The Data Institute Acquisition Manual

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Volume 7

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ACQUISITION MANUAL for THE TARGET COMPANY

6
Corporate Development
7
Product Management
8
Overseas Development
9
Product Distribution & Service
10
Advertising + P.R.
16
New Technology Primers
17
Physical Process & Orders
18
Competition Analysis
19
Product Perceptions
20
Customer Perceptions
Financial
Industry
Markets
Products
Data Grids
World MDB
Research MDB
Product MDB
Corporate MDB
Reference MDB

Volume
7

 

Product Management Tactics

Product management is a key consideration after any acquisition, as it presents an opportunity to delete out-dated products and introduce more effective products. Such an opportunity for large-scale product rationalization is not always possible at other times due to vested interests within the Company and the ingrained attitudes of existing senior management. A new management can however cut through the dead wood to reach new growth.

Relative tactical options for product management begin with a Financial forecast of the consequences of a Market Segmentation Scenario.

Over time the Product Development of existing and potential company products is then deliberated. This shows a product consumption, time and geographic matrix which enables one to see the development of products historically and in the future.

Demographic, Geographic and Psychographic Product Segmentation targets are then discussed in order that Product Managers in the Company can fully and practically assimilate market needs.

Using Tactical sighting of Marketing Targets for the placement of marketing resources, the product objectives for the Company are investigated.

Current Branding and Product Mix Strategies form medium term tactical objectives for the Company and the possibilities for each of the Company's existing and potential products are examined.

This section is largely devoted to explore the past, present and future development of company products and to evaluate tactics for future product penetration.

  1. Product Orientated Financial & Operational Scenarios

  2. Product Marketing

  3. Product Profiles

  4. Product Targets

  5. Product Mix


 

1

Product Financial Scenarios:

 

 

Comparisons:

Target Company

 

Reference Industry Finances: Base Reference Country

Company Financial Forecasts

 

Product Sector Financial Data

    Products & Services

Target Company

 

TOTAL

1

2

3

4

5

BASE FORECAST : MEDIAN: Financials

 

F0M F0M F0M F0M F0M F0M
BASE FORECAST : BEST: Financials

 

F0B F0B F0B F0B F0B F0B
BASE FORECAST : WORST: Financials

 

F0W F0W F0W F0W F0W F0W

PRODUCT LAUNCH: Financials

 

FPL FPL FPL FPL FPL FPL

NEW PRODUCT DEVELOPMENT: Financials

 

F02 F02 F02 F02 F02 F02
MARKET SEGMENTATION: Financials

 

F03 F03 F03 F03 F03 F03
SHORT-TERM PRICE CUTTING EFFECT: Financials

 

F08 F08 F08 F08 F08 F08
SHORT-TERM PRICE INCREASE EFFECT: Financials

 

F09 F09 F09 F09 F09 F09
QUALITY IMPROVEMENT: Financials

 

F10 F10 F10 F10 F10 F10
RESEARCH & PRODUCT COST OBJECTIVES: Financials

 

F33 F33 F33 F33 F33 F33
LONG-TERM PRODUCT PRICE CUTTING: Financials

 

F38 F38 F38 F38 F38 F38
LONG-TERM PRODUCT PRICE INCREASE: Financials

 

F39 F39 F39 F39 F39 F39
TARGET MARKETS DEVELOPMENT: Financials

 

F41 F41 F41 F41 F41 F41
PRODUCT POSITIONING: Financials

 

F43 F43 F43 F43 F43 F43
PRODUCT BRANDING + MULTI-BRANDING INVESTMENT: Financials

 

F44 F44 F44 F44 F44 F44
NEW PRODUCT & NEW TECHNOLOGY COST: Financials

 

F55 F55 F55 F55 F55 F55
PRODUCT COST IMPROVEMENTS: Financials

 

F70 F70 F70 F70 F70 F70
PRODUCT QUALITY IMPROVEMENT: Financials

 

F71 F71 F71 F71 F71 F71
 

Target Company

 

Reference Industry Margins: Base Reference Country

Target Company Operational Margins

 

Product Sector Operational Margins

               

Target Company

 

TOTAL

1

2

3

4

5

BASE FORECAST : MEDIAN: Margins

 

G0M G0M G0M G0M G0M G0M
BASE FORECAST : BEST: Margins

 

G0B G0B G0B G0B G0B G0B
BASE FORECAST : WORST: Margins

 

G0W G0W G0W G0W G0W G0W

PRODUCT LAUNCH: Margins

 

GPL GPL GPL GPL GPL GPL

NEW PRODUCT DEVELOPMENT: Margins

 

G02 G02 G02 G02 G02 G02
MARKET SEGMENTATION: Margins

 

G03 G03 G03 G03 G03 G03
SHORT-TERM PRICE CUTTING EFFECT: Margins

 

G08 G08 G08 G08 G08 G08
SHORT-TERM PRICE INCREASE EFFECT: Margins

 

G09 G09 G09 G09 G09 G09
QUALITY IMPROVEMENT: Margins

 

G10 G10 G10 G10 G10 G10
RESEARCH & PRODUCT COST OBJECTIVES: Margins

 

G33 G33 G33 G33 G33 G33
LONG-TERM PRODUCT PRICE CUTTING: Margins

 

G38 G38 G38 G38 G38 G38
LONG-TERM PRODUCT PRICE INCREASE: Margins

 

G39 G39 G39 G39 G39 G39
TARGET MARKETS DEVELOPMENT: Margins

 

G41 G41 G41 G41 G41 G41
PRODUCT POSITIONING: Margins

 

G43 G43 G43 G43 G43 G43
PRODUCT BRANDING + MULTI-BRANDING INVESTMENT: Margins

 

G44 G44 G44 G44 G44 G44
NEW PRODUCT & NEW TECHNOLOGY COST: Margins

 

G55 G55 G55 G55 G55 G55
PRODUCT COST IMPROVEMENTS: Margins

 

G70 G70 G70 G70 G70 G70
PRODUCT QUALITY IMPROVEMENT: Margins

 

G71 G71 G71 G71 G71 G71

 

 

2

Product Marketing Factors:

 

PRODUCT MARKETING FACTORS


 

CRITICAL FACTORS + PARAMETERS


It is important to establish the compatibility between the Company and the Product, Marketing, Supplier, Distribution/Customer Interface and Customer factors and parameters in each of the topics investigated in this report.

The Surveys of Suppliers, Distributors and End Users and various other sources have identified a number of critical or potentially critical factors and parameters for the Company. Most of these factors cannot be evaluated on a monetary scale and their measurements are not comparable, thus another mode of analysis and evaluation must be found.

In order to aggregate the separate factors into a single value or coherent series of values, which will indicate areas of concern or potential opportunity, one must convert them into a value scale. This can be done by assigning value points to each critical or potentially critical factor through a scale of judgments which are based on actual past experience of the product, the marketing and the customers concerned. The relative importance of each factor is indicated by the weights assigned. A factor's rating value is multiplied by its weight to yield its critical value.

Obviously such an analysis can assist companies in evaluating both areas which might produce problems for the marketing of the product and also areas of opportunity which may be exploited when marketing or distributing Products & Services in each of the countries concerned.

The techniques used here are very similar to those used in new product evaluation and screening, indeed subscribers to this report frequently use the weighting and conclusions found here when evaluating new products and markets. The main purpose of these analyses are of course to attempt to provide a rational and objective basis with which to compare and evaluate the factors and parameters critical to the provision of Products & Services in the countries covered.

The basis of the analysis is the use of value judgments to assign the rating value. This is done through a scale:-

AVERAGE VALUES EQUAL

HIGHLY

CRITICAL

CRITICAL

UNCERTAIN

NOT

CRITICAL

MINIMAL

80

40

20

10

5

[Readers wishing to apply this analysis to defined products and markets should amend both the Value scale and the Weight to suit the product. It should be remembered that once a company has decided upon a Value scale and a Weight scale this should be retained and not changed for other products. This is because it is important to be able to relate one product or market opportunity to another and thus scales must remain constant if a valid comparison is to be made. Subscribers wishing to undertake such analyses will find in the rear of this report a blank set of analysis forms which may be photocopied and used when evaluating current or new products or markets].


In addition to the scale of value judgments the results are applied to a standard weighting for each factor and parameter. These weights are based on past experience of the product and the marketing environment in relation to the individual factors and parameters analyzed.

The Value judgments are multiplied by the Weights to give the cell value, thus:-

   Value x Weight = Cell value

For example,

   80 x 1.1 = 88


The figures given in the tables below are individual "VALUE" and "WEIGHT" figures for the cell and are not the calculated "CELL VALUES". This calculation should be done by the reader.

The evaluation of any particular critical factor or parameter of corporate activity will allow readers to gain an insight into the problems and opportunities of the Company and the market.

 

 o

o

o

C

 o

 

E

 +

o

L

L

o

 o

 

o

V

o

A

o

L

o

U

o

E

o

 x

o

 o

o

o

o

RELATIVE IMPORTANCE TO SALES VOLUME MARKET SHARE & PROFITABILITY

 

 

CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

CRITICAL FACTORS

CRITICAL FACTORS

 

PRODUCT - CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

PRODUCT - CRITICAL FACTORS+ PARAMETERS

PRODUCT - CRITICAL FACTORS+ PARAMETERS

 

PRODUCT CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

PRODUCT - CRITICAL FACTOR+ PARAMETERS

PRODUCT - CRITICAL FACTOR+ PARAMETERS

 

TRADE CELL - CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

TRADE CELL - CRITICAL FACTOR+ PARAMETERS

TRADE CELL - CRITICAL FACTOR+ PARAMETERS

 

TRADE CELL CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

TRADE CELL - CRITICAL FACTOR + PARAMETERS

TRADE CELL - CRITICAL FACTOR + PARAMETERS

 

OPERATIONS - CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

OPERATIONS - CRITICAL FACTOR+ PARAMETERS

OPERATIONS - CRITICAL FACTOR+ PARAMETERS

 

OPERATIONS CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

OPERATIONS - CRITICAL FACTOR+ PARAMETERS

OPERATIONS - CRITICAL FACTOR+ PARAMETERS

 

COMPETITORS - CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

COMPETITORS - CRITICAL FACTOR+ PARAMETERS

COMPETITORS - CRITICAL FACTOR+ PARAMETERS

 

COMPETITOR CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

COMPETITORS - CRITICAL FACTOR+ PARAMETERS

COMPETITORS - CRITICAL FACTOR+ PARAMETERS

 

MAJOR CITY - CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

MAJOR CITY - CRITICAL FACTOR+ PARAMETERS

MAJOR CITY - CRITICAL FACTOR+ PARAMETERS

 

MAJOR CITY CRITICAL FACTORS + PARAMETERS

Target Company

Base Reference Country

MAJOR CITY - CRITICAL FACTOR+ PARAMETERS

MAJOR CITY - CRITICAL FACTOR+ PARAMETERS

 

 Critical Factors Definitions



MARKET & PRODUCT SEGMENTATION


It is suggested that the reader consider the following Product and Market Segmentations for the Company products and services. These segmentations will help the companies in the marketplace to increase the attractiveness of their Products & Services and thereby assist market penetration.

  1. MARKET SEGMENTATION THROUGH PRICING - LOWER PRICE: In countries where there is demand for a Products & Services at a price lower than the average retail price it may be possible for companies to offer Products & Services End Users a lower (or discount) priced product, probably under a separate brand name, in order to cover the market sector. The attractiveness of such segmentation would obviously depend on company marginal costs in relation to the probable marginal revenue which may be generated.

  2. MARKET SEGMENTATION THROUGH PRICING - HIGHER PRICE: In some countries a higher than average price may be associated with better delivery, services, et cetera, and it may be possible for companies to capitalize on this by offering Products & Services End Users higher priced products, probably under a separate brand name, in order to cover such market sectors. Obviously it is usually necessary to provide customers with some tangible benefit in return for a higher price. This benefit may be priority delivery and service, better back-up services, et cetera.

