Geodemographic segmentation
This is basically a segmentation base which studies the demographics of geographical locations. The first system was ACORN, but it has been followed by a range of others.
Psychographic segmentation
Since people who belong to the same demographic group can have different lifestyles, personalities or belong to different social classes marketers can divide the market in psychographic segments.
Social class: People are influenced, in the decision phase of consumption, by other people in their social class. Certain goods can often be perceived as a norm within different social classes.
Lifestyle: This involves classifying people based on their values, opinions, beliefs and interests. There are different classification models which facilitates categorisation based on the variables above.
Personality: Another method is to provide the products with a sense of personality that matches the personality of the target segment.
Dyson: Once again the pricing of the product should attract costumers in middle to upper class, i.e. social classes A, B and C1 in The National Readership Survey (examstutor.com). The extreme design and technical features appeals to the aspirer, succeeder and explorer in the Young & Rubican’s 4C’s (examstutor.com). One important segment for Dyson is those with allergies or dust sensitivity.
Behavioural segmentation
Markets can also be divided based on how they respond to, use or know a product.
Occasions: This group is divided on the basis of when they decide to buy, when the purchase is done and when the product is used.
Benefits sought: This requires the marketers to recognise the different benefits that customers seek to gain from the product. Once different benefit groups have been acknowledged they can be sub divided through demographic, behavioural and psychographic characteristics. This can be used to clarify and enhance those attributes of the product that is sought by target costumers.
Usage: Another way to segment a market is by dividing it into non-users, ex-users, potential users, first-time users and regular users. Different marketing can be used for attracting new users or lure current users from competitors.
Consumers can also be divided through the amount of their usage. It is often recognised that heavy-users only represents a small share of the market but consumes a high percentage of total consumption.
Loyalty: Buyers can be completely loyal and buy the same brand all the time or they can be loyal to a small number of different brands or they can show no brand loyalty at all. These all call for different types of marketing efforts. It is common for companies to focus their efforts towards those segments where the loyal customers can be found and withheld instead of those who does not show any brand loyalty at all.
Buyer-readiness stage: People have different awareness and information about the product and are also at different stages of the buyers decision process, which has implications for the marketing efforts.
Attitudes towards product: Different attitudes towards the product also call for different measures, since you do not want to aggravate those with negative attitudes, upset or bore potential customers. The basic idea is to strengthen positive attitudes and reverse negative ones.
Dyson: Dyson’s products are shopping products which are not bought frequently and only after comparison and consideration. Those buying a Dyson look for quality, performance and design. Dyson can probably attract all of the different user status and the level of usage will depend on the demographics especially family size. Dyson has probably not been around long enough to have established a large group of loyal customers since it is a very infrequent purchase but the high performance of its products ought to create loyalty. The nature of the product is such that the most important stages in buyer-readiness are to create awareness and knowledge of the product and also allow the customers to make an informed conviction.
New-product development process
New-product strategy
A clear and distinct new-product strategy is important to a successful development process since it gives guidelines and directions, it enables integration between departments, and it facilitates delegation of tasks and also permits managers to agree on proactive strategies. This can be enabled by doing a product innovation charter (PIC) which explains the reasons and the need for innovation and also the goals and objectives.
Dyson: The main goals should be to create a washing machine that gives the same results as hand wash but faster and with larger loads than normal washing machines.
Idea generation
The PIC is very useful when organising a systematic search for new-product ideas, since an unorganised idea generation is not as helpful. This stage of the process is not only about generating many ideas; they should also be good ideas which are oriented towards the company’s goals and objectives. To ensure this the company can introduce an ideas system management, which collects reviews and evaluates the ideas. In order for the company to generate these ideas they can consult many different sources.
Internal sources: New ideas can be generated from the company’s formal research and development department. They can also encourage their employees to come with new ideas through different programs and schemes. The level of encouragement for employees to generate new ideas can be seen as a cultural artefact.
Customers: Analysing customer’s questions and complaints can generate new ideas. A company can also conduct surveys to learn more about the consumer’s needs and wants or they can involve customers in the development process. Sometimes lead consumers develops new products on their own since they are the most advanced users and are able to identify improvements before others.
