Session-11 to 15

Chapter 6 & 7 Strategy Formulation in Industrial Markets : STP & PLC

Discussion Topics
Assessing Market Opportunities (STP in B2B Marketing) Industrial Product Life Cycle New Product Development

Know the Procedure followed for segmenting industrial markets Identify the Variables (bases) used for segmenting business markets Evaluate and select the target market segments and strategies Develop effective positioning strategies

PROCEDURE USED IN MARKET SEGMENTATION

The procedure has 3 steps
Conduct marketing research to collect data / information on

existing and potential buyers, and competitors

Carry out data analysis by using statistical techniques of factor

and cluster analysis in order to identify different segments

Profile each segment by its characteristics like application

(or/use), location, volume of requirements, etc.

VARIABLES (BASES) USED IN SEGMENTING INDUSTRIAL (BUSINESS) MARKETS

Industrial market segmentation is done first based on Macro

Variables , and then subdivided into Micro Variables, if necessary.

Macro Variables. These segmentation variables are

identified based on industry/organizational characteristics like. (i) Type of industry / Type of customer. (ii) Company size / Usage rate. (iii) Customer location / Geographical area. (iv) End-use / Application / Benefits of a product.

Micro Variables. Macro segments are further subdivided into micro segments, if needed. Micro Variables are based on purchasing decisions like (a) Customer interaction needs

(b) Organizational capabilities (c) Purchasing policies

(d) Purchasing criteria (e) Personal characteristics

Sequential Segmentation Process. Often, business marketers use more than one variable to subdivide the market.

EVALUATING MARKET SEGMENTS

Criteria / factors used for evaluating each market segment are : (i) Size and Growth (ii) Profitability Analysis

(iii) Competitive Analysis

(iv) Company Objectives and Resources TARGET MARKET STRATEGIES Based on above criteria, business marketer selects one or more market segments as target segments. Next , the marketers should decide which of the following broad target market strategies the company should adopt

(a)
(b) (c)

Concentrated or Niche marketing strategy

Differentiated marketing strategy Undifferentiated marketing strategy

PROCEDURE FOR DEVELOPING A POSITIONING STRATEGY

Following steps are involved :

(i)

Identify which attributes / benefits target customers

consider important while buying a product / service. This information is obtained through a market research study . The variables considered for differentiating a companys product from competing products are. (a) Product variables,
(b) Service variables, (c) Personal variables, (d) Image variables,

(ii)

Select one or more major benefits (or attributes) to differentiate the company from its competitors . (USP)

(iii)

Use Perceptual Mapping Technique. To decide on positioning strategy, this technique is used, after getting customers perceptions through marketing research.

(iv) Communicate Positioning Strategy. The firm should decide and communicate its positioning strategy to target customers, through sales force, advertising in journals, internet, and trade

shows

Excellent Product Quality

1.0

.A 1

0.8

.D
0.6

.C
Strong Customer Service
1.0 0.8 0.6 0.4 0.2

0.4 0.2 - 0.2

- 0.4

- 0.6

- 0.8

- 1.0

Weak Customer Service

- 0.2

.B

- 0.4
- 0.6 - 0.8

A
- 1.0

Perceptual Mapping Technique

Low Product Quality

SUMMARY OF CHAPTER - 6

Procedure used in market segmentation includes (i) Marketing research, (ii) Data analysis (iii) Profiling each segment Variables used for segmenting industrial markets include macro variables and if needed, micro variables. Sequential segmentation process is often used Criteria used for evaluating market segments are (i) size and growth , (ii) Profitability (iii) Competitive analysis (iv) Company Objectives and Resources Target market strategies are (a) Concentrated or Niche marketing, (b) Differentiated marketing, (c) Undifferentiated marketing strategy

Steps used for developing positioning strategy include : (i) Identifying attributes / benefits, (ii) Selecting one / more major benefits, (iii) Using perceptual mapping technique, (iv) Communicating positioning strategy.

CHAPTER 7

PRODUCT STRATEGY AND

NEW PRODUCT DEVELOPMENT

 Define an Industrial Product Understand Changes in the product strategy Know Product Life cycle (PLC) Theory and its application Develop Product strategies for existing products Understand new product development Know impact of technology and high-tech marketing Learn Marketing of industrial services

DEFINATION AND MEANING OF AN INDUSTRIAL PRODUCT

Defination : Its is a physical thing as well as a Complex set of

economic, technical, legal and personal relationship between a buyer and a seller.
Meaning of a Total Product Package : It includes basic properties

(with fundamental benefits), enhanced properties (with tangible benefits), and augmented properties (with intangible benefits).
In a competitive market, business marketers must understand

target customers perceptions of a total product package and offer the same better than competitors.

CHANGES IN PRODUCT STRATEGY

Business marketers must understand that a product

strategy is dynamic and flexible.

It changes due to changes in (i) Customer needs

(ii) Technology (iii) Government Policies / Laws

(iv) Product Life Cycle

A General Model of Product Life Cycle (PLC)

Industry Sales Rupees

Industry Profits

Introduction

Growth

Maturity

Decline

APPLICATION OF PRODUCT LIFE CYCLE THEORY TO MARKETING STRATEGY

Introduction Stage : Marketing Strategy should focus on market development for slowly accepted products. For rapidly accepted products, a competitive strategy (Skimming pricing or Competitive pricing or Superior quality product or Basic properties) should be evolved. Growth Stage :To take advantage of high growth of sales and profits, the marketing strategy should concentrate on (i) Improving product design or adding product features (ii) Improving distribution and (iii) Reducing price, as increased sales and production reduce the costs.