  3. PRODUCT SEGMENTATION THROUGH QUALITY - HIGHER QUALITY: Product segmentation through the provision of better quality products is common in most markets. The degree of quality segmentation and its acceptance depends on individual national markets, the prevailing circumstances within that market and the general situation in regard to Products & Services.

  4. PRODUCT SEGMENTATION THROUGH - LOWER QUALITY: Product segmentation through the downward variation of Products & Services quality is also possible. Certain markets and market sectors will be attracted to a down-market product if a reduced price is the benefit.

  5. MARKET SEGMENTATION THROUGH AVAILABILITY - GREATER AVAILABILITY: Often national markets or market sectors will be willing to pay a higher Products & Services End User price for greater availability. End users in certain markets (with a limited supplier base) will inevitably have difficulty in obtaining supplies and in these markets it will be possible for companies to offer greater availability of Products & Services and in return charge a price premium.

  6. MARKET SEGMENTATION THROUGH AVAILABILITY - REDUCED AVAILABILITY: Frequently national markets or market sectors will be attracted by discounted Products & Services End User price for reduced availability. Some buyers will be able to hold high stock and inventory levels and in these circumstances will be attracted to obtaining a price discount for reduced product availability through less frequent delivery and ordering.

  7. PRODUCT SEGMENTATION THROUGH PERFORMANCE VARIANCES: Specialist market sectors and end user application sectors will often have differing needs in terms of Products & Services performance and it will be possible for companies to exploit this and thereby segment the market. The need for Products & Services Performance segmentation of this sort will depend on the complexity of the national market in question, the broadness of the end user sectors and the variability of the applications in which Products & Services are being used. Better product performance will command a price premium and vice versa.

  8. PRODUCT SEGMENTATION THROUGH TECHNOLOGICAL + TECHNICAL FACTORS: Particular end user application sectors will have differing needs in terms of Products & Services technology and it will be possible for companies to exploit this and thereby segment the market. The need for Products & Services Technological and Technical segmentation of this sort will depend on the needs of the national market in question, the end user application sectors and the various national technical standards for Products & Services. Better product technology or technically superior products will command a price premium and vice versa.

  9. PRODUCT SEGMENTATION THROUGH WARRANTY VARIANCES: Many market sectors and end user application sectors will have differing needs in terms of Products & Services warranty and it will be possible for companies to use this to segment the market. The need for Products & Services warranty segmentation of this sort will depend on the circumstances of the national market in question, the warranty needs and expectations of the end user sectors and the sort of applications in which Products & Services are being used. Better product warranty, periods of warranty or warranty terms will command a price premium and vice versa.

  10. PRODUCT SEGMENTATION THROUGH SERVICE FACTOR VARIANCES: Certain market sectors and end user application sectors will have differing needs in terms of product services (in terms of technical, advisory, after-sales and other related services) and it will be possible for companies to thereby segment the market. Service factor segmentation of this sort will depend on the perceptions of the national market in question, the service needs and expectations of the end user sectors and the sort of applications in which Products & Services are being used. Better services or terms of service will command a price premium and vice versa.

  11. PRODUCT SEGMENTATION THROUGH PRODUCT FRAGMENTATION: Specialist market sectors and end user application sectors will sometimes be attracted by the Fragmentation of Products & Services offered in terms of physical variations of the product, the provision of products which allow for the possibility of end users adding value or undertaking some of the production process and it may be possible for companies to thereby segment the market. Product Fragmentation of this sort will depend on the capabilities and capacities of the end users in question, the product needs and expectations of the end user sectors and the sort of applications in which Products & Services are being used.

  12. MARKET SEGMENTATION THROUGH CONVENIENCE FACTORS: Certain national markets or market sectors will be willing to pay a higher Products & Services End User price for the so called 'Convenience Factors'. End users in certain markets will inevitably find difficulty and inconvenience with Products & Services suppliers and supplies and in these markets it will be possible for companies to offer better convenience in terms of ordering procedures, order processing, credit period offered, delivery services and frequency, et cetera of Products & Services and in return charge a price premium.

  13. MARKET SEGMENTATION THROUGH DISTRIBUTION FACTORS: Sometimes geographically particular national markets or market sectors will be willing to pay a higher Products & Services End User price for better product distribution factors. End users in certain markets will inevitably have difficulty in Products & Services distribution factors and in these markets it will be possible for companies to offer better distribution (both geographic and in terms of distribution frequency, et cetera) of Products & Services and in return charge a price premium.

  14. MARKET SEGMENTATION THROUGH CUSTOMER FACTORS: Frequently certain national markets or market sectors will be willing to pay a higher Products & Services End User price for better or improved customer factors. End users in certain markets will be willing to pay for better customer servicing through the provision of up-market or otherwise unique customer services and thus it may be possible for companies to offer these customer services and in return charge a price premium.

  15. MARKET SEGMENTATION THROUGH PSYCHOGRAPHICS: Some national markets or market sectors will be effected and thereby segmented through certain Psychographic factors. End users in certain markets will have certain perceptions and attitudes unique to that market. For instance, an example of Psychographics is the phenomenon of product chauvinism whereby end users in certain national markets will usually give preference to products produced in their own country. This factor usually represents a problem, but can also be an area of potential opportunity for astute suppliers to exploit.

  16. MARKET SEGMENTATION THROUGH BRANDING: National markets or market sectors can be further segmented by the introduction of Products & Services branding in order to achieve pricing differentials or other tactical marketing objectives. Different end users will inevitably have differing perceptions, attitudes and needs and in these circumstances it will be possible for companies to offer Products & Services branding and thereby ensure a more effective market and product segmentation without unduly affecting existing Products & Services.

  17. MARKET SEGMENTATION THROUGH MULTI-BRANDING: Multi-branding is a vehicle whereby a supplier can introduce even more market segmentation and also increase or improve the distribution set-up through allowing the multiple branding of products. In certain markets this will be a very effective way to cater for a broad range of end users, market or application sectors.

  18. MARKET SEGMENTATION THROUGH MARKET STRETCHING: Market Stretching can often extend coverage to new markets or market sectors by the introduction of Products & Services changes in order to achieve product variations or differentials. Different end users will inevitably have differing perceptions, attitudes and needs and in these circumstances it will be possible for companies to offer Products & Services variations and thereby attract purchasers from new markets. This will not unduly affecting existing Products & Services.

 

PRODUCT + MARKET SEGMENTATION

Target Company

Base Reference Country

PRODUCT + MARKET SEGMENTATION

PRODUCT + MARKET SEGMENTATION

 

TRADE CELL - PRODUCT + MARKET SEGMENTATION

Target Company

Base Reference Country

TRADE CELL - PRODUCT + MARKET SEGMENTATION

TRADE CELL - PRODUCT + MARKET SEGMENTATION

 

OPERATIONS - PRODUCT + MARKET SEGMENTATION

Target Company

Base Reference Country

OPERATIONS - PRODUCT + MARKET SEGMENTATION

OPERATIONS - PRODUCT + MARKET SEGMENTATION

 

COMPETITOR - PRODUCT + MARKET SEGMENTATION

Target Company

Base Reference Country

COMPETITOR - PRODUCT + MARKET SEGMENTATION

COMPETITOR - PRODUCT + MARKET SEGMENTATION

 

MAJOR CITY - PRODUCT + MARKET SEGMENTATION

Target Company

Base Reference Country

MAJOR CITY - PRODUCT + MARKET SEGMENTATION

MAJOR CITY - PRODUCT + MARKET SEGMENTATION

 

 Segmentation Definitions



PRODUCT LAUNCH FACTORS


The data given below is based on actual research into the industry launches in the countries covered. Product launches include actual new products as well as product or technology innovations and product substitutions.


ADOPTION RATES:

Product Launch Adoption Rates were identified during the Surveys of End Users in the countries covered. Adoption rate is the term used to denote the likely level of End Users adoption of new products and services. Thus when interviewed a percentage of End Users stated that they were "likely" or "very likely" to purchase (i.e. adopt) new products if introduced to the market. This percentage forms the Adoption Rate.


CONVERSION RATIOS:

In addition to the Adoption Rates, it is also necessary to analyze the Conversion Ratio, i.e. the ratio at which potential new product adopters are converted into buyers.

Not all End Users who stated that they were likely to adopt new products will actually do so; thus this ratio is dependent on all the marketing factors e.g. the distribution channel, numbers of Distributors, sales promotion factors, et cetera, as isolated in the following pages on product launches. These ratios are based on past experience of product launches.

In conjunction with the Product Launch Adoption Rates one can use the Conversion Ratio to determine the actual level of likely Product Launch sales.

Thus the following calculation will provide the likely level of sales at Product Launch:-

 

 

 

 

(

 

AR

 

1

 

)

 

 

PLS

=

U x


x


 

 

 

 

10

 

CR

 

where,

 

PLS

=

Product Launch Sales

 

U

=

Total Universe

 

AR

=

Adoption Rate

 

CR

=

Conversion Ratio

THE RATIOS GIVEN ARE 1:X




SALES GROWTH:

It is possible to isolate likely sales growth data for Products & Services. The percentages given below are the likely average annual sales growth for product launches in the countries concerned. The data is based on current and forecasted economic conditions.

PRODUCT LAUNCH DATA:

In addition to the normal or usual industry costs, during the launch of a product greater costs are experienced. These costs are shown separately in the following tables.

It is possible to isolate these costs based on past experience of product launches.

 

PRODUCT LAUNCH FACTORS - PRODUCTS

Target Company

Base Reference Country

PRODUCT LAUNCH

PRODUCT LAUNCH

 

PRODUCT LAUNCH FACTORS - TRADE CELL

Target Company

Base Reference Country

PRODUCT LAUNCH FACTORS - TRADE CELL

PRODUCT LAUNCH FACTORS - TRADE CELL

 

PRODUCT LAUNCH FACTORS - OPERATIONS

Target Company

Base Reference Country

PRODUCT LAUNCH FACTORS - OPERATIONS

PRODUCT LAUNCH FACTORS - OPERATIONS

 

PRODUCT LAUNCH FACTORS - COMPETITOR

Target Company

Base Reference Country

PRODUCT LAUNCH FACTORS - COMPETITOR

PRODUCT LAUNCH FACTORS - COMPETITOR

 

PRODUCT LAUNCH FACTORS

Target Company

Base Reference Country

PRODUCT LAUNCH FACTORS

PRODUCT LAUNCH FACTORS

 

PRODUCT LAUNCH FACTORS - MAJOR CITY

Target Company

Base Reference Country

PRODUCT LAUNCH FACTORS - MAJOR CITY

PRODUCT LAUNCH FACTORS - MAJOR CITY

 

 

 Product Launch Definitions



MARKETING COSTS


This section covers Products & Services industry costs under the following component headings:-

  1. SALES & SELLING COSTS
    The table below gives the average sales and selling costs ( as a % of Turnover OR MSP) for Products & Services. These costs include sales personnel

  2. DISTRIBUTION COSTS
    The table below gives the average distribution costs ( as a % of Turnover or MSP ) for Products & Services. Distribution Costs also include PHYSICAL Handling, Processing and other related costs, but exclude order administration or accounts processing or handling costs.

  3. ADVERTISING COSTS
    The following table provides average ADVERTISING costs ( as a % of Turnover or MSP ) for Products & Services. Advertising Costs include all promotional expenditure, but excludes cost of sales personnel (i.e. retail, missionary or other sales personnel).

  4. AFTER-SALES COSTS
    The following table provides average AFTER-SALES costs ( as a % of Turnover or MSP ) for Products & Services. After-Sales Costs include all costs incurred after the point of sale (excluding credit and collection costs) which are not chargeable to, or recoupable from, the customer. These costs also include goodwill items such as after-sales visits to distributors or customers.

