the Bad Experiences out of the way early.3. Segment the pleasure, combine the pain4. Build commitment through choice5. Give people rituals and stick to them “Want to Perfect Your Service?” HBR June2001

Organizational vs. Individual

• Similar concepts at play but some differences as well

• Buying Centre Purchasing Role – professional, protocol/policy

• Types of Decisions – Rebuy – New Task• Specifications, Supplier Qualification, & Bids• Decision Criteria – rational & emotional• Supplier-Buyer relationship – more important,

long term, functionally integrated

The Buy-grid Framework for Organizational Buying Situations

Segmenting Purchase Categories

Buying Centre Concept – Who, When, How, Why, What …..

• The buying center - All organizational members that influence the purchase decisionComposition changes from one purchase to the nextIsolating the buying situationRebuy: fewer membersNew task: large and complex

• Composition - can be predicted by analyzing the impact of the purchase decision on different functional areas

• Buying center influencea. Users are the personnel who will be using the productb. Gatekeepers control informationc. Influencers supply information during the product specification and evaluation stagesd. Deciders actually make the buying decision

Influence appears to increase with environmental uncertainty Individuals can change roles depending on the purchase; one individual may play multiple roles; many individuals could assume one role

Questions for the Industrial Marketer

1. Which member takes part in the buying process?

2. What is each members relative influence in the decision?

3. What criteria is important to members in the evaluation process?

Clues for Identifying Powerful Buying Center.

Example: Article on Changing Role of IT in Companies

• Changing role

• Implications for purchase behaviour – who is involved, solutions considered, purchase criteria, etc.

Why Do Customers Shop On-line?

• Convenience

• Cost

• Choice

• Customization

• Communication

• Control

CarPoint Case

• Automobile decision – Customer’s Perspective?

• Dealer’s perspective?

• Value proposition for customers?

• Value proposition for dealers?

• Business model – now? Future?

• Lessons?

On-line vs Off-line

• Search - scope, agents• Evaluation - self, comparative sites, WoM -

communities• Purchase - regular, bid, barter• Possession - wait unless bit based• Use - similar, support• Disposition - scope, pricing format

Cycle compression, control, learning

Transparency

• Price & Cost

• Availability

• Supplier

• Product

Increased Power of Customers

• Knowledge - increased transparency – products/services, prices, suppliers & access to other customers

• $$$$$$ - they have the money,they pay our bills – increased affluence

• Conditioning – we are able & continue to give them more recognition & attention

“Armed, knowledgeable, comfortable, and expect to be in control, yet they are human and therefore complex”

StratSim Insights & Questions?

Summary

• Begin & end with the Customer!!!

• Complex & dynamic but critical that we understand and respond to them

• Organizational & network commitment

• Competency that can yield competitive advantage

Analytical Process – Questions to Answer

• Where are the business opportunities*?• What do they look like?• What will it take to capture the business?• What opportunities should we pursue?• What business do we already have?• How should we position ourselves to go after the

desired opportunities? * Could substitute threats“Understanding markets, choices, commitments”

Current Examples – What’s going on?

• Auto – Mercedes C Class, Jaguar - X Type, Volvo, Porsche Cayenne SUV, Bentley, BMW - Mini, Harley Davidson V-Rod

• Food & Beverage - Pepsi’s Lemon Twist, Heinz EZ Squirt Purple Ketchup, Chicken McGrill, Trident Advantage

• Retail - Nike Goddess, Nike Weather, Roots Vitamins & Roots Water, Columbia Sportswear - Watches

• Airlines – Westjet, Canjet, Jetsgo

• Others????

Segmentation

• Grouping of potential customers who have similar buying, usage, & evaluation patterns

• Number of different ways - maximize learning & understanding of different types of business

• Research, analysis, & creativity• Criteria - profitable, different, separate

strategy, & operational

Segmenting by Behaviour

Divides consumers into segments on the basis of how they act toward, feel about, or use a product or service. Users vs. non-users of a product or service

heavy users,

moderate users,

light users

Usage occasions or when consumers use the product the most, i.e. seasonal, holidays.

Segmentingby behaviour

Dimensions for Segmenting Industrial Markets

Segmentation variables that marketers

use to divide up industrial markets

Segmentation variables that marketers

use to divide up industrial markets

Company-SpecificCharacteristics

Company-SpecificCharacteristics

Organizational“Demographics”

Organizational“Demographics”

SegmentingIndustrialMarkets

Developing Segment Profiles

Segment profile is a description of the “typical” customer in a segment including:customer demographics, location and lifestyle

information, andcustomer usage rates.

Next, the firm tries to forecast each segment’s market potential, the maximum demand expected among consumers in a segment for a product.