 Maturity Stage As competition increases and profits

decline, marketing strategy should concentrate on (i)

cutting costs, (ii) keeping existing customers satisfied (iii)

entering new markets. (iv) modify product, thru improvements in quality / features / style.
Decline Stage Since both sales and profits decline,

marketing strategy should focus on

(i)

substantial

reduction in costs, (ii) develop a substitute product, (iii) withdraw the product slowly from the market.

PRODUCT STRATEGIES FOR EXISTING PRODUCTS

Business marketers should take the following steps :

Evaluate the performance of existing products by using

product evaluation matrix

Examine the relative strengths and weaknesses of the

companys products by using perceptual mapping

technique
Decide the product strategies, based on above analysis

PERFORMANCE EVALUATION OF EXISTING PRODUCTS

Example : A material handling Co. (i) Product = P (Pallet Truck) Last 3 years average performance figures are Industry sales growth = 25%, Company sales growth = 30% Market Share = 30% (Dominant) , Profitability = As per Target (ii) Product = S (Stackers) Industry Sales growth = 16% (Stable) ; Company Sales Growth = 15% (Stable) Market Share = 12% (Average) ; Profitability = Below Target

Product Evaluation Matrix

Company Sales
Industry Sales Profitability Market Share Below Target

Decline
Target Above Target Below Target

Stable
Target Above Target Below Target

Growth
Target Above Target

Dominant

Growth

Average Marginal

Dominant

Stable

Average
Marginal

Dominant

Decline

Average

Marginal

PERCEPTUAL MAPPING TECHNIQUE

High Price

B High Quality A Low Quality

*
1

* A
C

Low Price

Firm As product quality is perceived to be average by customers, compared to its competitors B & C. Firm A should try to move to a new position of superior quality at a reasonable

(average) price to improve its profitability.

DECIDE PRODUCT STRATEGIES (USE BCG Matrix it can help your decision making)

(i)

Maintain / Continue the product and/or its marketing

strategy

(ii)

Modify the product and/or change marketing strategy

(iii) Drop / eliminate the product

(iv) Add new product

CLASSIFICATION OF NEW PRODUCTS (i) Products that are new to the world & innovative (ii) Products that are new to the company, but not new to the world (iii) Improvements / Revision to the existing products

(iv) Addition to the existing products

(v) Repositioning existing products to new market segments (vi) Products with substantial cost reductions without reduction in performance

NEW PRODUCT DEVELOPMENT PROCESS It consists of 7 Stages :

(i) Idea generation, (ii) Idea Screening, (iii) Concept development and testing,
(iv) Business analysis, (v) Product development, (vi) Market testing, & (vii) Commercialization

IMPACT OF TECHNOLOGY
Technological innovations create new products / services that are new to the world. Examples of these innovations, called break through technology are :

(i)

Technological inventions of 1940s of vacuum tube and amplifier

circuit created new products / services like radio, wireless telegraphy, and telephone service

(ii)

Technological inventions of 1950s & 70s of transistor, integrated

circuit (IC), microprocessors have applications in new products like TV sets, movie Cameras, Computers, Calculators, Mobile phones, Printers etc. (iii) Digital revolution of information technology and the internet have

improved company and consumer capabilities

TYPES OF MARKETING SITUATIONS

High Technological Uncertainty Low

Better Mousetrap Marketing

High-tech Marketing

Low-tech Marketing
Low

High-fashion Marketing High

Market Uncertainty

MODIFIED TECHNOLOGY ADOPTION LIFE CYCLE

This is suited to hightech marketing

Deep Gap Innovators
2%

34%
13% Early Majority

34%
Late Majority 16% Laggards

Early Adopters

Time of Adoption of Innovations

HIGH TECH MARKETING STRATEGY

Target a niche market

Plan whole product properties Develop partnerships

Unique positioning strategy

Effective Communication Strategy Multi Channel distribution strategy Skimming pricing strategy

Marketing of Industrial Services Classifications of Industrial Services

Materials Components (Steel, Ball Bearings) Pure Tangible Product

Personal Computers

Hotels for Conferences

Good Transportation

Legal

Major Product, Minor Service

Equal Product & Service

Major Service, Minor Product

Pure intangible service

Unique Characteristics of services and

marketing Implications.
Characteristics Marketing Implications Examples

1. Intangibility (cannot be seen / felt, before buying) 2. Inseparability (Production & consumption at the same time)

! Buyers see evidence of service quality ! Sellers tangibilise the intangible ! Effective interaction depend on service providers. ! Requires effective recruiting and training of service providers. ! Uniform quality is difficult ! Focus on quality & automation ! Demand fluctuates. ! Use methods to match demand & capacity. ! Advantages of non-ownership : reduction in costs & flexibility

! Management Consultancy & EDPs. ! Repairs to machines & Courier service.

3. Variability (Service quality varies)

! Management education & marketing research. ! Airlines seats & Warehouse space.

4. Perishability (Cannot be stored)

5. Non-ownership (Buyer uses a service, but cannot own it)

! Hotel and car rental services.

SUMMARY OF CHAPTER - 7
PRODUCT STRATEGYS & NEW PRODUCTS DEVELOPMENT
Industrial Product is a physical thing and also a complex set of

economic, technical, legal and personal relationship between a buyer and a Seller
Product Strategies are changed due to changes in customers needs,

technology, government policies or laws, and product life cycle

Product life cycle (PLC) concept is used to develop marketing strategies

at different stages of PLC

Product strategies for existing products are developed by (i) evaluating

the performance of existing products, using product evaluation matrix , (ii) Studying the strengths and weaknesses of existing products, using perceptual mapping technique.