Market Segmentation and Domino Effect - Essay Example

There are enormous numbers of buyers available which together make the market. These buyers vary from each other in one or more ways. The major factor which distinguishes one buyer from another is usually their wants, purchasing power, the area which they belong, buying attitude and practices. Market Segmentation is a strategy used by the marketers through which they divide large, diverse markets in to small chunks in order to reach them more efficiently and effectively. The unique needs and wants of the buyers shape their buying behaviour and every buyer is a potential separate market The strategy of marketing, for any product, starts on the basis of domino effect which id acquired from the study of industry and competitors. The strategy formulation is when the revelation of business strengths and weaknesses, for the growth of a wide range of strategic plans for the successful administration of environmental openings and threats. The corporate projects are redefined by signifying attainable goals, emergent strategies, and setting execution procedure. Strategy formulation is germane both for organization's proposal in general and for individual product. Researchers explain about the factors which can affect the sales of the products (Linneman & Stanton, 1991: 20-25): Economic Conditions: economic conditions of the area or territory where the company market their product can affect the sales of the product. Thus it is important to understand the economic conditions such as unemployment rate, inflation rate, interest rate etc. before launching the product Competitors: companies have to formulate a comprehensive strategy to cope with its competitors because it is not easy to penetrate and take the desired market share Demographics: demographic trends such as the characteristics of the population, their size, ages and growth etc. are also going to affect the sales of the products of companies. Innovation is the process of creating a commercial product or process and also an invention of the product. Thus, in terms of creating value, an invention's potential is reached only when a firm develops and sells a product that satisfies customer's current or unmet needs. McDonalds Corporation McDonalds is known a the most popular fast food chain, with more than 3000 franchises in almost every country of the world. The global annual sale of McDonald is 57 billion dollars while more than 25 billion dollars only in America (Arndt, 2007: 64-72). Committed to stringent standards of product quality, service and cleanliness, McDonalds uses value pricing (the source of relatively low costs to customers) while offering menu and storefront variety and relying on the power of its brand name (sources of differentiation). Globally, McDonalds seeks to provide its combination of relatively low costs and some levels of differentiation in a culturally sensitive manner. In India, for example, the Maharaja Mac, which is made from lamb, substitute for the beef-based Big Mac. Popular corn soup is offered on the chain's menu in its Japanese units (MacArthur, 2001:13 -53). McDonalds marketing strategy mainly focus on children, parents having young children, teenagers and business workers. Market Segmentation for McDonald's new burger The company which practice the strategy of market segmentation is discouraging broad segmentations sections because minor segmentation helps in focusing and better understanding of the consumers. An advertising company states, "there will be no market for products that everybody likes a little, only for products that somebody likes a lot" (Cutler, p.76, 1989). While other marketers are of the view that market segmentations are very important (Linneman & Stanton, 1991: 50-67). McDonald has been in the fast food industry for a long time and it has ample experience of new food products. Statistics have depicted that the size of fast food industry has reached, to the annual growth of 4.8% in the industry of fast food. McDonald's per year income is almost 102.4 billion dollars, along with the global transactions of almost 80.3 billion dollars. (Adams, 2007: 154-157). The main segment of McDonald's products comprise of Burgers and other fast food products. These products have shown dynamic growth and proved the point that fast food market is on the rise. Marketing penetration and expansion plans are based on local customer liking and culture. In China, for example, early competitive actions concentrated on children as a target market. With the decline in nation's birth rate and other social and economic changes, some young parents have more money to spend on what is often an only child. McDonalds promotes children's birthdays by aiming advertising to them. Parties with cakes, candles, hats and gifts are emphasized to young consumers. The party can be hosted in a children's enclosure, sometimes called the Ronald room. These parties have become popular with upwardly mobile children in Hong Kong, Beijing and Shanghai. An indicator of the success of this approach is that some parents in Hong Kong take their children to the local McDonalds as a prize for good behavior and academic achievement. Target Customers: The concept of customer satisfaction has become increasingly critical in the present business world. At one time the accepted philosophy was expressed as "let the buyer beware". In contrast, today's newer philosophy holds that the buyer should be aware. Today's sophisticated buyers feel they should be able to purchase products that are safe, reliable, durable, and honestly advertised. The companies are helped by smart targeting strategies which in turn help them in becoming more competent as well as effectual. It is possible only if company focus solely on that approach. Actually