Consumer Behavior and Market Segmentation - Assignment Example

Topic #2 Consumer Behavior and Market Segmentation The initial understanding for this topic lies in the fact that firms make a profit by creating value in the sight of customers. Creating a stimulus-response situation traditionally does this. Marketing of various types is the stimulus. The intended response is the buyer chooses to purchase the firm’s product or service. In between the stimulus response is the buyer’s decision-making process. Marketing is to convince the customer to desire or need the product. The customer will then see information, examine alternatives, purchase the item and then evaluate their purchase after the sale. This decision making process is influenced by psychological, personal, social, experiential, marketing, environmental and cultural factors. Customer decision-making is indeed a complex act. Add to this the fact that the market is enormous, made up of a wide variety of individuals. This requires the market to be broken into segments. Segmentation, targeting and positioning within the market place is essential for firms to reach the customers that are most likely to purchase their products. Segmentation requires the identification of a market segment and the building of personal profiles. One way this is accomplished is through the use of VALS segmentation. VALS stands for Values, Attitudes and Lifestyle. This sort of segmentation is used to identify the types of individuals that will best respond to stimulation to buy a specific product or frequent a particular firm. It is popular but lack academic validity. Topic #3 Products and the Firm A product is a tangible item that can be expressed on several different levels. Core products are expressed in broad terms, for example, shoes. The actual product involves the quality, styling and brand of shoe, Air Jordan’s by Nike, for example. Finally the augmented product is experienced through add-ons such as free shipping or discount coupons. Products are classified as convenience (toothpaste), shopping (appliances), specialty (luxury items) or unsought goods (life insurance). Services are different than products because they lack tangibility. Some services are almost 100% intangible, like teaching or personal training. Others are almost purely physical such as a self-serve petrol station. The product mix refers to the types of products a firm offers. Product mix changes over time and is expressed in terms of width (# of product lines), depth (# of products in a line), length (# of brands in a line) and consistency (how closely related are the product lines). Developing new products is key to energizing a firm’s product mix. New Product Development must focus on solving customer’s problems and requires a team-based approach that incorporates the entire company. Failure to do this will result in departmental tension. Another concern of the firm with a new product understands the product life cycle. It is the hope that as a product moves from introduction to growth to maturity and finally decline, the profits from sales will outpace the cost. The greatest margin of profitability happens during the maturity stage of life for a product. Topic #4 Promotion and Distribution The first question dealing with promotion is a complex one. Which is better, Promotion or Integrated Marketing Communications. Promotion seeks to influence behavior, build brand image and attract triers. Decisions managers need to make center on the type of promotional tools to use, the size of the promotion and how long the promotion needs to last. Integrated Marketing Communications (ICM) is different from promotion in that it coordinates the total promotional efforts through sales, advertising, public relations and personal sales. In essence, promotion is actually one small part of ICM. The promotional mix refers to the selection of complementary promotional tools such as patronage awards, free samples and coupons. These tools seek to inform, persuade and remind potential customers. Using an AIDA (Awareness, Interest, Desire and Action) matrix can help firms select complementary promotional tools. When evaluating ICM decisions, push/pull choices need to be considered. Distribution channels are established to create a division of labor, overcome discrepancies and provide cost efficiency. Direct channels, retailer channels, wholesaler channels and agent/broker channels all have benefits and weaknesses. Selecting channels for the type of product (convenience, shopping or specialty) is necessary for a smooth method of distributing a firm’s product. Topic #5 The Managerial Enterprise The managerial enterprise seeks to create value by establishing the firm’s vertical and horizontal boundaries, defining the value chain, developing a corporate structure and utilizing SWOT analysis in decision making. Acquiring firms that produce similar products and services expands a firm’s horizontal boundary. The advantages to horizontal boundary expansion is you get more market share, more brand recognition and are able to utilize economies of scale and scope. This results in a more efficient use of revenue. Vertical integration refers to a firms increasing control of firms that supply everything required for their process, from the raw materials to the various distribution channels. A firm’s value chain consists of primary and supporting activities. Primary activities consist of receiving raw materials, conducting operations, outgoing finished products, marketing and post sale service. At each of the primary stages the firm must decide to “buy” or “make”. If they make, they become more vertically integrated. If they buy they depend on the market. There are advantages to both methods. When decisions need to be made within a firm, SWOT analysis can be useful in guiding those decisions. SWOT stands for Strength, Weakness, Opportunities and Threats. External analysis focuses on Opportunities and Threats the situation provides while internal analysis focuses on known Strengths and Weaknesses within the firm. Opportunities and threats focus on answering “what we might do’ while strengths and weaknesses focus on “what we can do.” Topic #6 Mapping Competition: Rivals and Battles for Market Share When mapping the competition at the industry level, Porter’s Five Forces Framework is very helpful in sorting out questions concerning managing competition. Porter says that analysis of forces such as competitor rivalry, supplier power, buyer power, possible substitutions and the entrance of new players. According to Porter’s framework, the strength or weakness of these forces will determine how profitable an industry will be. Weaknesses of Porter’s Five Forces include the inability to determine the effect of tectonic, or major shifts in an industry and technological advances. Competitive analysis helps a firm to define who their competitors are and how they can meet the challenges created by them. One way to assess competition is through a value net. Competitors are firms that, by their presence make your firm less attractive to customers and suppliers. Market level analysis requires identification of competitors based on geography, ability to provide close substitutes and similarity of product characteristics. This competition can be combated through price and non-price competition in the short run. Price competition