BRAND MANAGEMENT AND NEW PRODUCT DEVELOPMENT

SECTION 8CBrand Management and the Firm

NPD Process: From Concept to Launch: Advanced Topics Business Market Segmentation

ALAN L. WHITEBREAD

MARKET SEGMENTATION- DEVELOP ATTRACTIVENESS MEASURES -

• WHY IS IT WORTH DOING?– TARGETED COMMUNICATIONS– FULFILLS NEEDS AND WANTS– RESPONDS TO CHANGING MARKETS– EFFICIENT

• IF THE SEGMENTATION IS WRONG, LITTLE SEEMS TO WORK WELL AFTERWARD

PRODUCTS, SERVICES, & TECHNOLOGIES

APPLICA-TIONS

CHANNELS

MARKET[S]

SEGMENT[S]What you are selling?

Where or how it is used?

Where is it acquired?

Who will benefit?

MARKET SEGMENTATION:FILLING THE GAPS

MARKETS / SEGMENTS

CHANNELS OF DISTRIBUTION

PRODUCTS

SERVICES

APPLICATIONS

13

2

4

TARGET MARKET

[SEGMENT]S

CHARACTERISTICS OF BUSINESS MARKETS

BUSINESS MARKETS CONSUMER MARKETS

Market Structure

Geographically concentrated

Many types of markets [segments]

Fewer very-high volume buyers

Fluctuating, derived demand

Geographically dispersed

Mass markets

Small volumes

Primary demand

Products Standard / complex / custom

Service etc. are critical

Business applications

Engineering / Quality / Testing involvement

Standard

Service etc. of some note

Personal use

Buyer Behavior

Professionally trained

Multiple levels involved

Performance hurdles

Individuals purchasing

Some family influence

Social / psychological drives

Buyer-Seller Relationships

Technical expertise

Close interpersonal relationships

Long-term focus

May be very dependent on each other

Amateur

Impersonal

Immediate / Short-term

CHARACTERISTICS OF BUSINESS MARKETS

BUSINESS MARKETS CONSUMER MARKETS

Supply Chains / Channels of distribution

Predominant

Often shorter [more direct]

Not seen by consumer

Usually indirect

Promotion Often technical

Personal selling

Often involves resellers

Simple

Advertising, POP, …

Price Professional negotiating / purchasing

Volume sensitive

Complex formalized process

Competitive bid / Many strategies

Individuals limited purchasing skill

Little, if any, leverage

Simple process

N/A

Demand Derived

Inelastic in the short-run

Volatile and discontinuous

Direct

Elastic

Limited volatility

BUSINESS PRODUCTS CLASSIFICATIONFor an Auto Plant

INSTALLATIONS Factories, support buildings, large machines, large material handling equipment

RAW MATERIALS Rolled steel, rubber, plastic resins

COMPONENTS Spark plugs, radiators, steering wheels

ACCESSORY

EQUIPMENT

Drill presses, assembly lines, small material handling equipment

MRO SUPPLIES

Maintenance, Repair, Operation

Cleaning supplies, office supplies, toilet tissue, …

BUSINESS SERVICES

Grounds maintenance, cleaning service, office equipment servicing

BUSINESS BUYER CLASSIFICATION

PRODUCERS[OEM or Private Label]

Purchase products for producing other goods and services [can be either a finished good or a component]

RESELLERS Purchase finished goods or components for resale, rental, or leasing for a profit

GOVERNMENTS Federal, state, and local governments [all different buyer behaviors]

ORGANIZATIONS / INSTITUTIONS

Purchase finished goods and services for resale, rental, or leasing for a profit

THE B2B MARKET: STRUCTURE

• Buying motives will be rational – not emotional.

• There are limited qualified buyers.

• There are potentially limited qualified competitors.

• B2B is frequently geographically concentrated by industry.

DEMAND

• It is critical one understands the all the components of the total demand schedule [Dt]!

• Dt = ∑ Dn

– Where Dn are the individual demand schedules. For instance, the demand for manufacturing, wholesalers, and retailers.

• The problem is at the channel level. Thus the Bull-Whip Effect.

BUSINESS DEMAND

• Elastic and Inelastic demand

• Fluctuating demand due to

– Seasonality

– Erratic based on their customers demands from their customers and/or new programs/products

– Their demand is the total of the demand of multiple segments—which are frequently not in concert with each other.

THE B2B MARKET

• Demand is usually derived.

• The frequently high volume purchase is for a company.

• The target audience is a group of knowledgeable buyers and other professionals.

• Decision-making varies from simple to complex and is hard to define.

B2B MARKETS

• HORIZONTAL – Numerous NAICS codes [usually employ a

differentiation or low-cost strategy]• B2C – Inexpensive pens, pencils, pads of paper, …• B2B – floor sweeping compound

• VERTICAL– One or a few NAICS codes– May be very profitable [usually employ a

differentiation or niche strategy]• B2C – $1,000 fountain pen • B2B – CT scanner

SUPPLY CHAIN MANAGEMENT

MARKETSConsumers:CustomersProspectsSuspects

SUPPLIER’SSUPPLIERS

FOCAL FIRM

CUSTOMERS

FOCAL FIRMNEW PRODUCT DEVELOPMENT

CUSTOMER’SCUSTOMERS

VENDORSor

SUPPLIERS

THE B2B MARKET: BUYER BEHAVIOR

• The frequently high volume purchase is for a company for one of three reasons.

– [1] Consumption or to– Incorporate in their products [derived demand]

• [2] Component and/or• [3] Finished product [OEM or P/L]

• The target audience is a group of knowledgeable buyers with professional backgrounds.

• The trend is to prefer long-term relationships.