SegmentProfile

FinancialManagers

30%Mixed30%

FinancialDelegators

40%

Attitudes Enjoy managingfinancesWant best dealWant proactiveinput

Financial managerswho do not havetimeFinancial delegatorswho want to makeinformed decisions -knowledge seekers

Dislike managingfinancesToo busyWant sound, lowmaintenancebanking

Behaviors Optimize feesActively manageinvestmentsShop for bestdealPush for qualityservice

Seek moreconvenient ways tooptimize timeSeek fullinformation beforedeciding

Choose based onconvenience andserviceExpect fair dealingLoyalty based oninertia

Customer Segmentation - Example

Targeting

Targetingmarketers evaluate the attractiveness of

each potential segment, and decide which of these groups they will try

to turn into customers.

Target market group or groups selected by a firm to be

turned into customers as a result of segmentation and targeting.

Targeting

Targeting

• Follows from segmentation• Choice of which business opportunities to

pursue• Fit - company, climate, customer,

competitor, channels, cash• Proactive vs reactive• Multi-segments• One-to-one customization

Example: The Women’s Market?

• Importance?

• Difference?

• Implications for marketers?

• For your company?

Women on a roll…

TodayDominateconsumer

buyingand

corporatepurchasing

Rising control of wealth

Rising academic dominance

Rising business decision role

Requiring business response

FutureDominatefinancial decisions

Organizations more female

Society older and more female

...we are reaching a breakpoint in business?

The lump in the snake…is female

Male Female Male Female

13 12 10 10

11 10 10 9

12 12 10 10

10 10 13 14

0-20

20-34

35-50

50-69

2 4 3 570+

Total

20

19

20

27

8

Total

25

21

25

20

6

2001 2021

35 16 19

39 20 19

26 12 14

46 23 22

Prime Market 48% Prime Market 54%

16

32

36

13

48

49

“Women’s” market: Facts• Women instigate or complete over 80% of all purchases

– All consumer purchases 83%– home furnishings 94%– vacations 92%– new homes 91%– DIY projects 80%– Consumer electronics 51%– Cars 60% plus 30%– New bank accounts 89%– Health care 80%– write 80% of cheques– pay 61% of bills– own 53% of all stocks

“Women’s” market: Facts (cont’d)• 2/3rds of working women and 50% of working wives earn over 50%

of family income• Constitute 43% of those with net worth over 1/2 million dollars• Influence 75% of financial decisions• Take at least 29% of financial decisions alone• Between 1970 and 1998 female median income rose 63% male 0.6%• By 2000 more women used the web than men, and 6 out of 10 new

web users are women• Among wired women 83% are primary financial decision makers• Women constitute over 50% of all corporate purchasing officers, are

in a majority in HR and commercial admin officers with attendant purchasing power

“Women’s” market: Facts (cont’d)

• Women directly control 51% of the wealth in the USA, and this will rise dramatically as the baby boom ages. The baby boomers control 70% of all assets

• On average, these women will be widowed at 67, and will most likely survive their husbands by at least 6 and as much as 15-18 years*. During this time they have sole control of the household’s assets.

• What no-one knows yet is what kinds of spending patterns we will see from what is undoubtedly the youngest, healthiest, wealthiest, best-educated, most ambitious group of retirees ever

*Dr. Nancy Dailey, When Baby Boom Women Retire, 1998, p.39.

How they buy I: Women and men are different!

• Vision: focused

• hearing

• Smell: relatively insensitive

• Touch: the most sensitive man is less sensitive than the least sensitive woman

• Are all the way on or in a resting state of 30%

• Info processing: men eliminate

•Vision: peripheral•hearing: discomfort level half that of men

•Smell: more sensitive•People orientation: by age 3 days baby girls exhibit 2x the eye contact of boys

•Are never off, their resting state is 90%

•Info processing: women integrate (women notice the little things …brain difference…the details not right or wrong, just is)

Men Women

How women buy II: Women and men are different!

• Want to get away from authority and family

• self-oriented• rights-oriented• individual perspective• pride in self-reliance• hear a language of status and

independence• communicate to obtain info

• write scripts that are direct and linear

• buy and move on, limited research

•Women want to connect

•other-oriented•responsibility-oriented•group perspective•pride in team accomplishment•hear a language of connection and intimacy

•communicate to create relationships, encourage interaction and exchange feelings

•write scripts that have many conflicts, many climaxes and many endings

•research facts and opinions (personal network)

Men Women

How Women buy: Some implications• Women are demanding in making the initial purchase in a category, they

recoup their time investment by staying more loyal to the brand they’ve chosen in subsequent purchase cycles increasing retention rates

Word-of-mouth recommendation is more prevalent among women, they are more likely to recommend to others those brands or salespeople that impress them favorably -- in essence, free marketing of the most powerful kind.

• The big risk: Companies as have found that marketing and service improvements designed to enhance brand appeal among women have resulted in greater customer satisfaction among men as well. The reason? In many respects, women want all the same things as men - and then some. Accordingly, when you meet the higher expectations of women, you are more than fulfilling the demands of men. Experience indicates that men do not abandon

While in many categories, the traditional male targets are saturated, the corresponding women’s segments are untapped and virtually uncontested by competition.

Then add the Boomers: The boomers have the money...

