Transcript Markets & Customers - Stevens Institute of Technology

Today’s Topic:
Market and Customer
Analysis
Selecting and Designing
for
Target Markets
and
Target Customers
First Course Module
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Companies’ objectives; definition of product
success
Financial measures; income statement
analysis and opportunities/challenges
How companies bring products to market
(roles/process/compensation)
Creating “winning” business plans; key
success factors; differentiation
Second Course Module
the next four weeks
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Market/customer analysis
(DLJdirect case – online brokerage)
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Competitive analysis
(Airborne Express case – package delivery)
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Making product decisions
(THINK case – electric cars)
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Midterm exam on making product decisions
(Mathsoft case – engineering analysis software)
Learning Outcomes:
you will learn to …
(before the midterm exam)
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analyze a company’s financial performance and assess
its opportunities and challenges for future growth
assess the barriers to success in a particular market and
select the appropriate target customers
identify a company’s competitive advantages by
performing a comprehensive analysis of its direct and
indirect competition
define the “whole product” and decide on appropriate
product differentiators
You will learn to…
(after the midterm exam)
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select appropriate sales/distribution channels and
promotional messages and methods
identify best practices in new product development and
the challenges in integrating the marketing, operations
and product development functions
understand how technical people interact with
marketing, sales and operations personnel, and how
they contribute to resolution of business issues
understand how business issues impact technical work
…because you’ll understand
and apply these Concepts (13)
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Definition of product
success
Whole product
Product plan: key
success factors
Differentiation
Market attractiveness
Target customers
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Competitive
advantage
Marketing mix (C+4P)
Product positioning
Sales functions
Channel options
Channel value-added
Operations balance
… and you’ll be able to use
these Methods/Tools (13)
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Income statement
analysis
Financial benchmarks
Target customer
description
Target customer
selection
5 Forces analysis
Competitive analysis
(10 dimensions)
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Decision criteria
Identifying
competitive options
Product decisions
Product competitive
positioning
Channel economics
Process dimensions
Product development
best practices
Business/Product Plan Learnings
(last week)
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Content/scope of a business/product plan
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Critical aspects of a “winning” plan
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Differentiation: importance, definition, identification
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Start-ups: success factors, funding requirements, success
profiles
Interesting entrepreneurship info/course:
http://professionalpractice.asme.org/Entrepreneurial/Startups/
Introduction.cfm
Differentiation
from Competitors’ Products
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Whole product differentiation is the answer to:
Why do customers choose your product
instead of somebody else’s ?
(or buying nothing at all?)
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Product differentiators are the things that are
unique or best about the whole product, compared
to the customers’ other alternatives
Potential areas for differentiation = dimensions of
the whole product (product features, price, sales,
marketing, customer service/support, brand, etc)
What we’re learning…...
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(last week) Differentiation of the “whole
product” from competitors is the key driver of
success……
(this week) …..which differentiators to
choose depends on what the target customers
value…..
(next week) ….and what competitors offer to
those customers
Target Markets
and
Target Customers
Today’s Key Learnings
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Market attractiveness: the five forces model
The concept of target customers, and how to
describe them
Target customer selection method/process
Designing for the Market
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What is your target market?
Who are your target customers
within that market?
How can you create/present a better
“value minus price” proposition
than competitors?
…..requires understanding/quantifying
“value” in the target customers’ eyes
…..requires understanding what
competitors’ offerings will/may be
Definitions
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Market: an “ecosystem” including a product, its
providers (competitors), its intermediaries
(channel partners), its input factors (suppliers)
and its potential or existing buyers (users,
customers)
Customers: the entities (business, consumer,
or government) who (potentially) buy and use
the product; includes the end-customers
Why does it make sense
to target only a specific subset
of all of the customers
in a market?
