Strategic Marketing

052 430

Instructor:
Michael Cooke
E-mail Address: michco@kku.ac.th
Office: IC room 817
Class hours: Friday 13:00-16:00
Class Location: IC room 806
Web: home/kku.ac.th/michco

Strategic Market Management

Global Perspectives
David A. Aaker and Damien McLoughlin
ISBN: 978-0-470-68975-2
www.wileyeurope.com/college/aaker
Copyright 2010 John Wiley & Sons Ltd

Chapter Two

External and Customer Analysis

Copyright 2010 John Wiley & Sons Ltd

The purpose of an enterprise is to create and

keep a customer.
Theodore Levitt

You cant just ask customers what they want and

then try to give that to them. By the time you get it
built, theyll want something new.
Steve Jobs

Without a specific reason for the consumer to

behave, without a reward or benefit, the
overwhelmed consumer will refuse.
Seth Godin

External Analysis
Analysis of factors external to a business that affect
strategy
Volume of external analysis material can be unlimited
Avoidance of useless material requires discipline
Why do we need to know this?
Choosing what is relevant is the most difficult task for any analyst

Need for analysis to have direction and purpose relevant to

strategy

Existing business strategy

New business areas
Customer value propositions
Asset/competencies creation, enhancement, maintenance
Functional area strategies (distribution, brand-building, etc.)
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The Role of External Analysis

StrategicDecisions
Decisions
Strategic
Whereto
tocompete
compete
Where
Howto
tocompete
compete
How

External
External
Analysis
Analysis
Identification
Identification
Trends/futureevents
events
Trends/future
Threats/opportunities
Threats/opportunities
Strategicuncertainties
uncertainties**
Strategic

Figure 3.1

Analysis
Analysis
Information-need
Information-needareas
areas
Scenario
Scenarioanalysis
analysis

Strategic Uncertainties
Strategic Uncertainties
Will a major firm enter?
Will a tofu-based dessert
product be accepted?
Will a technology be
replaced?
Will the Euro strengthen
against other currencies?
Will computer-based
operations be feasible with
current technology?
How sensitive is the market
to price?

Strategic Decisions
Investment in a product market
Investment in a tofu-based product
Investment in a technology
Commitment to off-shore
manufacturing
Investment in a new system
A strategy of maintaining price parity

Strategic Uncertainties

What
What will
will the
the
future
future demand?
demand?

Performance
Performanceimprovements?
improvements?
Competitive
Competitivetechnological
technological
developments?
developments?
Financial
Financialcapacity
capacityof
ofhealth
healthcare
care
industry?
industry?

Practical Difficulties

Successful businesses know their customers

Revenues generated by customer
Costs associated with each customer
Direct product costs
Customer service and acquisition costs
Indirect costs

Customer profitability
See
http://home.kku.ac.th/michco/Strategic_Marketing/Are Your Biggest Customers Your Bigges
t Losers.docx

Many organizations fly blind

Revenues may be in different parts of the organization

Costs must be transfer priced a difficult task
Organizational culture must support analytical approach
Major IT investment

Determining Customer Profit

Reve
nue
Produ
ct 1

Reve
nue
Produ
ct 2

Cost
Proc
ess
A

Total
Custom
er
Revenu
e

Total
Custom
er Cost

Cost
Proc
ess
B

Dire
ct
Prod
uct
Cost
s

Total Revenue Total Cost = Customer Profit

12

Customer Analysis
Segmentation
Who are the biggest customers? The most profitable?
The most attractive potential customers? Do the
customers fall into any logical groups based on needs,
motivations, or characteristics?
How could the market be segmented into groups that
would require a unique business strategy?

Figure 3.2

Customer Analysis
Customer Motivations
What elements of the product/service do customers value most?
What are the customers objectives? What are they really buying?
How do segments differ in their motivation priorities?
What changes are occurring in customer motivation? In customer
priorities?

Figure 3.2

Customer Analysis
Unmet Needs
Why are some customers dissatisfied? Why are some changing brands or
suppliers?
What are the severity and incidence of consumer problems?
What are the unmet needs that customers can identify? Are there some of
which consumers are unaware?
Do these unmet needs represent leverage points for competitors?