consumer companies get benefits from reaching that particular group of segmentation which provides satisfaction to the required needs of consumers. Generally, some vulnerable customers have brought some apprehension and debate to the market world of target segmentations. The new burger of McDonalds targets with customers of low income bracket. This new burger will first be introduced in Chicago's inner-city outlets of McDonalds, especially the outlets in South side of Chicago along with couple more outlets later in the year. MacDonald will advertise this new burger using local radio stations. Marketing Research: In order to plan the marketing strategies an appropriate informational base is required, this is called marketing research. Marketing research is known as the systematic gathering, analysis, classification, and interpretation of marketing information. The sequential steps to follow when undertaking market research are as follows, whether the research is formal or informal: 1. Recognition of the problem 2. Preliminary investigation 3. Gathering and analyzing factual information 4. Reaching a conclusion The use of the quantitative methods is the time-honored approach to a study of market potential, investigation of potential customer reaction to different marketing strategies and analyses of the effectiveness of advertising. Given a good sample design, efficient coding and tabulation, accurate analysis, and common sense in drawing conclusion, one can get good results from such methods. Testing Market acceptance: McDonalds can reduce risks by first investigating the market reaction to this new burger. This can be done by test marketing. The important thing is to discover the probable reaction of customers as early as possible. If their response is negative, the launching of the product can be delayed - or even abandon the project. The proper starting point for the selling of the product is an accurate determination of the profit potential. McDonalds has already tested the market for this new burger and decides to introduce this new burger in the McDonalds outlets located in the inner city of Chicago. McDonalds choose this target market because this city provides typical consumers with average incomes, all the normal advertising media, and a full quota of retail outlets. Another reason for choosing this test market is its independence of the trading areas nearby cities in order to avoid distortion of results. Survey Sampling: There are two types of researches can be done through surveys: The questionnaires and The interviewing. If the subject matters are complex open ended questions are asked in interviews, which can be done telephonically or face to face. While emails are sent with questionnaires or online polls are also used for as the economy is compared with other techniques for interviewing. Market testing: Market testing involve acceptance of both, the product and the marketing program. Any unforeseen bugs in the marketing program maybe detected and eliminated in this way. Only when all possible facts about the new burger and consumer reaction to it are known, and are favourable, then McDonalds decides to invest heavily in a full-scale production and sales program to launch this new burger. Measuring share of the Market: An additional issue to reckon is McDonald's comparative position in fast food industry. By offering greater products, to the customer, is another method to distinct itself to get more valuable position in the market. The idea is based on relationship marketing and it divides customer interaction into four categories. 1. Customer Acquisition. 2. Customer Selection 3. Customer Retention. 4. Customer Extension. No company can allow itself to become complacent over its present market share; as such complacency might lead to a fatal do-nothing complex. Additionally, pleasing market share reflect the overall result and can also overcome the failures faced during the campaign. Return on Investment and Risk Analysis: The rate of return on investment (ROI) is a proportion of the cost of resources required to the advantages produced. It comprises both quantifiable and non-quantifiable items. While the cost of resources, for new product is comparatively easy to measure, the returns (benefits) have been intricate to compute. Main elusive returns that the company can sketch contain an effective marketing channel, increased sales, and customer service. MARKETING STRATEGY: If the resources of the company are best utilised only then the company can achieve the aim and objectives of the marketing strategy. Good marketing strategies also result in the gaining profit while working within the company's resources. If the resources are limited the best type of marketing strategy to use is 'concentrated marketing strategy'. The degree of Product Variability along with the life cycle of the product also defines the effectiveness of the marketing strategy. Coin changers, drive-through, self-order kiosks, electronic boards and cashless drive-throughs are relatively inexpensive services (and further sources of differentiation) that McDonald's is evaluating for introduction of this new burger. To improve customer frequency and track purchasing behavior, McDonalds has established the McRewards program. Each purchase earns points that can be used t obtain prizes from several partner firms, including Mattel and Walt Disney Co. Planning: According to the statistics, the target market for McDonalds worth $102.4 billion and depicted the steady growth of 4.8% annually. Men of low, average and the high income brackets are the main users of normal and expensive products. The new burger of McDonalds is a low cost burger and the target customers for this new burger are teenagers and parents having low income. After recognizing