(the alternative, of course, is to
try to attract all of the customers)
The “Marketing Mix”
( C + 4P )
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Customers (target)
Product
Price
Promotion
Place (sales/distribution)
The 4Ps depend on the C
Design-for-Market Process
Select target market
(customer need, product category, industry)
Product concept
Select target customers (C)
Value assessment, versus competition
Define product & select price (2 P’s)
Selecting the Target Market:
Inter-Industry Differences
Operating Income/Assets (%)
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High (15-30%) : Pharmaceuticals, Packaged
software, Semiconductors
Medium (8-15%) : Restaurant chains,
Petroleum/natural gas, Engineering services
Low (2-7%) : CATV service, Motor vehicles,
Airlines
1Q08 Industry Profitability
measured by Net Return-on-Sales
(Net Income/Revenues)
Pharmaceuticals
25.9%
Chemicals
15.7%
Electrical equipment 12.1%
Oil companies
7.4%
Market Attractiveness:
Porter’s “Five Forces” Model
“high” is bad for competitors in the market
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Threat from substitute products
Ease of market entry (and exit)
Bargaining power of buyers
(customers, channels and influencers)
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Bargaining power of suppliers
Degree of competitive rivalry
suppliers 
competitors
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buyers (incl. customers)
Designing for the Market
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What is your target market?
Who are your target customers
within that market?
How can you create/present a better
“value minus price” proposition
than competitors?
…..requires understanding/quantifying
“value” in the target customers’ eyes
…..requires understanding what
competitors’ offerings will/may be
Target Customers
All possible
customers
Target
Customers
Selecting Target Customers:
some considerations
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Segment size and revenue opportunity
Customer benefits
Customer interest (incl. current relationships)
Customer ability-to-pay and leverage
Competition/market coverage
Sales issues: sale time/complexity, cost, channel
and associated profit margin
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Cost to serve/support
Customer loyalty/lock-in
Strategic value
Method: Four Ways of
Describing Target Customers
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Name: customer (individual or group
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Demographics: revenues/income, size of
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Psychographics: cost-conscious, prestige
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Needs……throughout the buying/using
names), industry or occupation, affiliations,…
firm/size of family, location, …
oriented, early adopter, risk adverse, …
experience (remember the whole product!)
Describe the (Core) Target
Customers of…...?
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Walmart
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Southwest Airlines
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National Broadcasting Corp (NBC)
Objective for Whole Product:
Superior “Value minus Price”
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Who are the targeted customers?
What are their unmet needs?
What value would they place on a particular
“satisfaction” of those needs? (i.e., what is their
willingness to pay for a particular product)
Preferably, quantify that value….or at least be
confident that (value - price) is greater than
competitors can/will deliver
The “Whole” Product
The
Product
The “Whole” Product:
What Customers Really Care About
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The product itself
Auxiliary or related
products
Price and cost-in-service
Awareness and
information
Where it is sold
Ease of choice, purchase,
ordering
Delivery
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Installation
Payment method
Storage/movement
Aesthetics/style
Advice on use
Help in use (e.g., hotline)
Returns/exchanges
Service/repair
Disposal
Differentiation is usually
achieved by choosing to meet
some target customer needs
better than all competitors…..
while meeting most needs (requirements)
at an acceptable level,
and not meeting other needs at all
(“minor” needs, or needs of
non-targeted segments)
Identifying Customer Needs
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Primary customer research: doing end-
customer surveys, interviews, focus groups
Secondary customer research: reading or
commissioning market studies by analysts
Benefit studies: cost savings, value-in-use,
revenue-generation impacts
Revealed preference: what customers pay
for (partial) equivalents
Extrapolation from technical possibilities
From Needs to Designs….
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Customer Needs (and relative importance)
Engineering characteristics impacting needs
Competitive position (in customers’ eyes, and
technical terms)
Difficulty/importance/cost of features
Leads to…..engineering targets
There are many methodologies to implement
the above, e.g. House of Quality
DLJdirect Case Summary
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DLJdirect has a successful online brokerage
business targeting “aggressively affluent”
customers
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Other segments are growing faster
DLJdirect has to decide whether to address
additional customer segments and whether
to significantly increase its advertising to
capture customers in those segments
Online Stock Trading
Customer
(trader)
Online
Broker
customer’s
account
Marketmaker
Stock
Exchange
Clearinghouse
Hint: 6 Sources of Revenue
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From End-customers
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Trading commissions
Account management fees
Interest on margin purchases
From partners
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Order flow rebates
Mutual fund and money market fees
iNautix revenues
Assignment Questions
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Are DLJdirect’s current financial results “good”?
What is their trend?
Does DLJdirect have the financial capability to address new
segments, e.g. to modify it’s whole product, or to do more
advertising to attract new kinds of customers? How much
money might be available in 2000?