Figure 3.2

An 1861 Map

Lincoln would look at the map and send his armies to free blacks in some of the highest density areas in
order to destabilize Southern order. Segmenting and then attacking the opponents weak points?

Communicating Complexity

Though many Americans knew that dependence on slave labor varied throughout
the South, these maps uniquely captured the complexity of the institution and
struck a chord with a public hungry for information about the rebellion.
The map uses what was then a new technique in statistical cartography: Each
county not only displays its slave population numerically, but is shaded (the darker
the shading, the higher the number of slaves) to visualize the concentration of
slavery across the region.
Conversely, the map illustrated the degree to which entire regionslike eastern
Tennessee and western Virginiawere virtually devoid of slavery, and thus
potential sources of resistance to secession.
The map quickly caught the publics attention, and was reproduced throughout the
war. The map gave a clear picture of what the Union was up against, and allowed
Northerners to follow the progress of the war and the liberation of slave
populations.
Though the president had abundant maps at his disposal, only this one allowed him
to focus on the Confederacys greatest asset: its labor system. After January 1,
1863when the Emancipation Proclamation became lawthe president could use
the map to follow Union troops as they liberated slaves and destabilized the
rebellion.
Source: http://opinionator.blogs.nytimes.com/2010/12/09/visualizing-slavery /

This map was used in several ways

Military strategy targeted areas with large numbers of slaves for disruption
Political strategy targeted areas with low numbers of slaves with enticements to break from the
Confederacy

Segmentation
Variation in customer needs is the
primary motive for market
segmentation.
Most companies will identify and target
the most attractive market segments
that they can effectively serve.
In global marketing, market
segmentation becomes especially
critical because of wide divergence in
cross-border consumer needs and
lifestyles.
Once management has chosen its
target segments, management needs to
determine a competitive positioning
18
strategy for its products.

Reasons for International Market

Segmentation
Country Screening (consideration of a market is based on initial screening criteria)
Global Market Research
Cluster countries across relevant characteristics
Focus research efforts on a representative sample

Market Entry Decisions

Product launches based on shared relevant characteristics across countries
Country differences on other dimensions can hinder success

Positioning Strategy (influencing customer perception of the product relative to competitors)

Where will marketing efforts have greatest impact?
Target market segments might change due to consumer preferences or population changes
How the products or service is positioned will follow the opportunity

Resource Allocation
Market share clusters (increase penetration)
Consumption clusters (developing the market)

Marketing Mix Policy

Countries in same segment might have similar mix strategy (design, pricing, promotion,
distribution)
Similarities on one dimension might be offset by differences on another (such as price
sensitivity)

Requirements for International Market

Segmentation
Identifiable
Should be easy to define and measure
Value or lifestyle measures typically difficult to gauge

Sizable
Segments should be large enough to be worth pursuing
Small segments aggregated across countries might work

Accessible
Segments should be easy to reach
Infrastructure differences across countries

Stable target market behavior and composition

Responsive segments have unique responses
Actionable the required marketing mix is consistent
with the company goals and competencies

Chapter 7

Adapted from 2009 John Wiley &

Sons, Inc.

20

International Market Segmentation

Approaches
Country-as-segments or aggregate segmentation
(Exhibits 7-2 & 7-3.)
Geographic single dimension or several dimensions
Marketing irrelevance of many country boundaries
Difficulty of determining which variables to use for geo
segments

Disaggregate international consumer segmentation

Consumer segments defined by similarities along chosen
characteristics
Consumer bases might be geographically disbursed
logistical issues

Two-stage international segmentation

First aggregate countries (macro level) screens out countries
Second segment consumers within the country cluster
(micro)
Market oriented and accessible

Copyright (c) 2009 John Wiley &

Sons, Inc.

21

Exhibit 7-2: Nestls Geographic

Segmentation of the Americas

Chapter 7

Copyright (c) 2009 John Wiley &

Sons, Inc.

22

Exhibit 7-3: Macro-Level Country

Characteristics

Chapter 7

Copyright (c) 2007 John Wiley &

Sons, Inc.

