Market Segmentation, Business Cycles, and Simulation

Market Market Segmentation, Segmentation,

Business Cycles, Business Cycles, and Simulationand Simulation

Course ObjectivesCourse Objectives

Integrating experienceIntegrating experience Firm’s relationship to the Firm’s relationship to the

economyeconomy Market researchMarket research Strategy and planningStrategy and planning

First Year CoursesFirst Year Courses

IT/ISIT/IS Managerial/Team SkillsManagerial/Team Skills Business Strategic EnvironmentBusiness Strategic Environment Business ResearchBusiness Research Financial Statements AnalysisFinancial Statements Analysis

IT/ISIT/IS

Managerial/Team SkillsManagerial/Team Skills

Business Strategic Business Strategic EnvironmentEnvironment

Business ResearchBusiness Research

Financial Statements Financial Statements AnalysisAnalysis

The AutoSim EnvironmentThe AutoSim Environment

Simulated Marketplace of 250 Simulated Marketplace of 250 million peoplemillion people

Exhibits “normal” market Exhibits “normal” market behaviorbehavior

Low GNP and inflation growth Low GNP and inflation growth ratesrates

The AutoSim EnvironmentThe AutoSim Environment Demand is sensitive to:Demand is sensitive to:

–GNPGNP

– interest ratesinterest rates

–seasonalityseasonality Quarterly decisions over two Quarterly decisions over two

years (we will make decisions for years (we will make decisions for only 5 quarters)only 5 quarters)

The IndustryThe Industry 7 divisions, 12 vehicles (some 7 divisions, 12 vehicles (some

vehicles actively manipulated vehicles actively manipulated with remainder played by the with remainder played by the computer)computer)

Product design changesProduct design changes Different strengths and Different strengths and

weaknessesweaknesses

The Product - Small CarsThe Product - Small Cars

PricePrice SizeSize Style (sedan, Style (sedan,

wagon, etc.)wagon, etc.) Drive/HandlingDrive/Handling Quality/ReliabilityQuality/Reliability

Image/AppealImage/Appeal SafetySafety Comfort/RoominessComfort/Roominess PrestigePrestige EconomyEconomy

Principle Characteristics - measurable or perceptual

Understanding the Understanding the CustomerCustomer

Who is your customer?Who is your customer?

What is important to these What is important to these buyers?buyers?

Are there other groups with Are there other groups with similar needssimilar needs

Customer cont’dCustomer cont’d

Are you meeting the customer’s Are you meeting the customer’s needs?needs?

What about the competition?What about the competition?

The ConsumersThe Consumers Seven psychographic profilesSeven psychographic profiles

– CommutersCommuters– TraditionalsTraditionals– Free SpiritsFree Spirits– FollowersFollowers– New FamiliesNew Families– EconomizersEconomizers– Safety ConsciousSafety Conscious

The ConsumersThe Consumers Different desires/needs - both Different desires/needs - both

importance and specific importance and specific expectationexpectation

Different demographic Different demographic profilesprofiles

Demographic DataDemographic Data Six demographic segmentation Six demographic segmentation

approachesapproaches

–GenderGender–AgeAge– IncomeIncome–RegionRegion–LocationLocation–Household SizeHousehold Size

Demographic DataDemographic Data Can only view one approach at a Can only view one approach at a

time (i.e. can’t look at males in New time (i.e. can’t look at males in New England with incomes over $25,000)England with incomes over $25,000)

Demographics for targeting Demographics for targeting advertising advertising

Three marketing research reportsThree marketing research reports

H

F

G

E

D

A

C

B

Better QualityBetter QualityMore Functional/roomyMore Functional/roomyBetter Drive/handlingBetter Drive/handling

*

Understanding the MapUnderstanding the Map Check the stress -- closer to zero Check the stress -- closer to zero

the betterthe better

check the R-squared -- closer to check the R-squared -- closer to one the betterone the better

perpendicular lines to vectorsperpendicular lines to vectors

Advertising EffectivenessAdvertising Effectiveness

Measured By:Measured By:

–Vehicle AwarenessVehicle Awareness

–Ad AwarenessAd Awareness

–Test DrivingTest Driving

–Preference vs PurchasePreference vs Purchase

Designing an Ad CampaignDesigning an Ad Campaign

What characteristics were What characteristics were important to the target important to the target consumers?consumers?

Are you emphasizing what you Are you emphasizing what you should?should?

Ad campaign cont’dAd campaign cont’d

Are you spending enough Are you spending enough money?money?