  5. WARRANTY COSTS
    The table covering average AFTER-SALES costs ( as a % of Turnover or MSP ) for Products & Services also covers WARRANTY COSTS. These costs include all costs incurred after the point of sale (excluding credit and collection costs) which are not chargeable to, or recoupable from, the customer. These costs also include goodwill items such as after-sales visits to distributors or customers.

    Warranty Costs are composed:-

1.

The ITEM COST, i.e. the actual costs of replacing the faulty or reject product

2.

The COST FACTOR, i.e. the administrative, handling, marketing and other costs involved in handling returns, rejects and warranties.

3.

The WARRANTY COST, i.e. the total cost of warranties. This is the figure given below.

4.

TOTAL AFTER-SALES COSTS

 

The following tables provides average marketing costs ( as a % of MSP ) for Products & Services.

 
NOTES:
The costs isolated below represent the industry average and cover the costs of companies in the industry, as well as subsidiaries and other marketing entities in each of the countries concerned.
The figures given indicate an annual average by year on market and should not be confused with the product launch figures given. The definitions for these sets of figures are not directly comparable.
MSP: Denotes the Suppliers, Manufacturers or Producers Selling Price or, in the case of non-manufacturing sales and services, the overall turnover.

 

 

PRODUCT MARKETING FINANCIAL DATA

 

 

HISTORIC MARKETING DATA

Base Reference Country

HISTORIC MARKETING DATA

 

PRODUCT LAUNCH MARKETING COSTS

Target Company

Base Reference Country

PRODUCT LAUNCH MARKETING DATA

PRODUCT LAUNCH MARKETING DATA

 

PRODUCT LAUNCH MARKETING RATIOS

Target Company

Base Reference Country

PRODUCT LAUNCH MARKETING RATIOS

PRODUCT LAUNCH MARKETING RATIOS

 

 Financial Definitions


HISTORIC FINANCIAL INDUSTRY DATA

HISTORIC FINANCIAL INDUSTRY DATA

 Financial Definitions



PRODUCT MARKETING FINANCIAL SCENARIOS

PRODUCT MARKETING FINANCIAL BALANCE SHEET FORECASTS


The PRODUCT MARKETING FINANCIAL SCENARIOS BALANCE SHEET FORECASTS section gives a series of Forecasts for the Company and the industry using a number of assumptions relating to the marketing decisions available to the management of the Company.

The Balance sheet forecast given shows the effects of marketing changes or improvements which management is likely to recommend:

PRODUCT MARKETING FINANCIAL SCENARIOS

  • Base Forecast : Median Market Scenario

  • Marketing Expenditure

  • New Product Development

  • Market Segmentation

  • Distribution Channel Improvement

  • Price Cutting Effect

  • Price Increase Effect

  • Quality Improvement

  • Target Markets Development

  • Product Branding + Multi-branding Investment

  • New Product & New Technology Cost Scenarios

  • Product Quality Improvement

  • Customer Handling Improvements

Managers in the Company will, in both the short-term and the long-term, have vital decisions to make regarding the marketing improvements, margins and profitability and these decisions will need to be evaluated in light of the customers, markets, competitors, products, industry and internal factors. The scenarios given isolate a number of the most important factors and provide balance sheet forecasts for each of the scenarios.

The data provides a short and medium term forecast covering the next 6 years for each of the Forecast Financial and Operational items. The Financial and Operational Data sections show each of the items listed below in terms of forecast data and covers a period of the next 6 years.
 

 

Financial Comparisons: Scenarios

 

Target Company

Base Reference Industry

 

MEDIAN  FORECAST : Financials

MEDIAN  FORECAST : Margins & Ratios

MEDIAN  FORECAST : Financials

MEDIAN  FORECAST : Margins & Ratios

 


THE TARGET COMPANY FORECASTS

NEW PRODUCT DEVELOPMENT : Financials

NEW PRODUCT DEVELOPMENT : Margins & Ratios

MARKET SEGMENTATION : Financials

MARKET SEGMENTATION : Margins & Ratios

DISTRIBUTION CHANNEL IMPROVEMENT: Financials

DISTRIBUTION CHANNEL IMPROVEMENT: Margins & Ratios

SHORT-TERM PRICE CUTTING EFFECT : Financials

SHORT-TERM PRICE CUTTING EFFECT : Margins & Ratios

SHORT-TERM PRICE INCREASE EFFECT : Financials

SHORT-TERM PRICE INCREASE EFFECT : Margins & Ratios

QUALITY IMPROVEMENT: Financials

QUALITY IMPROVEMENT: Margins & Ratios

TARGET MARKETS DEVELOPMENT : Financials

TARGET MARKETS DEVELOPMENT : Margins & Ratios

PRODUCT BRANDING + MULTI-BRANDING Investment: Financials

PRODUCT BRANDING Investment: Margins & Ratios

NEW PRODUCT & NEW TECHNOLOGY COST Scenarios: Financials

NEW PRODUCT & NEW TECHNOLOGY COST: Margins & Ratios

PRODUCT QUALITY IMPROVEMENT: Financials

PRODUCT QUALITY IMPROVEMENT: Margins & Ratios

CUSTOMER HANDLING IMPROVEMENTS : Financials

CUSTOMER HANDLING IMPROVEMENTS : Margins & Ratios


FORECAST FINANCIAL SCENARIOS

NEW PRODUCT DEVELOPMENT : Financials

NEW PRODUCT DEVELOPMENT : Margins & Ratios

MARKET SEGMENTATION : Financials

MARKET SEGMENTATION : Margins & Ratios

DISTRIBUTION CHANNEL IMPROVEMENT: Financials

DISTRIBUTION CHANNEL IMPROVEMENT: Margins & Ratios

SHORT-TERM PRICE CUTTING EFFECT : Financials

SHORT-TERM PRICE CUTTING EFFECT : Margins & Ratios

SHORT-TERM PRICE INCREASE EFFECT : Financials

SHORT-TERM PRICE INCREASE EFFECT : Margins & Ratios

QUALITY IMPROVEMENT: Financials

QUALITY IMPROVEMENT: Margins & Ratios

TARGET MARKETS DEVELOPMENT : Financials

TARGET MARKETS DEVELOPMENT : Margins & Ratios

PRODUCT BRANDING + MULTI-BRANDING Investment: Financials

PRODUCT BRANDING Investment: Margins & Ratios

NEW PRODUCT & NEW TECHNOLOGY COST Scenarios: Financials

NEW PRODUCT & NEW TECHNOLOGY COST: Margins & Ratios

PRODUCT QUALITY IMPROVEMENT: Financials

PRODUCT QUALITY IMPROVEMENT: Margins & Ratios

CUSTOMER HANDLING IMPROVEMENTS : Financials

CUSTOMER HANDLING IMPROVEMENTS : Margins & Ratios

 

 Financial Definitions

 


 


 

3

Product Profiles:

 

 

Comparisons:

 

Target Company

 

Reference Products: Base Reference Country

Company Product Shares

 

Product Shares

    Products & Services

Target Company

 

TOTAL

1

2

3

4

5

BASE Product Shares : MEDIAN: Product Shares

 

Q0M Q0M Q0M Q0M Q0M Q0M
BASE Product Shares : BEST: Product Shares

 

Q0B Q0B Q0B Q0B Q0B Q0B
BASE Product Shares : WORST: Product Shares

 

Q0W Q0W Q0W Q0W Q0W Q0W

PRODUCT LAUNCH: Product Shares

 

QPL QPL QPL QPL QPL QPL

NEW PRODUCT DEVELOPMENT: Product Shares

 

Q02 Q02 Q02 Q02 Q02 Q02
MARKET SEGMENTATION: Product Shares

 

Q03 Q03 Q03 Q03 Q03 Q03
DISTRIBUTION CHANNEL IMPROVEMENT: Product Shares

 

Q06 Q06 Q06 Q06 Q06 Q06
SHORT-TERM PRICE CUTTING EFFECT: Product Shares

 

Q08 Q08 Q08 Q08 Q08 Q08
SHORT-TERM PRICE INCREASE EFFECT: Product Shares

 

Q09 Q09 Q09 Q09 Q09 Q09
QUALITY IMPROVEMENT: Product Shares

 

Q10 Q10 Q10 Q10 Q10 Q10
RESEARCH & PRODUCT COST OBJECTIVES: Product Shares

 

Q33 Q33 Q33 Q33 Q33 Q33
LONG-TERM PRODUCT PRICE CUTTING: Product Shares

 

Q38 Q38 Q38 Q38 Q38 Q38
LONG-TERM PRODUCT PRICE INCREASE: Product Shares

 

Q39 Q39 Q39 Q39 Q39 Q39
TARGET MARKETS DEVELOPMENT: Product Shares

 

Q41 Q41 Q41 Q41 Q41 Q41
PRODUCT POSITIONING: Product Shares

 

Q43 Q43 Q43 Q43 Q43 Q43
PRODUCT BRANDING + MULTI-BRANDING INVESTMENT: Product Shares

 

Q44 Q44 Q44 Q44 Q44 Q44
NEW PRODUCT & NEW TECHNOLOGY COST: Product Shares

 

Q55 Q55 Q55 Q55 Q55 Q55
PRODUCT COST IMPROVEMENTS: Product Shares

 

Q70 Q70 Q70 Q70 Q70 Q70
PRODUCT QUALITY IMPROVEMENT: Product Shares

 

Q71 Q71 Q71 Q71 Q71 Q71
   Definitions
 
 

Target Company

 

Reference Industry: Base Reference Country

Target Company Industry Norms

 

Product Sectors

    Products & Services

Target Company

 

TOTAL

1

2

3

4

5

BASE Industry Norm : MEDIAN: Industry Norm

 

J0M J0M J0M J0M J0M J0M
BASE Industry Norm : BEST: Industry Norm

 

J0B J0B J0B J0B J0B J0B
BASE Industry Norm : WORST: Industry Norm

 

J0W J0W J0W J0W J0W J0W

PRODUCT LAUNCH: Industry Norm

 

JPL JPL JPL JPL JPL JPL

NEW PRODUCT DEVELOPMENT: Industry Norm

 

J02 J02 J02 J02 J02 J02
MARKET SEGMENTATION: Industry Norm

 

J03 J03 J03 J03 J03 J03
SHORT-TERM PRICE CUTTING EFFECT: Industry Norm

 

J08 J08 J08 J08 J08 J08
SHORT-TERM PRICE INCREASE EFFECT: Industry Norm

 

J09 J09 J09 J09 J09 J09
QUALITY IMPROVEMENT: Industry Norm

 

J10 J10 J10 J10 J10 J10
RESEARCH & PRODUCT COST OBJECTIVES: Industry Norm

 

J33 J33 J33 J33 J33 J33
LONG-TERM PRODUCT PRICE CUTTING: Industry Norm

 

J38 J38 J38 J38 J38 J38
LONG-TERM PRODUCT PRICE INCREASE: Industry Norm

 

J39 J39 J39 J39 J39 J39
TARGET MARKETS DEVELOPMENT: Industry Norm

 

J41 J41 J41 J41 J41 J41
PRODUCT POSITIONING: Industry Norm

 

J43 J43 J43 J43 J43 J43
PRODUCT BRANDING + MULTI-BRANDING INVESTMENT: Industry Norm

 

J44 J44 J44 J44 J44 J44
NEW PRODUCT & NEW TECHNOLOGY COST: Industry Norm

 

J55 J55 J55 J55 J55 J55
PRODUCT COST IMPROVEMENTS: Industry Norm

 

J70 J70 J70 J70 J70 J70
PRODUCT QUALITY IMPROVEMENT: Industry Norm

 

J71 J71 J71 J71 J71 J71
   Industry Definitions

 

 

4

Product & Target Markets:

 

PRODUCT + MARKET TARGETS


The opportunities present a market increase when the industry recognize that the market is made up of customer groups with varying preferences, not all of whom are likely to be receiving complete satisfaction from the current offerings of sellers.

