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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