23

Psychological Basis

Information filtering (sensory filtering)

Occurs among even lowest organisms (react to heat, light. Other
aspects of environment ignored by primitive senses)
Highest life forms still limited in gathering and processing
information from environment
We learn to filter information irrelevant to a situation
Often the most highly educated among us filter most

We fail to see/hear or recall much of what is available to us

Under the right conditions (context) we might recall what

we otherwise would not
Our filtering and recall changes through life and with
circumstances
Marketers try to determine which audiences might be
receptive to the product message, and how to enable
recall
Distances between high SES among countries might be
less than between SESs within a country (life
circumstances and education factors)

International Segmentation
Scenarios
Universal or global segments (go beyond boundaries)
Customers belonging to universal segments have common needs
Could be a universal niche (example: global elite, business travelers)
Common customer needs higher in some product categories (high-tech or travel
related)

Regional segments
Differentiated versus undifferentiated strategies apply to global segments as well
Differentiated strategy tailors marketing to local market conditions
An undifferentiated strategy is often followed by some high-tech companies
uniform worldwide marketing, scale economies

Unique (diverse) segments

Substantial differences in cross country customer preferences
Localized marketing mix programs
Food products may have country specific segments

Degrees of segmentation often follow degrees of market

development (emerging markets usually have a simple consumer
market structure high price or low price only)

25

Demographics Segmentation
Easy to measure
Fairly accurate and easy to obtain
The elderly are an often overlooked segment
Unique needs
Self perceptions (active, not old)

Global middle class family is highly sought

Definition is tricky
HH income figures ignore purchasing power differences
Vast differences between countries in how income is spent
Chinese spend less than 5% on rent, transport, health
US consumers spend 50%

Income distinctions ignore education and values

Economic Forces

Demographic variables are a factor in country wealth

Working age population relative to non-working

China and Thailand will soon have shrinking % working age

Often overlooked implications of large % population = elderly

Socioeconomic Variables

Per Capita income

Issues in using per capita income as an indicator:

Transactions are valued in an international currency

(monetization of transactions)

Official exchange rates seldom reveal true buying power

within a country
Services are provided in-country using local currency
Goods not traded across borders (housing, etc)
Use Purchasing Power Parity to estimate buying power

Gray and Black Market sectors of the economy (cash or barter)

Income inequality Gini index

Lower number means more income equality

Scandinavian countries have least inequality
Thailand, China, USA relatively unequal (higher
index)
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World Income Inequality

World Gini Compared to USA

The Atlantic http://cdn.theatlantic.com/static/mt/assets/international/gini%20map%20twotonefull%20pos.jpg

Income Inequality in Selected Countries

South Africa (2) 65

(2005)

59.3 (1994)
Thailand (12) 53.6 (2009)
42
(2002)
China
(27) 48
(2009)
41.5 (2007)
USA (42) 45 (2007)
40.8 (1997)
Germany (124) 27 (2006)
30
(1994)
Sweden (136) 23
(2005)
25
(1992)
Implication: Low per capita GNP can mask affluent
areas/segments.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html

Thailand Statistics
Low population growth rate, falling rate by 2050
69MM 2010
73MM 2030
68MM 2060

world 6.9BB
world 8.3BB
world 9.6BB

Thailand = 1.00% of world

Thailand = 0.88% of world
Thailand = 0.71% of world

Low birth rate

12.8/1,000 is similar to China

20.1/1,000 is replacement rate
Declining family size. Declining % under 15 years of age.
More women delay marriage or never marry

Low urbanization, high rate of change

Thailand 34% urban, change 1.8% per year
China 47% urban, change 2.3% per year
USA 82% urban, change 1.2% per year

Longer lives
Increasing number of retired (age 65+ =11.4% in 2020)
Decreasing number of working age (similar to China)

Population forecast: http://populationpyramid.net/Thailand/2050 /

http://link.springer.com/article/10.1007%2FBF03031794?LI=true#page-4

Population Pyramids

Population Pyramid Thailand

Population Pyramid China

Population Pyramid
Philippines

2008 population 96MM

2050 population 172MM

Population Pyramid Malaysia

2008 population 25MM 2050 population 43MM

Population Pyramid
Cambodia

2008 population 14MM

2050 population 24MM

Population Pyramid Japan

2008 population 127MM

2050 population 94MM

Ethiopia

2008 population 83MM

2050 population 278MM

Implications of Demographic Shift

Smaller households require different housing
Families with fewer children spend more/child
With fewer people of working age
Cost of labor will rise
Low skill jobs will go to countries with younger populations
Need to move to higher value added (skills)
Fewer working age offset in urban areas by rural migration

More retirees and elderly a unique market

Japanese model
Higher value added industries
Investment abroad

Pressures for immigration from labor surplus

countries

Bases for Country Segmentation

Product Related (Exhibit 7-7)
Attitudes toward product attributes
Country of origin
Status related (microwaves in living room)

Usage rate (product consumption per capita

or per HH)
Product penetration
Percentage of target market that uses the
product
An often used measure of new sales potential

Consumption infrastructure (electricity, etc.)