the target market, the next step of the company is the planning to hit the market with the help of best professionals. Promoting: Different companies adopt different strategies to promote their products like advertising, public relations, direct marketing etc. Advertisement is one of the impersonal representations of message which creates sales to group of people. The primary goal of advertising is to draw attention of the people towards the existence of the new or the existing product. Frequency of advertisement is also an essential question for a product. It is much better that institutional advertising should be done regularly. Attempts to stimulate interest in the men's cosmetic product should be part of a continuous advertising program. Advertisements like one shot, are not part of a well-designed advertising plan, can result in the losing much of their effectiveness in a short period. One often hears the statement that it pays to advertise. A little reflection upon these principles of successful advertising reveals this to be only a partial truth. Only effective advertising actually pays. SWOT Analysis Strengths: The following are some of the strengths of McDonald's new burger: The range of McDonalds products are popular among the target customers Most of the parents, teenagers, business people are likely to use McDonalds products Market and size of fast food industry is continuously increasing Weaknesses: Fast food products are not very popular among the people more than 50 years of age Huge competitors do not allow a new product to enter the market. Even though McDonald has its own target market even though an effective marketing strategy is needed for this burger to penetrate the market. Opportunities: Reorganization and quality update of the product. Only serving 1% of the world's population It can distribute its advertisement through new channels like the Internet, digital television etc. Offer different discounts to people Offer discounts and cut-price to people Offer fabulous incentives to the people using that specific product. International expansion Growing dining-out market Threats: Losing customers to other fast food chains (Strength of competition). Risk of loosing people that are choosing away the product. More health-conscious consumers Constant Change demographics Variation of foreign exchange rates; Economies Pricing Strategy: Price line is a range of several distinct prices at which merchandise is offered for sale. The general level of the different lines would depend upon the income level and buying desires of target audience. If the pricing strategy is done on the basis of the traffic will bear can be used just when the seller has little or no competition, which will definitely use for un-standardizing the product. The pricing implication depends whether the competitors are superior or inferior in terms of credit terms, delivery arrangement, personal attention of top executive, and willingness to stand behind the product. McDonalds plans to introduce this new burger at a very low cost to attract persons of low income group as well. It is also planned that if the new product would not sell at the initial price then McDonald will cut the price at less than its total cost. The price would cover all marginal or incremental costs- that is, those costs specifically incurred to get the added business. In the long run, though, all fix costs must be covered also (Haynes, 1962: 50-89). Choosing a Positioning Strategy Three steps are used for the effective positioning; Classify all possible competitive advantages. Choose the best possible advantage to build the positioning. Select overall positioning strategy. The successful communication and delivery of the chosen positioning is very critical for the successful positioning strategy. To attract new customers plus bringing in the existing is only possible if the custom needs are fulfilled and providing them with innovative products in best price. If the product is positioned at its best and deliver the needs it will result in the magical positioning strategy. Generally, consumers choose that product/service which is of maximum value. So, this new burger will definitely be on chief benefits and will be up to the expectation, as it has to keep up the brand equity of McDonalds. McDonalds new burger, although emphasize on low cost but also offers good taste and quality. How to Cope with Competitors Competition could affect McDonald's new burger's success. The possibility of McDonalds testing a deli concept is rules out because of the high labor cost that would exceed that successful integrated strategy. To control costs through simplification, McDonalds decided to do some sprucing to the 36 item core menu like removing food item like Shake-Shake Fries. At the same time, the company also intends to launch new concepts like McCafe or a salad bar to be innovative in their ideas and to distinguish from competitors. References Arndt, Michael. 2007. McDonald's 24/7. Business Week, 4020: 64-72. Academic Search Premier. EBSCOhost. University of Nevada, Reno Libraries. Adams, Catherine. 2007. Reframing the Obesity Debate: McDonald's Role May Surprise You. Journal of Law, Medicine, and Ethics.. Broom, N, H & Longenecker, G.J. 1979. Small Business Management. Edition: 5. Published by South-Western Pub. Co. Digitized Aug 23, 2008 Cutler, Laurel. 1989, July 3. Star of the 1980s cast their light. Fortune. Haynes, Warren, W. 1962. Pricing Decision in Small Business. Small Business Management Research Report. Lexington: University of Kentucky Press. Linneman, Robert, E. & Stanton, John, L. Jr. 1991. Making Niche Marketing work: How to grow bigger New York: McGraw-Hill. MacArthur, K. May -June, 2001. McDonalds sees 100%. Advertising Age. New York: McGraw-Hill Read More