Competitors: Companies can analyse competing products or services by either survey consumer opinions about competitors products or they can analyse the competing product themselves and analyse its sales records.
Distributors, suppliers and others: Distributors are often in more close contact with the market and can more easily and regularly obtain consumer information and opinions. Suppliers can inform about new techniques or raw materials that opens up new possibilities for product development.
Dyson: Dyson should appoint at least one person in charge of collecting and evaluating new ideas, this person should also communicate the goals and objectives that the new ideas are supposed to solve. The R&D department must be put to work with these goals and objectives in mind. Dyson should together with their distributors investigate the consumers’ opinions about current washing machines and also conduct surveys in order to find out what attributes the consumers value the most and which improvements they would like to see. They should also try to find benchmark values from competitors regarding performance and functions.
Idea screening
The main purpose of screening is to recognise good ideas and get rid of the poor ones. Since product development is very expensive it is important to only proceed with those ideas that can become profitable. The company should set up criteria for those ideas which passes the screening process such as, is the product – useful to consumers, in line with company objectives and strategies, more valuable to consumers than competing products and does the company have the necessary resources?
Dyson: During this stage it is very important that representatives from all departments within the company are present in order to share ideas, problems and possible solutions. Those new-product ideas chosen should be realistic and achievable.
Concept development and testing
At this stage the idea has become more specific and detailed in terms that are understandable for the consumers. Several concepts can be developed based on the same idea, and these are then tested with a selection of target consumers. After the target consumers have “tested” the new product their opinions about the product are collected and revised. These opinions can also help the company with rough estimates of potential sales figures.
Dyson: Dyson should develop at least three different concepts upon the same foundational idea. This phase should produce a detailed description of features, functions, performance and preferably also a visual picture of the design. Once the descriptions are ready, a fairly large group of target consumers should be invited to review them and preferably undertake an interview where they also have the opportunity to ask questions since this might generate new angles.
Marketing strategy development
This is basically where the company describes how they are planning to introduce its new product and achieve its objectives. This involves the making of a marketing strategy statement which is divided in to three parts. Firstly the target market and the product positioning are described along with the goals for the first couple of years concerning sales, market share and profit. Secondly the products planned price, distribution and marketing budget for the first year is described. Thirdly the long-run sales and profits are estimated and the products planned marketing mix.
Dyson: The target market is high-educated, middle-to-high income families who appreciate quality, functionality and design. The washing machine will be positioned as the most efficient on the market with many extra features and a concern for sensitive skin and allergies. The aim for this product is to sell 50,000 machines the first year which corresponds to a market share of 3% and a profit of £22 million. In the second year the aim is to increase sale with 60%, reach a sales level of 80,000 machines, and gain a profit of £45 million. The retail price will be £999,99 and retailers will retain 13%. The washing machine will be sold by authorised and established retailers of white goods. The first year budget for advertising and promotion will be £12 million and will focus on the quality, performance and concern with skin sensitivity. An additional £200,000 will be spent on after sale research to establish a picture of the behaviour and composition of the customers. The long-run target is to achieve a market share of 6% and annual profits of £76 million.
Business analysis
In this phase the company reviews sale history of similar products and conduct surveys in order to estimate projected sale volumes. Knowing these, the costs and profits can be estimated in order to assess the products profitability and attractiveness.
Dyson: Compared to sales figures from earlier models and those of competitors the figures in the marketing strategy statement seem trustworthy and the new washing machine is therefore very attractive for further development.
Product development
In this stage the product goes from being a concept to becoming a physical product. The company’s R&D department tries to build the product and overcome all obstacles as cost efficiently as possible. When the prototype is ready it undergoes a lot of testing in order to ensure the performance of the product. When designing a product it is important to not only be concerned with fulfilling customer needs and wants but also the manufacturing aspects, which can lower costs and increase quality.
Dyson: The R&D department at Dyson expects the prototype to be finished within five months and this will be followed by another two months of testing. This period will be very costly but a close collaboration with suppliers concerning new materials and techniques will keep the development costs within budget.
Test marketing
Once the product is ready its entire market programme is to be tested in small scale in order to study the reactions of dealers and customers. This information can be used to alter the sales forecasts or the marketing efforts. Test marketing can be very expensive, but a faulty full launch can be disastrous. There are three common methods of test marketing.