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Exhibit 7-7: Benefit Segments of Toothpaste

Market in the U.S.A., China, and Mexico

Chapter 7

Copyright (c) 2007 John Wiley &

Sons, Inc.

43

Segmentation
Segmentation is the identification of customer groups that
respond differently from other customer groups
Viable segments are meaningful, enduring, and large enough
to generate return on investment
How should segments be defined?
Benefit Segmentation what benefits are sought by consumers?
Price Sensitivity
Loyalty total profits over life of customer, try to increase intensity
Applications how is the product used?
Multiple Segments versus Focus Strategy Campbell Soup or Wal-Mart?

Examples of Approaches to
Defining Segments
Customer Characteristics
Geographic
Type of organization
Size of firm
Lifestyle
Demographics- powerful and predictable
Occupation

Figure 3.3

The Loyalty Matrix: Priorities

Customer
Customer

Non-customer
Non-customer

Low
Low
Loyalty
Loyalty

Moderate
Moderate
Loyalty
Loyalty

Medium

High

Loyal
Loyal

Highest

(switch for price)

Low to
Medium

High

Zero
(high cost of
attracting)

(switch for price)

Figure 2.4

Figure 3.4

Customer Motivation Analysis

Identify
Identify
Motivations
Motivations

Customer
CustomerInterviews
Interviews

Group
Group and
and
Structure
Structure
Motivations
Motivations

Assess
Assess
Motivation
Motivation
Importance
Importance
Assign
Assign Strategic
Strategic
Roles
Roles to
to Motivations
Motivations

Figure 2.6

Figure 3.6

The Customer as Active Partner

Such as: Patients in control of medical issues, access to
information and other customers via internet (rather than
passive targets)
Encourage Active Dialogue of Equals
Mobilize Customer Communities, perhaps via internet
Manage Customer Diversity (of sophistication) with most
sophisticated as most active partners
Co-creating Personalized Experiences
Beware of information overload

Information Overload?

For many forms of marketing, the higher the

likelihood of getting a sale, the higher the cost

per target consumer.
Before internet, mailing lists were sold with a price

per name. Marketers considered cost of sending

mail
The more specific the segment (higher likelihood of
getting a response) the higher the unit cost
How do Google ads fit this model?
How does worldwide spam fit into this economic
model?

How does this rule change when there is no cost

to deliver a message? What sort of filtering

mechanisms would we have?

Determining Unmet Needs

Ethnographic Research
Directly observes customers in varying contexts
What and why customers do things
Deeper level of understanding of needs and
motivations
Good at identifying breakthrough innovations
Typically customers think of current offerings
Henry Fords faster horses
Observations can lead to insights
Particularly useful in going beyond cultural boundaries

Can be used to improve existing products

Business insiders often cant see past the existing

structure (HP executives said PCs were a

commodity)

50

Key Concepts

External analysis should influence strategy by identifying opportunities,

threats, trends, and strategic uncertainties. The ultimate goal is to improve
strategic choices decisions as to where and how to compete.

Segmentation (identifying customer groups that can support different

competitive strategies) can be based on a variety of customer characteristics,
such as benefits sought, customer loyalty, and applications.

Customer motivation analysis can provide insights into what assets and
competencies are needed to compete, as well as indicate possible Strategic
Competitive Advantages.

Unmet needs that represent opportunities (or threats) can be identified by

projecting technologies, by accessing lead users, by ethnographic research,
and by interacting with customers.

 Social, Cultural, Demographic, and

Natural Environmental Forces
Major Impact
Products
Services
Markets
Customers

Ch
352

Copyright 2011 Pearson Education, Inc.

Publishing as Prentice Hall