Chapter 5 SEGMENTATION, TARGETING AND POSITIONING

1. Different forms of market segmentation – p.228

 Market segmentation - aggregating prospective customers into groups that have
common needs and will respond similarly to a specific marketing offer or marketing
mix
 Forms include:
o Geographic,
o Demographic (age, gender, income),
o Psychographic (lifestyle, based on interests, opinions),
o Behavioral (why consumers buy and product/service usage)
o Composite Approach (combination of both)

1. General principles of Targeting:

 Marketing to all target segments (undifferentiated marketing)

 Marketing to some of the target segments (differentiated marketing)
 Marketing to just one segment (concentrated marketing, niche strategy)
 Too narrow -> limited revenue, profit potential
 Too broad -> possible dilution of resources, in promotion

3. Positioning – p.234
 Should be distinctive and consistent
 Must set off the product/brand from the competitors
 Is not a onetime exercise, customer needs, how products are perceived and valued,
and competition change and evolve
 Functional vs. emotional values, objective or subjective opinions
 Offer positioning: direct competition with other products/services in forms of other
price category (eg. lower price than competition) or differentiation (eg. Better quality)
 Perceptual mapping» -> understanding the perceptions customers have of product
 categories and brands within those categories

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Chapter 6 DEVELOPING NEW PRODUCTS AND SERVICES

1. Types of new products:

- Major service innovations – entirely new concepts (discontinuous
innovations) for markets that have not been defined previously, creating new
markets,

- Major process innovations – new processes (ways) to deliver existing

services so that the customer receives new value;

- Service-line extensions – additions to existing lines of services;

- Supplementary service innovations – adding new elements to the core

service or improving existing supplementary services;

- Basic service improvements (continuous innovations) – the most common

type of new service innovation, involving modest changes in the performance
of an existing service.

2. Characteristics of successful new products and services:

a) Superior advantage – real or perceived, better price or outstanding
performance (quality) that the customer is prepared to pay for
b) Compatibility – aligned with the values, attitudes, and norms of customers
c) Simplicity – simple instructions or needing little skill to operate
d) Observability – the product or service's innovative characteristics should be
easily observable by the customer and/or easily communicable to the customer
e) Trialability – can be purchased on a trial basis, e.g. in small amounts, for a
limited time, free-sampling, or low introductory pricing
f) Low perceived risk – perceived respectively supported through warranties
and guarantees, or e.g. «social proof», compare the psychological principles of
persuasion;
g) IP protection – good products or services usually have an IP component
(patent, trademark, copyright) offering you a possible competitive advantage
or protection from encroachment by competitors
h) «Purple cow» (Seth Godin) – entrepreneurs should focus on creating
«remarkable» purple cows

3. Adoption and diffusion

- Adoption = acceptance and continued use of a new product/service by a

customer, five stages:
1) Awareness (attention, brand awareness, availability/distribution, promotion)
2) Interest
3) Evaluation
4) Trial (sampling, trial packages, product demonstrations, …)
5) Adoption or rejection (after post-purchase evaluation, compare cultural
differences on reassurance)
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 - Diffusion = the manner in which customers accept new products/services and
the speed of new product/service adoption by various customer groups, five
categories:
(1) Innovators (2.5%)
a. Are the first to try new products/services
b. Risk takers
c. Tend to have higher incomes and education
d. Tend not to rely on group norms when making purchases
(2) Early adopters (13.5%)
a. Are next to purchase the new product/service
b. Are socially integrated and likely to be «opinion leaders»
c. Tend to be used by later adopters as sources of information and advice
about the new product/service
d. «Failure to cross the chasm» if diffusion stops at innovators/early adopters,
mostly because these groups are different
(3) Early majority (34%)
a. Tends to be risk averse compared to innovators and early adopters
b. Take more time to consider the new product/service and tend to use more
information and evaluate the innovation more cautiously
c. But tend to enjoy the status of being the first in their peer group to
purchase the new product/service
d. Can «legitimize» the new product/service for later adopters
(4) Late majority (34%)
a. Tend to be skeptics
b. Will adopt the new product/service after the early majority has done so and
only when the product/service is widely popular and the risk associated
with purchasing is considered minimal
c. Tends to adopt based on social pressure (e.g., keep up with «the Joneses»)
but has limited means so they will buy only when the product/service has
become more affordable
(5) Laggards (16%)
a. The last group to adopt a new product/service
b. Reluctantly, since they are often suspicious of new products/services
c. Typically, they are forced to make a purchase because the new
product/service supersedes or replaces existing products or services
d. Tend to have the lowest socioeconomic background of the adopter groups

Diffusion rate (plan assumption) ?