Markets can be segmented on geographic, demographic, and psychographic variables. To be ultimately useful, the segments should be measurable, accessible, and substantial.

Competitor firms have shown different targeting strategies towards the existence of market segments, some ignoring them (undifferentiated marketing), some developing a variety of products and some going after only a few segments (concentrated marketing). No particular strategy is superior to the others in all circumstances. Much depends on company resources, product homogeneity, product stage in the life cycle, market homogeneity, and competitive marketing strategies. The Company must analyze the attractiveness of the different market segments as a prelude to selecting its target markets.

The analysis of market segments lies at the heart of marketing strategy. For marketing strategy involves two basic ideas. The first is the selection of target markets. The second is the development of effective marketing programmes to win these target markets.

 

MARKET SEGMENTATION


Every organization must make a determination not only of what needs to serve, but also whose needs. Most markets are too large for an organization to provide all the products and services needed by all the buyers in that market. Some delimitation of the market is necessary for the sake of efficiency and because of limited resources. This is the problem of selecting target markets.

Markets vary in their degree of heterogeneity. At one extreme, there are markets made up of buyers who are very similar in their wants, product requirements, and responses to marketing influences. For example, suppose all buyers of basic consumables wanted to buy the same amount per month and wanted the simplest packaging and the lowest price. Such a market would be homogeneous, and selling to it would be fairly straightforward. The market offers of competitors would probably be very similar.

At the other extreme there are markets made up of buyers seeking substantially different product qualities and/or quantities. For example, buyers of durable products are looking for different styles, sizes, colors, materials, and prices. Such a market is heterogeneous. It is made up of customer groups with different buying needs and interests. These groups are called market segments.

In a heterogeneous market, the company has three targeting options:

a)

They can introduce only one product, hoping to get as many people to buy it as possible. One calls this undifferentiated marketing.

b)

They can go after one particular market segment and develop the ideal product for them. One calls this concentrated marketing.

c)

They can introduce several product versions, each appealing to a different group. One calls this differentiated marketing.


Thus the determination of market segments and the determination of market targets are separate questions. Market segmentation is the process of identifying groups of buyers with different buying desires or requirements. Market targeting is the company's decision regarding which market segments to serve.

To illustrate, suppose a company wants to enter a particular market that seems attractive on the bases of demand measurement and forecasting. The company interviews a sample of customers and asks them to state the attributes (such as quality, price, style, service) they consider important in buying the product. Suppose they name two attributes, X and Y. Each consumer is also asked to state where he would like his ideal or preferred brand to be on the two attributes. The resulting preferences can be plotted as points in product space.


They will be distributed according to one of three basic patterns:

a) Homogeneous preferences

This shows a market where all the consumers have roughly the same preference. The market shows no natural segments, at least as far as the two attributes are concerned. We would predict that existing brands would be similar and located in the centre of the preferences.

 

A

T

T

x

R

x

x

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B

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U

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ATTRIBUTE   X


Target Company
Base Reference
MARKET ATTRIBUTES

Concentrated Markets

Un-concentrated Markets

Market Preference : Homogeneous

Market Preference : Diffused

Market Preference : Clustered

Performance Grid Definitions




b) Diffused preferences

At the other extreme, consumer preferences may be scattered fairly evenly throughout the space with no concentration. Consumers simply differ a great deal in what they want from the product. If one brand exists in the market, it is likely to be positioned in the centre because then it would appeal to the most people. A brand in the centre minimizes the sum of total consumer dissatisfaction. If a competitor came into the market, he could locate next to the first brand and engage in an all-out battle for market share. This is the typical situation in a political market where two candidates both go middle-of-the-road to gain the greatest following. The other choice is for the competitor to locate in some corner to gain the real loyalty of a customer group that is not satisfied with the centered brand. If there are several bands in the market, they are likely to eventually position themselves fairly evenly throughout the space and show real differences to match consumer preference differences.

 

A

x

x

x

 

x

x

T

 

 

 

x

x

T

x

x

x

x

x

x

x

x

 

x

R

x

x

x

x

x

x

x

x

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x

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x

x

x

x

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x

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B

x

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x

x

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x

x

x

x

U

x

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x

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x

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T

x

x

x

x

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x

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x

x

x

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x

x

x

x

x

x

x

x

x

x

x

x

x

x

Y

x

x

x

x

ATTRIBUTE   X



c) Clustered preferences

An intermediate possibility is the appearance of distinct preference clusters. They may be called natural market segments.

The first firm to enter this market has three options:

1)

It might position itself in the centre hoping to appeal to all the groups (undifferentiated marketing)

2)

It might position itself in the largest market segment (concentrated marketing)

3)

It might develop many brands, each positioned in a different segment (differentiated marketing).

Clearly, if it developed only one brand, competition would come in and introduce brands in the other segments.


Thus when a company considers entering a market, it must carry out the following steps. First, it must determine those attributes along which to identify the possible existence of distinct market segments. Second, it must determine the size and value of the various market segments. Third, it must determine how the existing brands are positioned in the market. Fourth, it must look for opportunities consisting of market segments that are not being served or inadequately being served by existing brands. Fifth, it must determine correlated characteristics of attractive segments, such as their geographic, demographic and psychographic characteristics, because they suggest efficient methods of access to these segments.

 

x

x

A

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T

x

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T

x

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U

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x

x

x

x

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x

 

 

x

x

 

Y

x

x

x

ATTRIBUTE   X




1. REQUIREMENTS FOR EFFECTIVE SEGMENTATION


We still have to define attractive segments. The mere fact that a market segment is not being served, or is being served poorly, is not sufficient. Three additional conditions must be considered:
 

a.

Measurability

The degree to which information exists or is obtainable on the particular buyer characteristic. Unfortunately, many suggestive characteristics are not susceptible to easy measurement. Thus it is hard to measure the respective number of buyers who are motivated primarily by considerations of price versus quality.

b.

Accessibility

The degree to which the firm can effectively focus its marketing efforts on chosen segments. This is not possible with all segmentation variables. It would be nice if advertising could be directed mainly to opinion leaders, but their media habits are not always distinct from those of opinion followers.

c.

Substantiality

The degree to which the segments are large and/or profitable enough to be worth considering for separate marketing cultivation. A segment should be the smallest unit for which it is practical to tailor a separate marketing programme. Segmental marketing is expensive and it would not pay, for example, for a supplier to develop special products for small markets.



2. BENEFITS OF SEGMENTATION

Segmentation is a relatively recent and revolutionary concept in marketing thinking. In earlier years many business firms saw the key to profits as being in the development of a single brand that was mass produced, mass distributed and mass communicated. This would lead to the lowest costs and prices and hence create the largest potential market. The firm would not recognize preference variations and would try to get everyone in the market to want what it produced.

As competition intensified, prices dropped and sellers' earnings declined. Sellers did not have much control over price because of the similarity of their product differentiation - that is, the introduction of differential features, quality, style, or image in their brands as a basis for asking a premium. This led to a proliferation of sizes, models, options and other characteristics. It is important to recognize however, that the product variations were not based on an analysis of natural market segments.

Market segmentation, the most recent idea for guiding marketing strategy, starts not with distinguishing product possibilities, but rather with distinguishing customer groups. Market segmentation is the subdividing of a market into distinct subsets of customers, where any subset may conceivably be selected as a market target to be reached with a distinct marketing mix. The power of this concept is that in an age of intense competition for the mass market, individual sellers may prosper through developing brands for specific market segments whose needs are imperfectly satisfied by the mass-market offerings. The seller who is alert to the needs of different market segments may gain in three ways:

First, one is in a better position to spot and compare marketing opportunities. One can examine the needs of each segment against the current competitive offerings and determine the extent of current satisfaction. Segments with relatively low levels of satisfaction from current offerings may represent excellent marketing opportunities.

Second, the seller can make finer adjustments of his product and marketing appeals. Instead of one marketing programme aimed to draw in all potential buyers, the seller can create separate marketing programmes aimed to meet the needs of different buyers.

Third, the seller can develop marketing programmes and budgets based on a clearer idea of the response characteristics of specific market segments. One can allocate funds more efficiently to achieve the desired effects in different parts of the market.


Target Company
Base Reference
MARKET SEGMENTATION

Market Potential Measurability

Market Accessibility : Existing Products

Market Accessibility : New Products

Market Substantiality : Existing Products

Market Substantiality : New Products

Performance Grid Definitions



MARKET BASES


In the earlier illustration one used differences in buyer preferences or responses as the basis for market segmentation. This is a highly market-orientated basis for segmentation because it is addressed to differences in customer wants and there is still the question of access to any particular segment. Under the best circumstances, the buyer segment is distinguished not only by clear preferences but also by associated demographics and media habits. Thus if the people who want to buy expensive products are also those in the higher income and age brackets, their numbers, locations and media habits can be more readily identified.

Under many circumstances, however, the Company can divide markets into segments based directly on geographic, demographic, or psychographic variables. One company may decide to produce products for one market segment and another company will concentrate on another. Product usage rate thus becomes the segmenting variable, although the company's success with the heavy-user market will depend on identifying some basic uniformities among consumers to which to appeal.

Good segmentation usually involves dividing the market by a succession of variables.

One can list most of the important variables used in segmenting consumer markets. Industrial markets are generally segmented according to such variables as end users, user needs, usage rate, marketing factor sensitivity and geographical location. One must always be open to the possibility of finding new segmentation variables and combinations that will reveal fresh marketing opportunities.


1. GEOGRAPHIC SEGMENTATION

In geographic segmentation, the market is divided into different locations, such as nations, states, counties, cities, or neighborhoods. The organization recognizes that market potentials and costs vary with market location. It determines those geographical markets that it could serve best.


2. DEMOGRAPHIC SEGMENTATION

In demographic segmentation, the market is subdivided into different parts on the basis of demographic variables, such as age, sex, family size, income, occupation, education, family life cycle, religion, nationality, or social class. Demographic variables have long been the most popular bases for distinguishing significant groupings in the market place. One reason is that consumer wants or usage rates are often highly associated with demographic variables; another is that demographic variables are easier to measure than most other types of variables.

A seller must be careful in his use of demographics because its influence on consumer product interest does not always operate in the expected direction.

Companies should realize that demographic segmentation is also a valid proposal for industrial markets as well as consumer markets. The industrial buyer also conforms to certain profiles and these affect his susceptibility to a sales proposition.



3. PSYCHOGRAPHIC SEGMENTATION

The third category of segmentation variables is the psychographic. Psychographic variables tend to refer to the individual and such aspects as his life-style, personality, buying motives, and product knowledge and use. People within the same demographic group can exhibit vastly different traits.
 

i.

LIFE-STYLE

Life-style refers to the distinctive mode of orientation an individual or a group has toward consumption, work, and play. Companies are increasingly being drawn to life-style segmentation. They are targeting versions of their own life-style groups and studying new product opportunities arising out of life-style analysis.

ii.

PERSONALITY

Companies have used personality variables to segment the market. They try to endow their products with brand personalities (brand image, brand concept) designed to appeal to corresponding consumer personalities (self images, self-concepts).

iii.

BENEFITS SOUGHT

Buyers are drawn to products with different buying motives. An attempt is made to determine the demographic or psychographic characteristics associated with each benefit segment.

Further characteristics of each group may be found and the firm can choose the benefit it wants to emphasize, create a product that delivers it and direct a message to the group seeking that benefit.