requires decisions concerning how much of a reduction, the timing of the reduction and the level of reduction. Non-price competition requires the enhancement of brand visibility, product differentiation or the development of a new brand. Topic #7 Competitive Survival in the Long Run A competitive advantage must be established if a firm is to survive. Discovering exactly what competencies provide this competitive advantage is very important. Core competencies are things that a firm does very well that cannot be reproduced easily by other companies. Core competencies always add value to the firm. In addition to discovering core competencies, a firm must also determine if they are sustainable. Sustainable means that the competitive advantage lasts long enough so that competitors give-up on trying to imitate or supercede it. It does not last forever. Creating competitive advantage can happen by offering a similar good more cheaply or by offering a unique good. Two ways firms keep their competitive advantage is through isolation mechanisms and being an early-mover. Isolation mechanisms can result from legal safeguards (patents), scale economics and superior access to inputs (ownership of raw materials). Early-movers gain advantage through the learning curve and building reputation and brand loyalty first. Topic #8 Managing Operations and Productivity The productivity system consists of inputs, a transformative system of some sort and a finished product as output. A measure of productivity is quite simply the amount of inputs divided by outputs. Productivity and operations management has gone through revolution after revolution over the past two hundred and fifty years. The Industrial Revolution, Scientific management, Human-Relations, Operations Research, Quality Revolution, Globalization and the Internet Revolution have all changed the way that productivity and operations management have been approached. Traditional models of productivity management center on the ideas of individuals such as Adam Smith and Ford. Newer management systems such as Just-In-Time manufacturing aim to make operations streamlining a source of competitive advantage. The roll of IT in modern operations cannot be overstated. Managing push and pull systems of production need technology to coordinate efforts. Having the customer order first in a pull or JIT system keeps inventories low, but also leaves the supply chain susceptible to disruption by political unrest or natural disaster. Lean supply chains can be wonderful for adding value by keeping cost low, but are easily disrupted. Topic #9 Human Resource Management Human capital is special because it cannot be purchased. The laborer sells his labor to the firm but he retains possession of himself. Otherwise, this would be considered slavery. Parents, governments, individuals, communities and firms build human capital. Governments and the private sector compete for human capital. The labor market is the place where individuals sell their labor to firms. The cost of labor depends on supply and demand. Firms can establish internal labor markets through promotions, demotions and transfers of employees. HRM decisions are important. They need to decide how employees are to be rewarded, punished, hired, fired and measured for productivity. Poor HRM decisions lead to hiring the wrong people or paying the wrong wage. Finding out what will motivate employees is an important job of HRM professionals. The answer to motivation is not always money. In developed countries, there are legal bounds that help determine the nature of the relationship between HRM and employees. Unions often represent groups of workers in collective bargaining. There are also laws surrounding minimum wage and employee discrimination on the basis of race, sex or religion. Topic #10 Managing Change Change management uses tools and techniques to handle the people side of the change process, achieve outcomes and realize change within individuals and the wider system. Different types of change, according to Dunphy and Stace are participative evolutionary, forced evolutionary, dictorial transformative and charismatic transformative. Each of these types of change creates different challenges for managing the people involved. One thing the manager must understand is change is constantly being created by outside forces as well as forces from within. Competition, new laws and regulations and new technology impose change from without the firm. New equipment, new processes and mergers create change from within. Most people are resistant to change for one reason or another. Change threatens established values held dear by employees. People feel overwhelmed, connected to the old system and foster healthy skepticism about change in general. Overcoming this resistance is a challenge but can be done through education, involvement of key personnel in the process, showing empathy and support or negotiating. Transformative change involves the shifting of paradigms. Kotter breaks this sort of change into eight principals; creating a sense of urgency, making a guiding team, having a clear vision, communicating the vision, overcoming obstacles, planning for short-term wins, not declaring victory too soon and incorporating the change into organizational culture. #11 Effective Leadership Studies have shown that characteristics of successful leaders vary widely. Some feel that leaders with lots of machismo and charisma are the most effective. Other studies show that leaders that show superior cognitive ability are by far the best. The reality has shown that leaders that are most effective in the long run have traits of great personal humility but strong professional wills. Leadership is multidimensional. One must be a structural, political, symbolic and human capital leader. Broadly speaking, there are four main types of leadership. One is the leader that shows concern for the task. Another shows primary concern for people. Some leaders offer directive leadership while others have a more participative leadership style. Leaders must not be rigid within their natural style. Situational contingencies must be taken into account so natural style will need to be altered. Participative leaders may need to become more dictatorial if faced with a group of low motivated, low ability employees. #12 Value Creation in a Turbulent World While not explicitly identified, government and society permeate Fosters Five Forces framework. Society and government affect the customer’s ability to bargain with the firm, the entrance of substitute and new players. Society and government get involved in markets in a number of ways. Government often steps in to provide items for the public good and to keep up a high standard of living through infrastructure investment. Markets often fail when externalities come into play. An externality can be positive or negative. It occurs when bystanders are either helped or hurt by the actions of another. Government mitigates negative externalities such as pollution through regulations, fines and taxes. Governments also get involved in markets to produce things like footpaths, because no firm will make them because there is no price motivation. Society can affect markets by shunning products such as fur coats or by encouraging others by celebrating the freedom for mothers provided by infant formula. Read More