Three-part classification of adopters:

1) Innovators (innovators and early adopters)

2) Later adopters (early majority, late majority, and laggards)

3) Non-adopters
- The largest adoption rate in the shortest period of time = fast diffusion
- Diffusion speed is influenced by various factors including:
o Clear superior advantage over existing alternatives

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 o Competitive intensity (aggressive pricing, extensive distribution, heavy
investment in promotion)
o Aggressive pricing, extensive distribution, and heavy investment in
promotion
o Product/service standardization (reduces perceived risk)
o Product /service information amount disseminated to the customer
(through advertising, WOM, …)
o High degree of vertical integration (e.g. close relationships between
channel members)
o Greater commitment to R&D (getting the product/service right in the
first place)
o A company's commitment to promotion and distribution support
o Focusing at selected groups of adopters at a time, e.g. creating a
«bandwagon effect»
o Leveraging opinion leadership, compare KOL management
o Social media strategies

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Chapter 7 BUILDING AND SUSTAINING THE ENTREPRENEURIAL
BRAND

1. Characteristics of a good brand:

- Effectively communicates the distinctive value
- Is relevant to the customer
- Resonates with the customer
- Reinforces the company's intended positioning in the marketplace
- Is consistent and unifying
- Serves as an umbrella for other brands in the portfolio
- Allows for the building of strong brand equity
- Enables premium pricing
- Is easily understood

2. Brand strategies:
There are 3 main brand strategies:

- Corporate branding («branded house», «umbrella brands») -> e.g. Virgin,

automotive brands, airlines, insurances, IT services, industry/corporate/BTB branding,
logistics, transportation

- Individual product/service branding («house of brands») -> e.g. FMCG companies

- Hybrid branding (sub-branding) -> e.g. food retailer sub-branded private labels, MS
Windows Explorer

2. What is brand in general

Brand - name, sign, symbol, design, or combination of those elements intended to

identify the products or services of a marketer and to differentiate them from other
brands

3. Brand equity
• Adds value to the brand -> customers, investors => higher price
• Creates loyalty of customer
• Differentiates and adds an emotional value (beyond functional value)

5. Brand Equity Process

• Attention
• Awareness
• Association
• Meaning (functional and image)
• Customer response/reaction (functional and emotional), e.g. Marlboro
• Customer brand resonance/loyalty/bond/identification, e.g. Harley-Davidson, Apple
Chapter 8 ENTREPRENEURIAL PRICING

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 1. Different approaches to pricing – basic understanding

- Cost-based pricing (barely covering the costs and having at least a small
profit; markup pricing)
- Markup vs. Margin
- Target profit pricing («rule-of-thumb» pricing)
- Competition-based pricing
- Customer-based pricing

2. Simple calculations of the rule of thumb pricing – p.279 – exactly as we have on

slides.

Example 1:
AC = USD 10,
TP = 20% markup
P=AC+TP
P = 10 + 2
P = $ 12
Example 2:
R0 = 10% = 0.1,
total capacity = 1mn units,
Q = 80% of capacity = 800k units,
AC = USD 10,
K = USD 100mn
R0 =(Q(P–AC))/K
0.10 = (800,000 (P – 10))/ 100,000,000
P = $ 22.5
Example 4:
FC=USD 25k,
VC=USD 10,
P=USD 20
BEPQuantity = FC / (P – VC)
BEPQuantity = 25,000 / (20 – 10)
BEPQuantity = 2,500 units

3. Pricing strategies [good, examples]

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 - Cost-Based Pricing:
Cost-plus - Standard markup

- Competition-Based pricing:
Positioning your product/service in relation to competitor’s prices.

- Customer-based pricing:
o Costumers consider full cost including delivery time and costs
o Consumer price points
o Price-based quality association -> price is not just a pure cost signal,
it can also serve as a surrogate indicator of «quality» to the customer
o Price-sensitivity of customers/consumers -> elasticity of demand
- Skimming pricing (charging a high initial price)
o With «benefit-sensitive customers» who have a strong desire for the
product and are willing and able to pay a high price
o If customers interpret the high price as connoting high quality
o if the product/service has an IP component
o If the uniqueness of the product/service is understood and appreciated
by the customer

- Penetration pricing (charging a low initial price)

o With «price-sensitive customers»
o When production and marketing costs fall dramatically as demand
(volume) increases

- Value-based pricing (offering better value (increased benefits) at the same

price)
 Has to be understood e.g. with quantities, i.e. cognitive dissonance
with 100s or 70s for KS cigarettes, or premium prices for different
tastes, lower price with larger purchase, i.e. consumer goods per kg or
IT service hours per package

Advantages of using customer-based approach:

- Targeting different price segments
- Customized prices (e.g. flexible pricing depending on the behavior of the
individual you serve)

4. Pricing advices – p.289

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 - Try to be as independent of price as possible (both ways – avoid profitability
and cost leadership pressure) -> non-pricing values
- If your venture is selling a high-quality product or service, do not underprice
that offering
- Do not over rely on your costs as a way to set prices
- If you enter a competitive environment and find competitors are beginning to
drop prices, you do not have to necessarily follow suit
- Be aware of the principle of just noticeable difference (JND) = the point at
which a customer notices a change in your pricing
- Add value instead of price discounting
- Do not use the same price margin for all your products/services
- You will know you have pricing problems if:
 There is poor customer response
 Your channel members complain
 Intense price bargaining is the norm
 There is high elastic demand
 You are forced into chronic markdowns
When this occurs, you must take corrective action
- Your price strategy should always be connected to the customer segment you
are seeking – there is no such thing as an average price because there is no
such thing as an average customer
- If you can build your entrepreneurial brand and develop high brand equity,
you can command premium prices for your products/services