Choosing a benefit group to market to has some difficulties. First, it is usually difficult to estimate the size of different benefit groups in the total population. It depends on the ease with which persons can cite one benefit as dominating their interest in the product. Second, the cited benefit might cover up something deeper. Finally, some buyers are interested in a particular benefit bundle rather than in a single benefit; this means the company may have to segment by benefit bundle groups.

iv.

USER STATUS

Many markets can be segmented into non-users, ex-users, potential users, first-time users and regular users of a product. High market-share firms are particularly interested in going after potential users, whereas a small competitor will concentrate on trying to attract regular users to its brand. Potential users and regular users require different kinds of communication and selling efforts.

v.

USAGE RATE

Many markets can be segmented into light-, medium-, and heavy-user groups of the product (called volume segmentation). Heavy-users may constitute only a small percentage of the numerical size of the market but a major percentage of the unit volume consumed. Naturally, companies will want to go after the "heavy half" of the market, because every heavy-user of their brand is worth several light-users. Unfortunately, when all the companies go after the same heavy-users, their campaigns look alike and cancel each other out.

The hope is that the heavy-users of a product have certain common demographics, personal characteristics, and media habits. User profiles are obviously helpful to the Company in developing pricing, message, and media strategies.


Target Company
Base Reference
MARKET BASES

Geographic Segmentation

Demographic Segmentation

Psychographic Segmentation : Customer Factors

Psychographic Segmentation : Product Usage Factors

Psychographic Segmentation : Market Factors

Performance Grid Definitions



 

vi.

LOYALTY STATUS

Loyalty status describes the amount of loyalty that users have to a particular object. The amount of loyalty can range from zero to absolute. One can find buyers who are absolutely loyal to a brand, to a place, and so on.

Companies try to identify the characteristics of their hard-core loyal customers so that they can target their market effort to similar people in the population. One researcher found some brand-loyal customers in the consumer-staples category but concluded that they "were not identifiable by socioeconomic or personality characteristics, did not have different average demand levels from un-loyal customers, and did not differ in sensitivity to promotion". In this case, brand loyalty did not appear to be of a useful basis for market segmentation.

Furthermore, the concept of brand loyalty has some ambiguities. What may appear to be brand loyalty may be explainable in other ways. Suppose a buyer purchased brand B on the last seven shopping occasions. The purchase pattern BBBBBB would seem to reflect intrinsic preference for the product but may really reflect habit, indifference, a lower price, or the non-availability of substitutes. The pattern BBBBAAA for another buyer would seem to indicate a switch in loyalty but may only reflect the fact that the retailer dropped brand B, or that the buyer switched retailers, or that the buyer switched to brand A because of a price promotion. Marked brand continuity in brand-purchase sequences is not necessarily evidence that individual brand loyalty exists or is strong.

vii.

STAGES OF READINESS

At any point of time, there is a distribution of people in various stages of readiness toward buying the product. Some members of the potential market are unaware of the product; some are aware; some are informed; some are interested; some are desirous; and some intend to buy. The particular order of people over stages of readiness makes a big difference in drafting the marketing programme.

Suppose a company wants to attract buyers to take a particular product. At the beginning, most of the potential market is unaware of the concept. The marketing effort should go into high-reach advertising and publicity using a simple message. If successful, more of the market will be aware of the product and the advertising should be changed to dramatizing the benefits of the products and the risks of not buying it, so as to move more people into a stage of desire. Distributions should also be readied for handling the large number of buyers who may be motivated to purchase the product. In general, the marketing programme must be adjusted to the changing distribution of readiness.

vii.

MARKETING FACTORS

Markets can often be segmented into groups responsive to different marketing factors such as price and price deals, product quality and service. This information can help the Company in allocating its marketing resources. The marketing variables are usually proxies for particular benefits sought by buyers. A company that specializes in a certain marketing factor will build up hard-core loyal customers seeking that factor or benefit.


The main conclusion from this discussion of market segmentation is that the Company may segment the market in many different ways. The goal is to determine the most decisive mode of segmentation - that is, the differences among buyers that may be the most consequential in choosing among them or marketing to them.



TARGET MARKETS


Mentioned earlier was the fact that the Company can choose one of three target market strategies in the face of market heterogeneity. Here one amplifies on the respective rationale of these strategies.


1. UNDIFFERENTIATED MARKETING

In undifferentiated marketing, the company chooses not to recognize the different market segments making up the market. It treats the market as an aggregate focusing on what is common in the needs of people rather than on what is different. It tries to design a product and a marketing programme that appeals to the broadest number of buyers. It relies on mass channels, mass advertising media and universal themes. It aims to endow the product with a superior image in people's minds, whether or not this is based on any real difference.

Undifferentiated marketing is primarily defended on the grounds of cost economies. It is thought to be "the marketing counterpart to standardization and mass production in manufacturing". The fact that the product line is kept narrow minimizes production, inventory and transportation costs. The undifferentiated advertising programme enables the firm to enjoy media discounts through large usage. The absence of segmental marketing research and planning lowers the costs of marketing research and product management. On the whole, undifferentiated marketing results in keeping down many costs of doing business.

Nevertheless, an increasing number of companies have expressed strong doubts about the optimal nature of this strategy.

For example, it is admitted that "some brands have very skillfully built up reputations of being suitable for a wide variety of people", but it is added, "In most areas audience groupings will differ, if only because there are deviants who refuse to consume the same way other people do . . . It is not easy for a brand to appeal to stable lower middle-class people and at the same time to be interesting to sophisticated, intellectual upper middle-class buyers . . . It is rarely possible for a product or brand to be all things to all people".

The firm practicing undifferentiated marketing typically develops a product and marketing programme aimed at the largest segment of the market. When several firms in the industry do this, the result is hyper-competition for the largest segment(s) and under-satisfaction of the smaller ones. The "majority fallacy," as this has been called, describes the fact that the larger segments may be less profitable because they attract disproportionately heavy competition. The recognition of this fallacy has led many firms to re-evaluate the opportunities latent in the smaller segments of the market.


2. DIFFERENTIATED MARKETING

Under differentiated marketing, a firm decides to operate in two or more segments of the market but designs separate products and/or marketing programmes for each. By offering product and marketing variations, one hopes to attain higher sales and a deeper position within each market segment and one hopes that a deep position in several segments will strengthen the customers' overall identification of the firm with the product field. Furthermore, one hopes for greater loyalty and repeat purchasing, because the firm's offerings have been bent to the customer's desire rather than the other way around.

In recent years an increasing number of firms have moved toward a strategy of differentiated marketing. This is reflected in trends toward multiple product offerings and multiple trade channels and media.

The net effect of differentiated marketing is to create more total sales than through undifferentiated marketing. It is ordinarily demonstrable that total sales may be increased with a more diversified product line sold through more diversified channels" However, it also tends to be true that differentiated marketing increases the costs of doing business.

The following costs are likely to be higher:

a.

Product modification costs.  

Modifying a product to meet different market segment requirements usually involves some R&D, technical, and/or special tooling costs.

b.

Production costs.   

Generally speaking, it is more expensive to produce m units each of n differentiated products than mn units of one product. This is especially true the longer the production setup time for each product and the smaller sales volume of each product. On the other hand, if each product is sold in sufficiently large volume, the higher costs of setup time may be quite small per unit.

b.

Administrative costs.   

Under differentiated marketing, the company has to develop separate marketing plans for the separate segments of the market. This requires extra marketing research, forecasting, sales analysis, promotion, planning and channel management.

d.

Inventory costs.   

It is generally more costly to manage inventories of differentiated products than an inventory of only one product. The extra costs arise because more records must be kept and more auditing done. Furthermore, each product must be carried at a level that reflects basic demand plus a safety factor to cover unexpected variations in demand. The sum of the safety stocks for several products will exceed the safety stock required for one product. Thus carrying differentiated products leads us to increased inventory costs.

e.

 Promotion costs.   

Differentiated marketing involves trying to reach different segments of the market through advertising media most appropriate to each case. This leads to lower usage rates of individual media and the consequent forfeiture of quantity discounts. Furthermore, since each segment may require separate creative advertising planning, promotion costs are increased.



Since differentiated marketing leads to higher sales and higher costs, nothing can be said a priori regarding the perfectness of this strategy. Some firms are finding, in fact, that they have over-differentiated their market offers. They would like to manage fewer brands, with each appealing to a broader customer group. Called reverse line extension or broadening the base, they seek a larger volume for each brand.


3. CONCENTRATED MARKETING

Both differentiated marketing and undifferentiated marketing imply that the firm goes after the whole market. However, many firms see a third possibility, one that is especially appealing when the company's resources are limited. Instead of going after a small share of a large market, the firm goes after a large share of one or a few submarkets. Put another way, instead of spreading itself thin in many parts of the market, it concentrates its forces to gain a good market position in a few areas.

Through concentrated marketing the firm achieves a strong market position in the particular segments it serves, owing to its greater knowledge of the segments' needs and the special reputation it acquires. Furthermore, it enjoys many operating economies because of specialization in production, distribution, and promotion. If the segment of the market is well chosen, the firm can earn high rates of return on its investment.

At the same time, concentrated marketing involves higher than normal risks. The particular market segment can suddenly turn sour because of a change in buyer perceptions or attitudes, or a competitor may decide to enter the same segment. For these reasons, many companies prefer to diversify in several market segments.


4. SELECTING A MARKET TARGETING STRATEGY

Particular characteristics of the seller, the product, or the market serve to constrain and narrow the actual choice of a market targeting strategy.

i.

The first factor is company resources.   Where the company's resources are too limited to permit complete coverage of the market, its only realistic choice is concentrated marketing.
 

ii.

The second factor is product homogeneity. Undifferentiated marketing is more suited for homogeneous products such as grapefruit or steel. Products that are capable of great variation are more naturally suited to differentiation or concentration.
 

iii.

The third factor is product stage in the life cycle.   When a firm introduces a new product into the market it usually finds it practical to introduce one or, at the most, a few product versions. One's interest is to develop primary demand, and undifferentiated marketing seems the suitable strategy; or it might concentrate on a particular segment. In the mature stage of the product life cycle, firms tend to pursue a strategy of differentiated marketing.

iv.

The fourth factor is market homogeneity.   If buyers have the same tastes, buy the same amounts for periods, and react in the same way to marketing stimuli, a strategy of undifferentiated marketing is appropriate.
 

v.

The fifth factor is competitive market strategies.   When competitors are practicing active segmentation, it is hard for a firm to compete through undifferentiated marketing. Conversely, when competitors are practicing undifferentiated marketing, a firm can gain by practicing active segmentation if some of the other factors favor it.



MARKET SEGMENT DECISIONS


The problem facing the Company in seeking segmentation of their market is how to estimate the value of operating in each of the segments.

The firm that pursues differentiated marketing must know this in order to allocate its marketing effort over the various segments. The firm that pursues concentrated marketing must know this in order to decide which segments offer the best opportunities.

A useful analytical approach is illustrated by considering an example as a three stage exercise:

Stage 1 would show a segmentation of the market, using as two variables the customer-prospect mix and the product-service mix. The customer-prospect mix consists of various buyer groups. The product-service mix consists of products sold to these buyer groups. Cells result from this joint segmentation of the market. Each cell represents a distinct submarket, or product-market segment. A monetary figure is placed in each cell, representing the company's sales in that submarket.

Relative company sales in the submarkets provide no indication of their relative profit potential as segments. The latter depends upon market demand, company costs and competitive trends in each submarket.

Stages 2 and 3 would show how a particular product submarket can be analyzed in depth.

Stage 2 appraises present and future sales in the selected submarket. The vertical axis accommodates estimates of industry sales, company sales, and company market share. The horizontal axis is used to project future sales in the product groups and market shares.