Standard test markets involve choosing a few test cities to launch a full marketing campaign and measure the performance of the product. The results can be used to forecast profits or to adjust the campaign. The disadvantages of this method are that it is costly, can take long time and the campaign can be interfered by competitors who also gains early access to the new product.
Controlled test markets are concerned with selecting a panel of stores who agrees to sell the new product for a fee. When doing this, the shelf location and space, promotions and price are all controlled and the sales are recorded in order to measure the impact of these factors. This can also be combined with a controlled panel of shoppers to whom special TV commercials are shown and all their shopping behaviour is recorded and analysed. This enables the company to measure the level of repeated purchases combined with the amount and type of promotion they are exposed to. This method takes less time but the product can still be examined by competitors.
In Simulated test markets a group of sample consumers are shown ads and promotions, and then they are given money and become invited to either a real or artificial store. Whilst in the store they can buy whatever product they choose or they can buy nothing and keep the money. Their buying behaviour is recorded and followed up by a telephone interview. This method is also used for forecasting and adjustments and it is less time-consuming than the other two. It is also fairly inexpensive and the new products are not exposed to competitors, the problem is however that the sample sizes are small and therefore not considered to be as reliable.
Dyson: Due to the nature of the product Dyson chooses to perform a modified version of simulated test markets. They will hire the premises of a few white goods retailers in different countries where they will supervise the behaviour of a group of test shoppers, whom later on are interviewed. This is done since Dyson does not want the new and revolutionary techniques in the new washing machine to be leaked to competitors prematurely.
Commercialisation
If the test marketing has given good result, the next step is to launch the product. This is a costly procedure due to the extensive amount of marketing efforts and production investments needed. There are four major decisions to be taken before the launching.
When?: The timing for the introduction should not jeopardize other of the company’s products and macroeconomic factors should also be taken into consideration.
Where?: This decision is related to how many and which regions, countries, cities etc to focus on. The company might not afford to launch its product throughout all desirable locations at once.
To whom?: In those locations decided upon, the company need to target its marketing efforts towards the most desirable segments. They also need to target those who are most receptive to innovations and opinion leaders since they have great influence on others.
How?: The company also needs to draw up a action plan concerning budgeting, the marketing mix and various marketing efforts.
Dyson: The launch will take place as soon as the test marketing results are revised since the economy is in an upturn which is good for this type of product and Dyson’s previous models are calculated to disappear out of the product range soon. The new washing machine will primarily be launched in those markets that are already strongly penetrated. Doing this they will especially target well-educated, middle-to-high income families who appreciate quality, functionality and design.
Marketing Control
When launching the new washing machine Dyson calculated a market share of 3% during the first year, a sales level of 50,000 and a profit of £22million. When preparing for the marketing control of this new product they brake down the figures into quarterly estimations, i.e. setting standards. It was estimated that the market share would increase in the following pace: 1st quarter = 0,7%, 2nd quarter = 1.2%, 3rd quarter = 2% and 4th quarter = 3%. If these market shares where to be fulfilled Dyson should reach its target profit. The reason they choose market share as a standard is that it is related to the sales of the competitors. During the first year Dyson continually conducted research in order to collect data referring to their relative market share. The first two quarters where slightly below the forecasted figures, 0,67% and 1,14%, but Dyson did not find this particularly worrying. However, in the third quarter the research showed a rather large difference between forecast and actual results, the market share had barely reached 1,5%. Dyson concluded that this was caused by a general economic slowdown in Europe, of which shopping goods are fairly sensitive. Since the new washing machine was first launched in Europe due to the fact that Dyson had earlier been able to penetrate these markets more strongly they had decided to wait with their launch in the US and Asia. However, with the forecasted market share standards not meeting its target they decided to launch the washing machine in the US and Asia earlier than planned which turned out to succeed since in the second quarter of the second year their revised forecasted market share figures where exceeded.
Bibliography
Internet
Literature
Kotler,P Wong,V Saunders,J Armstrong,G (2005) Principles of marketing
Harlow; Pearson Education Limited