• 70% of all wealth plus multi-trillion dollar wealth transfer by inheritance to come

• over 50% of discretionary income• 79% own homes• 41% of new cars and 50% of luxury cars• women over 65 spend as much as 25-34 year-olds

on apparel with 12% growth rate versus 0.1%• aging, female boomers will control most of the

money or live in dependent poverty

Partial Research List• Martha Barletta: Marketing to women: How to understand, reach, and

increase your share of the world’s largest market segment• Joanne Thomas Yaccato: The 80% Minority (Canada)• Deborah Tannen: You just don’t understand: men and women in

conversation• Faith Popcorn: Evolution: the eight truths of marketing to women• Tom Peters: Re-imagine• Andrea Learned: ReachWomen• Mary Lou Quinlan: Just ask a woman: cracking the code of what women

want and how they buy

• Judy Hoyt Pettigrew: Women mean business: the secret of selling to women

• Allan & Barbara Pease: Why men don’t listen and women don’t read maps

• Dr. Nancy Dailey, When Baby Boom Women Retire, 1998

• Other companies in Canada– LCBO, BMO, RBC, Air Canada, Calvin Klein, Mountain Equipment,

“Looneyspoons”, Nike etc• StatsCan: Population projections, plus women and income reports

Example: the 18-24 year olds

• Information seeking & utilization behaviour?

• Purchase behaviour?

• Implications for marketers?

Segmentation in Your Companies?

Customer Account Analyses – The Business We Have Attracted• Value – current, future

• Efficiency & Effectiveness of efforts, resources – 80/20 rule

• Profitability – costing systems

• Vulnerability

• Relationship management

• Multi-channel systems

Example - Dimensions of Loyalty - McKinsey Quarterly - 2002, #2

Migration vs. Defection

Customer Retention is Not Enough

Strategic Positioning

• Customer’s mind

• Sustainable competitive advantage

• Unique, important-meaningful, superior, credible, affordable, sustainable, profitable & deliver

• Reflected in all business activities & processes

Perceptual Map

Perceptual Map

Positioning Dimensions

OccasionsOccasions ProductAttributes

ProductAttributes

UsersUsers

LifestyleImage

LifestyleImage

QualityQuality

PriceLeadership

PriceLeadership

CompetitorsCompetitors

BB

AA

EE DD

CCHHGG

FF

Product ClassProduct Class

Positioning

Example: Value Positions

• Economy – pay less, get less

• Premium – pay more, get more

• Better Value – more for the same price

• Average Value – average quality & price

• Worse Value – pay more, get less

Developing A Positioning Statement

• Specify Target Market• Develop a Value Proposition - your distinctive and

compelling offer - why this customer segment should do business with you

• Supporting Elements - how you will deliver your value proposition /execute and support your offer

• What is your company’s positioning statement?

3 Paths to Market Leadership

• Operational Excellence – Best total cost

• Product Leadership – Best product

• Customer Intimacy – Best total solution

Examples?

Requirements to win?

Minimum requirements to stay?

Why is Value Important?

SATISFACTION

RETENTION

LOYALTY

PROFITABILITY

VALUE

SHAREHOLDER VALUE

RELATIONSHIP

Alternatively – If we MUCK UPMISREAD

CUSTOMERS & COMPETITORS

UNFOCUSED COMPETITIVE

POSITION

ME-TOO CUSTOMER

VALUE

CUSTOMER TURNOVER

MARKET SHARE INSTABILITY

HIGH COST OF CUSTOMER

RETENTION & ACQUISITION

SPORADIC PROFITS

STAGNANT SHAREHOLDER

VALUE

PRESSURE FOR SHORT

RUN RESULTS

Customer Value Creation – Your Opportunity to Differentiate

Emotional Elements

Organization Interaction

Technical Performance

Process & Support

Core Product or

Service

REDUCEADD

++

•Confusion

•Frustration

•Disappointment

•Neglect

•Rudeness

•Lack of caring

•Mistreatment

•Delays

•Stockouts

•Waiting

•System Failures

•Inflexibility

•Complexity

•Red tape

•Stupid rules

•Price

•Respect

•Appreciation

•Recognition

•Valued

•Friendliness

•Helpfulness

•Courtesy

•On time

•Accuracy

•Service guarantees

•Warranties

•Payment options

•Features

•Quality

•Options

Article: - Value Players

• Competitive platform & success of value players?

• Challenges for non value players?

• Your industry & company?

Positioning Contexts

• Customers• Suppliers/Partners• Distributors• Shareholders• Employees• Society• Corporate Family• Financial Institutions• Government

Case: Rebel Creek

• Segmentation approach?

• Target market selection?

• Positioning?

• Key implementation issues?

Understand the three steps of developing a target marketing strategy.Understand the need for market segmentation in today’s business environment.Know the different dimensions used for segmenting consumer markets.Understand the bases for segmentation in business-to-business markets.Explain how marketers evaluate and select potential market segments.Explain how a targeting strategy is developed.Understand how a firm develops and implements a positioning strategy.

Summary

Summary