Stage 3 probes deeper into the marketing thinking behind the sales forecasts of Stage 2. The horizontal axis shows the promotional mix that the company is using or plans to use to stimulate the sales of particular products to particular buyer group. The vertical axis shows the distribution mix that the company is using or plans to use for the particular product and the particular buyer group. The actual promotion-distribution mix could be detailed by placing budget figures (funds and men) in the relevant cells. The company will use all the types of distribution and rely mainly on specific selling approaches for stimulating sales to the particular buyer group.

By carrying out this analysis, the Company is led to think systematically about each segment as a distinct opportunity. This analysis of the profit potential of each segment, in conjunction with objectives, will help one to decide on a segmentation strategy.


Target Company
Base Reference
MARKET SEGMENT AVAILABILITY

Customer-Prospect Mix Segment

Product-Service Mix Segment

Sub-market Segment: Present Sales Potential

Sub-market Segment: Future Sales Potential

Promotional-Distribution Mix Segment

Performance Grid Definitions


 

HISTORIC FINANCIAL INDUSTRY DATA

HISTORIC FINANCIAL INDUSTRY DATA

 Financial Definitions


 

PRODUCT + MARKET TARGETS FINANCIAL SCENARIOS

 

PRODUCT + MARKET TARGETS FINANCIAL SCENARIOS BASED BALANCE SHEET FORECASTS


The PRODUCT + MARKET TARGETS FINANCIAL SCENARIOS BALANCE SHEET FORECASTS section gives a series of Forecasts for the Company and the industry using a number of assumptions relating to the Product and Market Targeting decisions available to the management of the Company.

The Balance sheet forecast given shows the effects of marketing improvements which Sales Management is likely to recommend:

PRODUCT + MARKET TARGETS FINANCIAL SCENARIOS

  • Base Forecast : Median Market Scenario

  • Product Launch Marketing Expenditure Scenario

  • Marketing Expenditure

  • Market Segmentation

  • Export Sales Improvement

  • Distribution & Product Delivery Cost Objectives

  • Research & Product Cost Objectives

  • Target Markets Development

  • Product Positioning

  • Overseas Development


Managers in the Company will, in both the short-term and the long-term, have vital decisions to make regarding the marketing improvements, margins and profitability and these decisions will need to be evaluated in light of the customers, markets, competitors, products, industry and internal factors. The scenarios given isolate a number of the most important factors and provide balance sheet forecasts for each of the scenarios.

The data provides a short and medium term forecast covering the next 6 years for each of the Forecast Financial and Operational items. The Financial and Operational Data sections show each of the items listed below in terms of forecast data and covers a period of the next 6 years.

 

Target Company

 

Reference Industry Finances: Base Reference Country

Company Financial Forecasts

 

Product Sector Financial Data

    Products & Services

Target Company

 

TOTAL

1

2

3

4

5

BASE FORECAST : MEDIAN: Financials

 

F0M F0M F0M F0M F0M F0M

PRODUCT LAUNCH: Financials

 

FPL FPL FPL FPL FPL FPL

MARKETING EXPENDITURE: Financials

 

F01 F01 F01 F01 F01 F01
MARKET SEGMENTATION: Financials

 

F03 F03 F03 F03 F03 F03
EXPORT SALES IMPROVEMENT: Financials

 

F11 F11 F11 F11 F11 F11
DISTRIBUTION & PRODUCT DELIVERY COST OBJECTIVES: Financials

 

F28 F28 F28 F28 F28 F28
RESEARCH & PRODUCT COST OBJECTIVES: Financials

 

F33 F33 F33 F33 F33 F33
TARGET MARKETS DEVELOPMENT: Financials

 

F41 F41 F41 F41 F41 F41
PRODUCT POSITIONING: Financials

 

F43 F43 F43 F43 F43 F43
OVERSEAS DEVELOPMENT: Financials

 

F47 F47 F47 F47 F47 F47

 

Target Company

 

Reference Industry Margins: Base Reference Country

Target Company Operational Margins

 

Product Sector Operational Margins

               

Target Company

 

TOTAL

1

2

3

4

5

BASE FORECAST : MEDIAN: Margins

 

G0M G0M G0M G0M G0M G0M

PRODUCT LAUNCH: Margins

 

GPL GPL GPL GPL GPL GPL

MARKETING EXPENDITURE: Margins

 

G01 G01 G01 G01 G01 G01
MARKET SEGMENTATION: Margins

 

G03 G03 G03 G03 G03 G03
EXPORT SALES IMPROVEMENT: Margins

 

G11 G11 G11 G11 G11 G11
DISTRIBUTION & PRODUCT DELIVERY COST OBJECTIVES: Margins

 

G28 G28 G28 G28 G28 G28
RESEARCH & PRODUCT COST OBJECTIVES: Margins

 

G33 G33 G33 G33 G33 G33
TARGET MARKETS DEVELOPMENT: Margins

 

G41 G41 G41 G41 G41 G41
PRODUCT POSITIONING: Margins

 

G43 G43 G43 G43 G43 G43
OVERSEAS DEVELOPMENT: Margins

 

G47 G47 G47 G47 G47 G47

 Financial Definitions

 


 

5

Product Mix:

 

PRODUCT MIX


A key element of the Company marketing strategy is the development of a viable set of company products and brands.

By a product, one means anything (goods or services) that might be offered to a market for attention, acquisition or consumption.

The sum of the product items and lines constitutes the Company product mix. This product mix will have certain width, depth and consistency. It will express the company's positioning strategy, whether to be full line or specialize by market, product line or situation. The Company must periodically review its product mix to see if it will yield the desired profit and sales growth over time. Current products can be classified by their sales growth, market share and profitability. The analysis often reveals the need for stepped-up new-product development as well as product pruning. Management-science techniques offer an opportunity to determine the optimal product mix for a given set of management objectives.

The Company must also develop a set of brand policies concerning whether to sell their products under the company's own names, distributors' names, or both and whether to develop family or individual brands. Furthermore the possibilities to employ brand-extension and multi-brand strategies also exist.


THE CONCEPT OF THE TARGET COMPANY -v- INDUSTRY PRODUCTS

Before exploring the product-mix and brand issues in the Company it may be useful to quickly define what can be regarded as a product, being broadly:

A product is anything that can be offered to a market for attention, acquisition or consumption; it includes physical objects, services, personalities, places, organizations and ideas.

The character of the product may be seen differently by the buyer and the seller. It is useful to distinguish three concepts of a product:

 

   1. Formal product
   2. Core product
   3. Augmented product

 

1.

The Formal product is the physical object or service that is offered to the target market. It is what is readily recognized as the offer.

 

If it is a physical object, it may be recognized by the market as having up to five characteristics:

   a. Quality level
   b. Features
   c. Styling
   d. Brand name
   e. Packaging

If it is a service, it may have some or all of these facets in an analogous manner.

Where,

a.

Quality level  =

Level of Competence

b.

Features  =

Types of Services, Terms, Costs, Speed

c.

Styling  =

Nature of Service, Customer perceptions, etc

d.

Brand name  =

Formal Name of Service

e.

Packaging  =

Structure, Location, Availability

 

 

2.

The Core product is the essential utility or benefit that is being offered to, or sought by the buyer.

 

For example, the woman purchasing lipstick is not buying a set of chemical and physical attributes for their own sake; she is buying beauty. The person buying a camera is not buying a mechanical box for its own sake; he is buying pleasure, nostalgia, and a form of immortality.

The formal product is simply the packaging of a core product or benefit. The marketer's job is to sell benefits, not features. He must find ways to attribute 'benefits' to the product.

 

 

3.

The Augmented product is the totality of benefits that the customer receives or experiences in obtaining the formal product.

 

For example, the augmented product of IBM was not only the computer but a whole set of accompanying services, including instruction, canned software programs, programming services, maintenance and repairs, guarantees and so on. IBM's outstanding position in the computer field was due in part to its early recognition that the customer wants all of these things when he buys a computer. This recognition led to the notion of system selling: the company is selling a system, not just a computer. It leads the seller to look at the buyer's total consumption system - 'the way a purchaser of a product performs the total task of whatever it is that he or she is trying to accomplish when using the product'. Thus (in latter years) when IBM effectively moved away from hardware towards software (or systems) this came as no surprise to industry analysts.

As a result, sellers are able to recognize many opportunities for augmenting their product offering as a competitive manoeuvre.

The Company must always remember the adage that the new competition is not between what companies produce, but between what they add to their output in the form of packaging, services, advertising, customer advice, financing, delivery arrangements, warehousing and other things that people value. The firm that develops the right augmented product will thrive in this competition.


Target Company
Base Reference
PRODUCT CONCEPT

Quality

Features

Styling

Branding

Packaging

Performance Grid Definitions


PRODUCT-MIX STRATEGY


In looking at the decisions the Company have made, and are likely to make in the future, in regards to their product-mix one must consider a number of elements which are analyzed in this section.

One must consider the number of individual products offered by the Company, yet to facilitate a speedy appraisal this section will limit itself to the strategically important product groups.



PRODUCT ITEMS - LINES - MIX


The large number of individual products within the industry means that product policy decisions are made at three different levels of product aggregation:


Product item:

A specific version of a product that has a separate designation in the product list.



Product line:

A group of products that are closely related either because they satisfy a class of need, are used together, are sold to the same customer groups, are marketed through the same types of outlets or fall within given price ranges.

In the case of the Company and the industry the main product groups are as follows:-  

Company Products

Products & Services

Significant Company Products

Company Product / Brand Sector 1

Company Product / Brand Sector 2

Company Product / Brand Sector 3

Company Product / Brand Sector 4

Company Product / Brand Sector 5

Company Product / Brand Sector 6

Company Product / Brand Sector 7

Company Product / Brand Sector 8

Company Product / Brand Sector 9

Company Product / Brand Sector 10

Company Product / Brand Sector 11

Company Product / Brand Sector 12

Company Product / Brand Sector 13

Company Product / Brand Sector 14

Company Product / Brand Sector 15

Major Products

Industry Product Sector 1

Industry Product Sector 2

Industry Product Sector 3

Industry Product Sector 4

Industry Product Sector 5

Industry Product Sector 6

Industry Product Sector 7

Industry Product Sector 8

Industry Product Sector 9

Industry Product Sector 10

Industry Product Sector 11

Industry Product Sector 12

Industry Product Sector 13

Industry Product Sector 14

Industry Product Sector 15


Product mix:

Defined as ‘the composite of products offered for sale by a company’s business unit’; which in the case of the Company and the industry is as follows:-

Target Company Operations

Industry Operations

Significant Company Operations

Company Operations & Activities 1

Company Operations & Activities 2

Company Operations & Activities 3

Company Operations & Activities 4

Company Operations & Activities 5

Company Operations & Activities 6

Company Operations & Activities 7

Company Operations & Activities 8

Company Operations & Activities 9

Company Operations & Activities 10

Company Operations & Activities 11

Company Operations & Activities 12

Company Operations & Activities 13

Company Operations & Activities 14

Company Operations & Activities 15

Industry Operations

Industry Operations & Activities 1

Industry Operations & Activities 2

Industry Operations & Activities 3

Industry Operations & Activities 4

Industry Operations & Activities 5

Industry Operations & Activities 6

Industry Operations & Activities 7

Industry Operations & Activities 8

Industry Operations & Activities 9

Industry Operations & Activities 10

Industry Operations & Activities 11

Industry Operations & Activities 12

Industry Operations & Activities 13

Industry Operations & Activities 14

Industry Operations & Activities 15



PRODUCT-MIX CHARACTERISTICS



The product mix of the Company can be described as having certain attributes which aggregate to indicate the Quality of the Product-Mix:

   1. Width
   2. Depth
   3. Consistency

The Width of the product mix refers to how many different product lines are found within the Company. Of course, the Width of the product mix also depends on the definitions established for product-line boundaries.