Does it make sense for you to Does it make sense for you to increase your ad dollars?increase your ad dollars?

AdvertisingAdvertising

Builds and maintains Builds and maintains awarenessawareness

Corporate and product levelsCorporate and product levels Stimulates primary demand for Stimulates primary demand for

product class / segmentproduct class / segment Communicates product Communicates product

positioning objectives - positioning objectives - “message”“message”

Advertising “message”Advertising “message” Primary--Small Car MarketPrimary--Small Car Market Benefits (price, quality, functionality, Benefits (price, quality, functionality,

drive, styling, economy, safety, prestige) - drive, styling, economy, safety, prestige) - more tangiblemore tangible

Comparison (with which other vehicle)Comparison (with which other vehicle) Build Image (good value, prestigious, Build Image (good value, prestigious,

family, sporty, luxurious rugged, roomy, family, sporty, luxurious rugged, roomy, agile) - more perceptualagile) - more perceptual

Special Promotion (to support any Special Promotion (to support any promotions you develop)promotions you develop)

ReminderReminder

AdvertisingAdvertising Target segments (region, primary Target segments (region, primary

and secondary demographics)and secondary demographics)– GenderGender– ageage– incomeincome– locationlocation– householdhousehold

AdvertisingAdvertising Media ChoicesMedia Choices

– Network TVNetwork TV– Spot TVSpot TV– MagazineMagazine– NewspaperNewspaper– OutdoorOutdoor– Direct MailDirect Mail

Each has different strengths and weaknesses with regard to cost, ability to target and ability to convey message.

Designing A Promo Designing A Promo CampaignCampaign

Impact of various incentives?Impact of various incentives?

Does the campaign make sense?Does the campaign make sense?

Helps to stimulate sales in periods of slow demand (seasonal or weak economy)

Consumer promotion includes rebates and low financingrebates on model basis and effect the

actual selling price of vehiclenot all people will choose financingcan allow both financing and rebates

Sales PromotionSales Promotion

Trade promotion includes dealer incentivesset sales goal for dealershipsdealers who achieve goal receive a fixed

dollar amount per cardealers may or may not pass on to

consumer Be sure to publicize promotion in advertising

message Some question as to whether promotion

steals from future sales of your vehicle or from your competitors’ sales

Difficult to estimate costs

Sales PromotionSales Promotion

Forecasts / ProductionForecasts / Production Forecast total market, share and Forecast total market, share and

model salesmodel sales Defaults:Defaults: Total market = forecast from economic Total market = forecast from economic

outlook report outlook report Market share = current shareMarket share = current share

Model sales = last period’s forecastModel sales = last period’s forecast

Forecasts / ProductionForecasts / Production Production to meet your forecasts + Production to meet your forecasts +

sufficient inventorysufficient inventory 25% overtime allowable at a higher 25% overtime allowable at a higher

cost / unitcost / unit Consider how fixed costs affect your Consider how fixed costs affect your

decisionsdecisions

Team’s ResponsibilitiesTeam’s Responsibilities Quarterly decisionsQuarterly decisions

– Demand forecasts - Market, share, Demand forecasts - Market, share, model salesmodel sales

– Production - model, OT?, Production - model, OT?, capacity/cost issuescapacity/cost issues

– Product Advertising - budget, Product Advertising - budget, message, target audience, mediamessage, target audience, media

– Corporate Advertising - budget, Corporate Advertising - budget, media, image, targetmedia, image, target

Team’s ResponsibilitiesTeam’s Responsibilities Quarterly decisionsQuarterly decisions

– Sales Promotion - rebates, Sales Promotion - rebates, financing, dealer incentivesfinancing, dealer incentives

– Price - (MSRP and dealer)Price - (MSRP and dealer)– Somewhat “circular” decision Somewhat “circular” decision

process - all interrelatedprocess - all interrelated

Team’s ResponsibilitiesTeam’s Responsibilities Profit CenterProfit Center

– Responsible for materials, labor Responsible for materials, labor and fixed productionand fixed production

– Revenues less promotion and Revenues less promotion and advertising costsadvertising costs

Possible Objectives /Possible Objectives /Performance MeasuresPerformance Measures

Market share (unit or dollar)Market share (unit or dollar) ContributionContribution Marketing efficiency (return on marketing Marketing efficiency (return on marketing

expenditures)expenditures) Return on salesReturn on sales Sales growthSales growth Corporate and Nameplate AwarenessCorporate and Nameplate Awareness Capacity utilizationCapacity utilization Production/sales ratioProduction/sales ratio