Identify the ways DLJdirect’s service is differentiated from
competitors’ offerings
What are the key needs of each of the four customer
segments? Which are well-matched to DLJdirect’s
differentiators and other capabilities?
Use your judgment to rank the customer segments according
to the profit potential in serving them (hint: consider both size
of the segment and the average profit/customer in that segment)
DLJdirect’s Financial Situation
(partial income statement)
$M
Revenues
1-3Q98
%rev
82.5
%growth 1-3Q99
96.1
161.8
%rev
-commissions
54.3
65.8
81.2
98.4
60.8
-fees
18.4
22.3
108.2
38.3
23.7
9.8
11.9
155.1
25
15.5
83.1
100.7
72.1
143
88.4
19.9
24.1
88.4
37.5
23.2
-0.5
-0.6
NA
18.7
11.6
-interest
Total cost & exp
-advertising
Income before tax
Profit potential of segment
=
# of customers in segment
x
probability of attracting and
retaining them
x
profit potential per customer
Size of Customer Segments
(estimated from Exhibits 5 & 10)
# in
1999
%total %growth
# in
2002
%total
AA
1.43
26
10
1.56
12
GRF
1.38
25
-43
0.78
6
PCC
0.88
16
461
4.94
38
RBB
1.82
33
214
5.72
44
Total #
5.5M
13.0M
Assignment Questions
(continued)
Assuming that DLJdirect continues to target the
aggressively affluent segment:
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Should DLJdirect also target the Get Rich Fast (day
trader) segment? Why?
In your opinion, is there another customer segment that
DLJdirect should target? Why?
Selecting Target Customers:
some considerations
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Segment size and revenue opportunity
Customer benefits
Customer interest (incl. current relationships)
Customer ability-to-pay and leverage
Competition/market coverage
Sales issues: sale time/complexity, cost, channel
and associated profit margin
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Cost to serve/support
Customer loyalty/lock-in
Strategic value
Selecting Customer Segments
Hint: identify the positives-and-negatives
of each of other three segments (use the
AA pos-neg provided as a guide)
Positives-and-negatives
of focusing on the AA segment
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Positives
- large segment; currently 26% of the market
- wealthy; high ability to pay
- likely to buy all 3 products (trades, acct mgmt, margin)
- attracted by DLJd brand image and differentiators
- most profitable?
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Negatives
- slow growing segment; declines to 12% of market
- desirable: competitive rivalry
- “aggressive”  modest customer loyalty?
Today’s Key Learnings
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Market attractiveness: the five forces model
The concept of target customers, and how to
describe them
Target customer selection method/process
Next Week’s Topic:
(Analyzing and)
Beating the
Competition
Reading for Next Week
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Airborne Express
(a case focused on competitive analysis and
subsequent market/product decisions)
What we’re learning…...
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(last week) Differentiation of the “whole
product” from competitors is the key driver of
success……
(this week) …..which differentiators to
choose depends on what the target customers
value…..
(next week) ….and what competitors offer to
those customers
Airborne Express: Case Summary
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The timeframe is 1997
The market is the $16-17B U.S. express mail delivery
(letter, package) market
Airborne is the smallest of the three major competitors
with 16% market share (FedEx 45%; UPS 25%)
It is recently the fastest growing, but historically the
least profitable, of the Big 3
The US Postal Service is threatening to enter the market
Case Note
In 2003, Airborne Express
was acquired by DHL
for $1.2B
Assignment for Next Week
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Perform a Five Forces analysis of the US express delivery
industry
Perform a competitive analysis of FedEx, UPS and
Airborne in the 10 dimensions shown on the next slide
(display as a 3 x 10 matrix)
Based on the competitive analysis, what are Airborne’s
competitive strengths and weaknesses vis-à-vis FedEx
and UPS?
How is Airborne’s (whole) product differentiated ?
What does Airborne need to do to assure that it survives
and thrives in the future? (hint: start by identifying its
opportunities and challenges)
Competitive Analysis
Dimensions (10)
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Products offered
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Operations: pickup &
delivery
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Target customers
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Operations: air & hub
operations
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Marketing & sales
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Customer service
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Information technology
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Competitive positioning
(incl. price & cost)
Financial performance
Culture & human resource
management