The Depth of the product mix refers to the average number of items offered by the Company within each product line. One or more product-line Depths can be averaged to indicate the typical depth of the entire Company product mix.

The Consistency of the product mix refers to how closely inter-related the various product lines are in end use, process requirements, distribution channels or in some other way which reflects the operations of the Company.

All three dimensions of the product mix have a market rationale.

    1. Through increasing the Width of the product mix, the industry hopes to capitalize on its reputation and skills in present markets.

    2. Through increasing the Depth of its product mix, the industry hope to entice the patronage of buyers of widely differing tastes and needs.

    3. Through increasing the Consistency of its product mix, the industry hopes to acquire an unparalleled reputation in a particular area of business activity.

The concepts of Width, Depth and Consistency are related to those of product item, lines and mix of the industry as a matrix.

    a. Product policy at the level of the product item involves the issue of whether to modify, add, or drop product items.

    b. Product policy at the level of the product line involves the issue of whether to deepen or shorten an existing line.

    c. Product policy at the level of a product mix involves the issue of which markets to be in.

The following diagram can be used by the reader to estimate the quality of the Company’s Product-Mix. As a further indication of the Quality of the Company’s Product-Mix readers can estimate the Quality of the Product-Mix of competitors and then compare this with the Company.




Product Trade Cell:

A group of markets that are closely related either because of their close geographic proximity, historic connections or trade agreements, are defined together, are in general sold to the same products, are marketed through the same types of outlets or fall within given price ranges.

In the case of the Company and the industry these are as follows:-  

Company Trade Cell

Trade Cell

Significant Company Markets

Company Trading Area 1

Company Trading Area 2

Company Trading Area 3

Company Trading Area 4

Company Trading Area 5

Company Trading Area 6

Company Trading Area 7

Company Trading Area 8

Company Trading Area 9

Company Trading Area 10

Company Trading Area 11

Company Trading Area 12

Company Trading Area 13

Company Trading Area 14

Company Trading Area 15

Major Trade Cell Markets

Industry Trade Cell Market / Sector 1

Industry Trade Cell Market / Sector 2

Industry Trade Cell Market / Sector 3

Industry Trade Cell Market / Sector 4

Industry Trade Cell Market / Sector 5

Industry Trade Cell Market / Sector 6

Industry Trade Cell Market / Sector 7

Industry Trade Cell Market / Sector 8

Industry Trade Cell Market / Sector 9

Industry Trade Cell Market / Sector 10

Industry Trade Cell Market / Sector 11

Industry Trade Cell Market / Sector 12

Industry Trade Cell Market / Sector 13

Industry Trade Cell Market / Sector 14

Industry Trade Cell Market / Sector 15



Product Competitors:

the major competitors which have product offerings for sale; which in the case of the Company and the industry is as follows:-  

Company Competitors

Industry Competitors

Significant Company Competitors

Company Competitors 1

Company Competitors 2

Company Competitors 3

Company Competitors 4

Company Competitors 5

Company Competitors 6

Company Competitors 7

Company Competitors 8

Company Competitors 9

Company Competitors 10

Company Competitors 11

Company Competitors 12

Company Competitors 13

Company Competitors 14

Company Competitors 15

Industry Competition

Industry Chief Overall Service Competitor

Industry Main National Market Competitor

Industry Main Regional / Local Market Competitor

Industry Main Trade Cell Market Competitor

Industry Main National Product Superiority Competitor

Industry Main Trade Cell Product Superiority Competitor

Industry Main National Price Competition Competitor

Industry Main Trade Cell Price Competition Competitor

Industry Main National Financial Strength Competitor

Industry Main Trade Cell Financial Strength Competitor

Industry Main National Customer Satisfaction Competitor

Industry Main Trade Cell Customer Satisfaction Competitor

Industry Main National Marketing Aggression Competitor

Industry Main Trade Cell Marketing Aggression Competitor

Industry Main New Product Development Competitor


Target Company
Base Reference
PRODUCT-MIX QUALITY

Items in Product Line 1

Items in Product Line 2

Items in Product Line 3

Items in Product Line 4

Total of all Items in all Product Lines

Performance Grid Definitions


PRODUCT-MIX ALTERNATIVES


The Company has several options with respect to the width, depth and consistency of their product-mix. The number of possible combinations is revealed by considering the options available to the Company.

At least six product strategies are available.

1)

Full-line all-market strategy. This strategy describes the intention to be all things to all people. To implement it one must serve all market segments and offer a full choice of products within the standard range and design of the industry.

This is of course an impossible target for the industry.

2)

Market specialist. This strategy calls for offering a full line of all types of products required by a particular market segment.

3)

Product-line specialist. Here one specializes in products of a single type and sells these items to all markets. This scenario would be appropriate for product technology led companies.

4)

Limited product-line specialist. Companies in this category offer a particular design of a single type of product, which usually, by virtue of its design, is intended for only one market segment. This is a scenario for smaller independent companies.

5)

Specific-product specialist. This strategy involves picking a particular product and marketing it according to the opportunity available. Usually, because of its singular character, one or only a few market segments are involved.

6)

Special-situation specialist. A company with this strategy seeks to meet special situation needs with its own special capabilities, perhaps in product design, low cost processes, techniques or product flexibility. The markets for companies in this category are usually limited in size, heterogeneous and often protected from major companies.



PRODUCT-MIX OPTIMIZATION


Given the basic product-mix strategy of the Company, they must still review from time to time whether the specific product items and lines in the mix represent a good balance in terms of future sales growth, sales stability and profitability.

Markets are continuously changing their needs and preferences; competitors keep entering and altering their marketing mixes; and the environment keeps changing. All of these changes favor certain of the Company’s products and can hurt others. Some of their products will just begin to show a profit, others will continue to produce good profits, while others will be slipping badly.


It is necessary to critically evaluate the existing Company product-mix and in order to do this one needs to analyze the relative profit contribution of the strategic Company product groups.

This is called a Product-Mix Audit and identifies future problems for the Company.

The analysis is simple. One estimates the relative profit contribution of each product group at the present time and then realistically notes the likely growth or decline of that level of profit over a period of 4 years. In this respect one can use the market data provided elsewhere in this manual to predict the impact on the product groups.

If at the end of the 4 year period the aggregate product group contribution to profit has fallen, then the sum of the fall indicates the likely profit deficit for the Company and thus indicates the level of new product introduction required from the Company.



Sound product-mix strategy calls for the Company to ensure the continuous addition of new products and the continuous elimination of old products.

The Company’s product mix reveals the potential for future sales growth through the proportions of its products in each of the six following categories.

1)

Tomorrow's breadwinners - new products or today's breadwinners modified and improved.

2)

Today's breadwinners - the innovations of yesterday.

3)

Products capable of becoming net contributors if something drastic is done.

4)

Yesterday's breadwinners - typically products with high volume, but badly fragmented into 'specials', small orders and the like.

5)

The 'also-rans' - typically the high hopes of yesterday that, while they did not work out well, nevertheless did not become outright failures.

6)

The failures.


Target Company
Base Reference
PRODUCT-MIX AUDIT CONTRIBUTIONS

Profit Contribution % in this year

Forecast % Profit Contribution : Year + 1

Forecast % Profit Contribution : Year + 2

Forecast % Profit Contribution : Year + 3

Forecast % Profit Contribution : Year + 4

Performance Grid Definitions

Target Company
Base Reference
PRODUCT-MIX AUDIT PROFIT ESTIMATES

Profit Estimate % in this year

Forecast % Profit Estimate : Year + 1

Forecast % Profit Estimate : Year + 2

Forecast % Profit Estimate : Year + 3

Forecast % Profit Estimate : Year + 4

Performance Grid Definitions



If the Company neglects either the new-product development function or the product-pruning function, or both, it will awaken one day to find a very unbalanced, unhealthy and unprofitable product mix.

One can appraise the soundness of their current product mix by the classification each of their product groups along three dimensions:

   1. Sales growth
   2. Market share
   3. Profitability


If each dimension is divided further into two regions, high and low, one thus has six possible product situations.

This product-mix classification technique has four benefits:

1)

It indicates whether the rate of new-product development or investment in the Company is sufficient.

2)

It indicates whether the rate of product pruning is sufficient and which products are candidates for product pruning in the Company.

3)

It indicates which product objectives the Company might set for each product group, that is, whether the product's market share, sales growth or profitability should be stressed.

4)

It indicates how product resources should be allocated by the Company to the different products.


The product strategy implications for the Company of products in the first four cells are as follows:

1)

Cell 1 products - showing high growth and high share - will be high earners for the Company and they should spend enough to maintain the high market share and not be tempted to extract extra-high profits in the short-term at the expense of market share.

2)

Cell 2 products - showing high growth but low share - require extra-heavy spending to build up market share before growth slows down. The Company cannot manage too many products like this and should consider withdrawing a product that it cannot move into a high market-share position.

3)

Cell 3 products - showing low growth but high share - are major sources of earnings. They justify enough investment to maximize cash flow consistent with maintaining market share but not more.

4)

Cell 4 products - showing low growth and low share - are candidates for product milking or pruning. They do not justify much investment or attention.

 

PRODUCT STRATEGY IMPLICATIONS

MARKET SHARE
HIGH

MARKET SHARE
LOW

3

4

PROFIT GROWTH
LOW

1

2

PROFIT GROWTH
HIGH

SALES GROWTH
LOW

3

4

SALES GROWTH
HIGH

1

2

MARKET SHARE
HIGH

MARKET SHARE
LOW



One can also select positive product strategy according to the following five groupings:-

1)

High-growth products deserving the highest investment support.

2)

Steady reinvestment products deserving high and steady investment.

3)

Support products deserving steady investment support.

4)

Selective pruning or rejuvenating products deserving reduced investment.

5)

Venture products deserving heavy R & D investment.


In the search for new products to add to the product mix, the Company is guided by specific criteria, such as seeking products that are compatible with their existing technological or marketing strengths or products whose sales behave counter-cyclically or counter-seasonally.

Considering the last point, the industry tries to avoid high sales variability because this means periodic excess capacity, staff under-utilization and so on. It would be a mistake to add new products whose sales correlate closely with current sales so that they aggravate the fluctuations. Even a new product whose sales are stable will not dampen sales fluctuations. The main hope of the Company is to find new products whose sales are negatively correlated with the sales time pattern of current products.

The static product-mix optimization problem is defined as follows:

given
   n  product possibilities,

choose  m  of them (when   m< n   ) such that profit is maximized subject to a given level of risk and other constraints.

The problem is solvable through mathematical analysis, the most important condition being the absence of strong demand and cost interactions among the various products being considered.

The dynamic product-mix optimization problem is the problem of timing deletions and additions to the product mix in response to changing opportunities and resources so that the product mix remains optimal through time.

Although it is certain that little work has been done in the industry on this problem, computer simulations are available for the use of company managers should they address these factors.

Company management are interested in what will happen to profits, sales stability and sales growth as the product-mix is changed. A logical approach would be to simulate possible sequences and timings of planned product deletions and additions over some future time period. Such calculations would provide the present management with the profit, stability and growth characteristics of the different possible transformations of the product-mix through time.


THE TARGET COMPANY & INDUSTRY OPERATIONS

Target Company
Base Reference
PRODUCT STRATEGY

High Growth Products

Steady Reinvestment Products

Support Products

Selective Pruning Products

Venture Products

Performance Grid Definitions


BRAND STRATEGY


Brand strategy is intimately tied up with the question of product-mix strategy. The Company faces three crucial decisions on brand strategy.

The first is whether and to what extent, they should put brand names on their products (brand versus no brands).

The second is whether the brand names should be those of the company or those of the distribution channels ( suppliers' versus distributors' brands).

The third is whether the company's own brands should go under one, a few, or many individual names ( family brands versus individual brands).

A few definitions are in appropriate:

1.