• Selling involves a much more complex buying process with many involved parties.

THE B2B MARKET: DECISION-MAKING

• A process with identifiable stages.

• Decision-making varies from simple to complex, from firm-to-firm, and is hard to define.

• You sell to knowledgeable buyers with professional backgrounds generally with agreement from other professional areas throughout the firm.

• Purchasing large amounts and being accountable for them are significant responsibilities. There are career implications throughout the organization.

BUYING PARTICIPANTS

GatekeepersCONTROL FLOW

Initiators /Info seekers

STARTERS

Buyers /Purchasing

FORMS

Influencers/ Advocates

SUPPORT

DecidersAUTHORITY

UsersMANDATORY

ApproversNECESSARY

THE B2B MARKET: PRODUCTS

• Products are often specified by the customer and the supplier has numerous requirements to meet to prove they are in compliance

– Standards

– Product testing

– Quality methods and system to be used

– …

THE B2B MARKET: CHANNELS

• Tend to have fewer responsible levels / steps

• B2B channels of distribution compete with each other.

• Promotion is important throughout the channels of distribution.

• Responsibility is often delegated down to or through the channel of distribution.

• Buyers generally have a thorough understanding of their supply chains.

THE SUPPLY CHAIN AT WORK

Semi-finished / component products Finished products

UPSTREAM

STEEL

COMPANY

3RD TIER

STEEL

UPSTREAM

SUPPLIER

2ND TIER

FASTENERS

DIRECT

SUPPLIER

1ST TIER

RESPONSIBLE

RADIATORS

FORD, GM

CHRYSLER

OEM

VEHICLES

DOWNSTREAM

DEALERS

RENTAL

AGENCIES

FLEETS

SPECIAL

VEHICLES

CONSUMERS

SUPPLY CHAIN MANAGEMENT

MARKETS

Consumers:CustomersProspectsSuspects

CUSTOMERS

FOCAL FIRMNEW PRODUCT DEVELOPMENT

FOCAL FIRM

FOCAL FIRMSUPPLIERS and

SUPPLIER’S SUPPLIERS

THE B2B MARKET: PROMOTION

• Personal selling involves a much more complex buying process with many interested parties.

• Sales personnel must understand – negotiation strategies and tactics,– all forms of communication, and– their latitude in negotiating an agreement.

THE B2B MARKET: PRICE

• Competitive bidding

• Complex negotiations

• Total system cost– Quality– Delivery– Serviceability– Dependability– Net unit price– …

BUSINESS SEGMENTATION VARIABLES

DEMOGRAPHICSOrganizational /

Company Demographics

DEMOGRAPHICSOrganizational /

Company Demographics

OPERATING VARIABLESProduct / Process /

Technology

OPERATING VARIABLESProduct / Process /

Technology

BUYING APPROACHBUYING APPROACH

APPLICATION of theProducts / Services

BEHAVIORALBuild-to-order

APPLICATION of theProducts / Services

BEHAVIORALBuild-to-order

BUSINESS SEGMENTATION: Organizational / Demographic [FIRMOGRAPHICS]

• Industry• Geography / Location

– Some industries are concentrated in a few areas

• Demographic – Size– Company [sales, employees, …]– Account– Usage rate

• Channel of distribution – and possibly customer type

• Operating characteristics

BUSINESS MARKET SEGMENTATION

• GEOGRAPHIC

AREA BUSINESSES

LA – Long Beach 686,222

New York 598,093

Philadelphia - NJ 405,082

Chicago 399,511

Source: D&B Sales and Marketing Catalog

BUSINESS MARKET SEGMENTATION

• DEMOGRAPHIC

EMPLOYEES BUSINESSES

1,000+ 18,864

500-999 16,270

100-499 126,466

<100 1,803,535

Source: D&B Sales and Marketing Catalog

BUSINESS SEGMENTATION: Product / Process / Technology

• Technological factors– Technologies employed

• See plastics industry in NAICS• Level of technology

– Industries • some industries are tied to a specific technology

– Accompanying technologies

• Process or Configuration• Design• …

• http://plastics.dow.com/plastics/na/fab/

BUSINESS SEGMENTATION: Applications of the Products / Services

• Finished products for consumption

• Finished products for private label

• Component products

• Product Application http://plastics.dow.com/plastics/na/application/• Industry or solution [application] http://www.ibm.com/solutions/us/?trac=L2

BUSINESS PRODUCT-APPLICATION-MARKET SEGMENTATION

INDUSTRY / INDUSTRY / INDUSTRY / INDUSTRY /SEGMENT NAME SEGMENT NAME SEGMENT NAME SEGMENT NAME

DESCRIPTION DESCRIPTION DESCRIPTION DESCRIPTIONNAIC(S) NAIC(S) NAIC(S) NAIC(S)

PRODUCT 1 APPLICATION 1 APPLICATION 2

APPLICATION 1 PRODUCT 1 PRODUCT 2 PRODUCT 3

Brief verbal descriptionMARKET (SEGMENT) NAME

BUSINESS CLASSIFICATION

• NORTH AMERICAN INDUSTRIAL CLASSFICATION SYSTEM [NAICS 2007]

– Supply-oriented system– 20 sectors: 1,184 industries [and growing]– NAFTA: 5 digits + 6TH for country coding– Compatible with ISIC Rev. 3 [UN]

• NAICS SEARCH AND INDUSTRY DEFINITIONS – explore at– http://www.census.gov/epcd/www/naicstab.htm

MARKET ATTRACTIVENESS

• What makes a market attractive?• Quantifying some or all of the following.

– Value equation– Size / growth rate– Channel of distribution access– Differentiability – Available positioning– Readiness to accept a new solution– Strategic fit– Competitive risk– …