A brand is a name, term, sign, symbol or design, or a combination of all of them which is intended to identify the goods or services of one seller or group of sellers and to differentiate them from their competitors.

2.

A brand name is that part of a brand which can be vocalized - the utterable.

3.

A brand mark is that part of a brand which can be recognized , but is not utterable, such as a symbol, design or distinctive colouring or lettering.

4.

Finally, a trademark is a brand or part of a brand that is given legal protection because it is capable of exclusive appropriation. Thus a trademark is essentially a legal term protecting the seller's exclusive rights to use the brand name and/or brand mark.

 

Branding will be used as a general term describing the establishing of brand names, marks, or trade names for a product.



BRAND -v- NO BRANDS DECISIONS


Why should the Company consider a branding programme when it clearly involves cost, packaging, labeling, legal protection - and a risk, should the product should prove unsatisfying to the user?

At least four purposes may attract the Company:

1)

A brand mark for identification purposes to simplify handling or tracing.

2)

A legal trademark and patent to protect unique features of their product from imitation.

3)

The Company may want to connote a certain quality that they are offering so that satisfied buyers might easily obtain that product again through brand recognition.

4)

The Company may see the brand name as an opportunity for endowing the product with a unique story and character that may create the basis for price differentiation.


Sometimes the pressure for branding comes not from company management but from the distributor or ultimate buyer. Distributors may want names as a means of making the product easier to handle, identifying suppliers, holding protection to certain quality standards and increasing buyer preference. Ultimate buyers may want brand names to help them identify the products they want without close inspection. The brand name has informational value to the buyer.

In branding their products, companies may use their name(s) (suppliers' brands), the names of their distributors (distributors' brands), or follow a mixed brand policy, producing some output under their own name(s) and some output under distributors' names.

Historically, suppliers' brands have dominated most markets, however in recent times, larger stores and wholesalers have seen an advantage in developing and offering their own brands. The distributor may be able to obtain and sell the products at lower prices than the suppliers' brand (because private brands do not bear the suppliers' promotional expenses and because of volume of purchasing), passing on some of these cost savings and still realizing a higher profit margin. Having Own Branding gives a distributor more control over pricing and also some measure of control over the producing company because the distributor can threaten to change the source of supply. Because of these and other advantages, distributors' brands have become an important factor in brand competition.

The competition between suppliers' and distributors' brands has been labeled the 'battle of the brands'. In this confrontation, the distributor has many advantages on his side. Retail merchandising outlets are scarce, and many suppliers, especially newer and smaller ones, cannot introduce products into distribution under their own name. The distributors take special care to maintain the quality of their brands, building consumers' confidence. Many buyers know that the private label is often manufactured by one of the big suppliers anyway. The distributors' brands are often priced lower than comparable suppliers' brands, thus appealing to budget-conscious shoppers, especially in times of inflation. The distributors give more prominent display to their own brands and make sure they are better supplied. For these and other reasons, the former dominance of the suppliers' brands is ending. Indeed, some marketing commentators predict that distributors' brands will eventually knock out most suppliers' brands.

Suppliers of national brands are in a very trying situation. Their instinct is to spend a lot of money on consumer-directed advertising and promotion to maintain strong brand preference. Their price has to be somewhat higher to cover this promotion. At the same time, the mass distributors put strong pressures on them to put more of their promotional money towards trade allowances and deals if they want adequate shelf space. Once suppliers start giving in, they have less to spend on consumer promotion and their brand demand starts deteriorating. This is the national brand suppliers' dilemma.



FAMILY -v- INDIVIDUAL BRAND DECISIONS


If the Company choose to produce most of their output under their own name they still face several choices.

At least four brand name strategies can be distinguished:

1)

Individual brand names. This policy is followed by companies with consumer, highly advertised, products.

2)

A blanket family name for all products. This policy is followed by companies with related products sold in limited markets.

3)

Separate family names for all products. This policy is followed by certain large scale distributors.

4)

Company trade name combined with individual product names.


Competitors within the same industry may adopt quite different brand strategies.

    What are the advantages of an individual-brand-names strategy?

A major advantage is that the Company does not tie its reputation to the product's acceptance. If the product fails, it is not a bad mark for the company. Or if the new product is of lower quality, the Company does not dilute its reputation.

The supplier of a line of expensive or high-quality food products can introduce lower-quality lines without using its own name.

On the positive side the individual-brand-names strategy will permit the Company to search for the best name for each new product. Another advantage is that a new name permits the building of new excitement and conviction.

The opposite policy, that of using a blanket family name for all products, also has some advantages if the Company is willing to maintain quality for all items in the line. The cost of introducing the product will be less, because there is no need for 'name' research, or for expensive advertising to create brand name recognition and preference. Furthermore, sales will be strong if the company's name is good.

Where a company produces or sells quite different types of products, it may not be appropriate to use one blanket family name. Companies often invent different family brand names for different quality lines within the same product class.

Finally, sometimes managers may want to associate their company name along with an individual brand for each product. In these cases, the company name legitimize, and the individual name individualizes, the new product.

In the present discussion two particular strategies deserve mention:

  1. Brand Extension strategies
  2. Multi-brand strategies

 


1. Brand extension strategy

A brand-extension strategy is any effort to use a successful brand name to launch product modifications or additional products. In the case of product modifications, it is commonplace to compare one brand with a new and improved replacement. Brand extension also covers the introduction of new package sizes, features, models and so on. More interesting is the use of a successful brand name to launch new products. Brand extension has also been used by companies to cover a variety of new products that could not easily find distribution without the strength of the original name.

Another kind of brand extension occurs when suppliers of consumer and producer durables add stripped-down models to the lower end of their line to permit advertising their brand as starting at a low price. Thus companies may advertise their products as 'starting at $99'. In these cases, these 'fighter' or 'promotional' products are used to draw in customers on a price basis who, upon seeing the better models, usually decides to trade up. This is a common strategy but must be used carefully. The 'promotional' brand, although stripped, must be up to the line's quality standards. The seller must be sure to have the promotional product in stock when it is advertised. Consumers must not get the feeling they were 'taken', or else they may terminate their future business with the seller.


2. Multi-brand strategy

A multi-brand strategy is the development by a particular seller of two or more brands that compete with each other. Suppliers of high volume consumables have pioneered this strategy.

There are several reasons why suppliers turn to multi-brand strategy. First, there is the severe battle for point of sale coverage. Each brand that the distributor accepts get some allocation of merchandising and coverage. By introducing several brands, a supplier ties up more of the available distributor resources, leaving less for competitors.

Second, few consumers are really so loyal to a brand that they would not, under the right circumstances, try another. They respond to price-cutting deals, gifts and new-product entries that claim superior performance. Thus the supplier who never introduces another brand entry will almost inevitably face a declining market share. The only way to capture the 'brand switchers' is to be on the offering end of a new brand.

Third, creating new brands develops excitement and efficiency within the supplier's organization. Certain companies see their individual brands and managers in internal competition that keeps products dynamic and in a state of flux.

Fourth, a multi-brand strategy enables the Company to take advantage of different market segments. Consumers respond to various appeals, and even marginal differences between brands can win a large following.

In deciding whether to introduce another brand, companies should consider such questions as:-

a.

Can a unique story be built for the new brand?

b.

Will the unique story be believable?

c.

How much will the new brand cannibalize the sales of the company's other brand versus the sales of the competitors' brands?

d.

Will the cost of product development and promotion be justified by the estimated Return on Investment?

A major pitfall to avoid is introducing a number of multi-brand entries, each of which obtains only a small share of the market and none of which is particularly profitable. In this case, the company has dissipated its resources over several partially successful brands instead of concentrating on a few brands and building each one up to highly profitable levels. Such companies should weed out the weaker products and establish tighter screening procedures for choosing new brands to introduce.


Target Company
Base Reference
BRAND STRATEGY

Individual Brand names

Blanket Family Brand names

Separate Family Brand names

Company Trade name

No Brand names

Performance Grid Definitions


NEW PRODUCT EXPENDITURE EFFECT FORECASTS


The following pages analyze the effects of New Product or Product Revision expenditure in terms of the Company and the industry's Financial and Operational results.

New Products refer to entirely new products or services offered to customers and Product Revisions refer to the improvement or enhancement of existing products or services.

The data assumes that the Company and the industry will increase its New Product investment by a rate of 5% above that of the industry averages.

The Financial and Operational Data forecasts given for the New Product Expenditure Scenario makes the following assumptions:-

1. Forecasts are based on all external factors:

  a. Market Growth (Medium + Long Term)
  b. Competitive Market Factors
  c. Competitor + Industry Environment Factors

2. Forecasts assume ceteris paribus in terms of internal factors with the exception of an acceleration of New Product or Product Revision expenditure which is assumed to increase by a rate equivalent to 5% greater than the competitor average.

3. Forecasts assume change (as appropriate) in Market Competitors. The forecast assumptions use Competitor databases to forecast changes in competitive situations which will affect the Company and includes the Competitor response (in New Product Terms) to the scenario shown.

 


 

MARKET SEGMENTATION EXPENDITURE EFFECT FORECASTS


This section analyses the effects of a Market Segmentation programme and its concomitant expenditure in terms of the Company and the industry's Financial and Operational results.

Marketing Segmentation involves the repositioning, repackaging and remarketing of existing products to meet and serve other market segments. In general terms the expenditure incurred is limited product development costs plus additional marketing costs.

This tactic is regarded as a short or medium-term operation where the benefits are seen in a fairly short time.

The Financial and Operational Data for the Market Segmentation Expenditure Scenario forecasts given make the following assumptions:-

1. Forecasts are based on all external factors:

  a. Market Growth (Medium + Long Term)
  b. Competitive Market Factors
  c. Competitor + Industry Environment Factors

2. Forecasts assume ceteris paribus in terms of internal factors with the exception of a Market Segmentation programme and its concomitant expenditure which is assumed to increase by a rate equivalent to 5% greater than the competitor average

3. Forecasts assume changes in Market Competitors. The forecast assumptions use Competitor databases to forecast changes in competitive situations which will affect the Company and includes the Competitor response (in Market Segmentation Terms) to the scenario shown.

 


HISTORIC FINANCIAL INDUSTRY DATA

HISTORIC FINANCIAL INDUSTRY DATA

 Financial Definitions


 

PRODUCT MIX FINANCIAL SCENARIOS
 

PRODUCT MIX BASED BALANCE SHEET FORECASTS


The PRODUCT MIX FINANCIAL SCENARIO BALANCE SHEET FORECASTS section gives a series of Forecasts for the Company and the industry using a number of assumptions relating to the product decisions available to the management of the Company.

The Balance sheet forecast given shows the effects of product improvements which Product Management is likely to recommend:


PRODUCT MIX FINANCIAL SCENARIOS

  • Base Forecast : Median Market Scenario

  • Research & Product Cost Objectives

  • Product Positioning

  • Product Branding + Multi-branding Investment

  • New Product & New Technology Cost Scenarios

  • Product Cost Improvements

  • Product Quality Improvement


Managers in the Company will, in both the short-term and the long-term, have vital decisions to make regarding the product improvements, margins and profitability and these decisions will need to be evaluated in light of the customers, markets, competitors, products, industry and internal factors. The scenarios given isolate a number of the most important factors and provide balance sheet forecasts for each of the scenarios.

The data provides a short and medium term forecast covering the next 6 years for each of the Forecast Financial and Operational items. The Financial and Operational Data sections show each of the items listed below in terms of forecast data and covers a period of the next 6 years.

 

Financial Comparisons: Scenarios

 

Target Company

Base Reference Industry

 

MEDIAN  FORECAST : Financials

MEDIAN  FORECAST : Margins & Ratios

MEDIAN  FORECAST : Financials

MEDIAN  FORECAST : Margins & Ratios

 

 

 Financial Definitions

 


 


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