MEMORANDUM

TO: Guerrino De Luca, Logitech Chief Operating Officer

FROM: Vivek Durairaj, Marianna Feldmansky (Hecht), Danielle Fontaine, Chris Henshaw,
Vanessa Landry, and Scott Watson
SUBJECT: Market Segmentation and Targeting for io Digital Pen
DATE: February 9, 2009

Statement of the Problem

Logitech has not invested in appropriate market research and consumer testing to identify proper
segmentation, targeting, and positioning for the io pen. The result has been the targeting of an overly
broad market which has led to limited sales and growth potential and has not allowed us to capitalize on
the key segments of the market. In addition, we have underestimated the necessary investment in
consumer education and traditional advertising efforts to create consumer interest.

Issues and Analysis

The process of market segmentation, targeting, and positioning for the io digital pen was not considered at
any stage of the product’s development. The project team recognized the need for an understanding of the
product’s user and Mike was introduced, but Mike is merely an ideal customer. The creation of a
hypothetical persona through whom user applications and considerations can be channeled is an important
and useful tool during development, but it does not yield the same result as proper market segmentation.

Before we can segment the market we need to understand and analyze the dynamics of the market
environment in which we are operating. We have completed this analysis using the Five Cs (Exhibit 1-1)
and the Five Forces (Exhibit 1-2). Each of these exhibits show that there is competition in the market
from other digital writing instruments, but the threat of substitutes, such as PDAs, is more detrimental and
should be taken seriously. We must create a strong positioning statement which will communicate to our
potential customers why the io is the best choice among all other substitutes. The SWOT analysis (Exhibit
1-4) illustrates the advantages of our proprietary technology rights, our existing distribution relationships,
and our strong brand-name in the market. We are in a strong position to take advantage of the current
market environment and promote the io digital pen.

We have applied a needs-based segmentation approach and generated segmentation variables based on
the customer section of the Five Cs analysis (Exhibit 1-1). We utilized Fennel and Allenby’s motivating
conditions to categorize our variables (see Exhibit 1-6) into sticks and carrots. The segmentation variables

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were chosen because they address the potential customer’s concerns regarding convenience, affordability,
performance, and usability. Consumer demand is also impacted by each of the criteria and therefore the
variables indirectly assess consumer demand and provide a platform for our marketing efforts. Using the
segmentation variables, we identified five groups of potential customers with distinct characteristics,
behaviors, and needs (see Exhibit 1-7) and we evaluated the attractiveness of each segment in Exhibit 1-3.
See below for a summary of each segment and its attractiveness.

Early Adopter – A tech savvy individual who wants to feel “plugged in” and enjoys having all the latest
and greatest technology available in the market.
Attractiveness – Early adopters are attractive because they have advanced computer literacy and require
minimal training with the product. They are acutely aware of new tech products and they are willing to
spend their discretionary income procuring them. They were among the first buyers of the io pen.

Digital Organizer – A simple user of technology who has a busy schedule and is looking for new and
easy ways to organize more efficiently.
Attractiveness – Digital organizers are unattractive because they are more difficult to measure. They have
limited disposable income and must perceive a strong value in order to purchase. They are attractive in
that they are easy to reach and the benefit deficiency is low as they have a strong desire for the product.

Scholar – College students who value their education and are willing to invest in the necessary tools to
achieve success in school. They value their time and the convenience of technology.
Attractiveness – Scholars typically operate on limited funds and would have to be convinced of the
benefits of the io over a laptop or traditional pen and paper, which makes them unattractive. They would
also require more specific marketing and product placement through campus bookstores.

Artiste – Design is a large part of their professions (i.e. graphic designers, architects, etc.) and they value
convenience. They want to be able to convert free-hand drawings to a digital medium.
Attractiveness – The artiste is an attractive segment because the io offers a new solution for precision
drawings and other graphical needs, which means there is minimal benefit deficiency. They must be
reached through graphic arts media and the product should be sold in art supply stores.

Professional – A career oriented member of high or mid-level management whose profession involves
frequent meetings, travel, and note-taking. They value performance and status.
Attractiveness – The professional is attractive because they have higher levels of discretionary income

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and they are willing to pay for performance and status. They are also easy to reach in terms of availability
and awareness through placement in computer and office supply stores.
Recommendations
• Reposition the target market beyond the Early Adopters to two promising market segments: the
Professionals and Artistes (see Exhibit 1-7).

• Position the io in retail stores alongside PDAs and computer peripherals to create consistency.

• Appeal to the cost sensitive market segments by offering targeted promotional discounts.

• Continue point of purchase education and expand post-sale technical support.

• Reduce the price to $149 to increase affordability beyond Early Adopters.

• Product positioning statement: The Logitech io digital pen is the most compact and easy-to-use of all
digital writing instruments because we create the most innovative technology.

In 2004, we aim to generate $60 million in pen sales and $6 million in paper. In 2005, we aim for $100
million in pens and $20 million in paper (see Exhibit 1-8). Long-term recommendations include
developing the business-to-business market by partnering with third parties; but this will first require
additional B2B market research and segmentation. Other long-term recommendations include hardware
and software enhancements to appeal to both new and existing customers in a growing market.

Support
The Professional segment is a strong market, as evidenced by the placement of senior managers, sales
people and lawyers in case studies as the number one consumers for io pen purchases. Professionals are
both technology and performance oriented individuals, who appreciate innovative tools and their
convenience. Because placement of the io pen with PDAs and computer peripherals was most successful,
this will become the standard placement in office supply and computer stores to increase consumer
awareness and reach the Professional segment. The value equation at Exhibit 1-5 supports the cost-
benefit analysis for the Professionals.

To catch the attention of traveling professionals (a sub-market of the Professionals), we will partner with
major airlines to place ads in the SkyMall catalog and other magazines. The product will be placed in
duty free shops with advertisements at the entrance to attract street traffic. We will make discounts
available to travelers who find coupons in the catalogs and purchase while en route. We will put up “mall
walls” in both US and German airports as well as streaming film featuring working professionals.
Targeting in airports is anticipated to boost sales 20% among this segment.

Surveys showed that a higher than expected percentage of people (40%) utilized the io pen to capture

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images rather than writing. Therefore the second target market is the Artiste (see Exhibit 1-7). This is a
group that was not specifically targeted during the initial launch and will be beneficial to appeal to
because they show a high demand for the product. They are a perfect target to convince of the value of
the io because with their moderate income, they will be want to get their money’s worth and be invested
in the product. We will advertise the superior customer support provided for io and the easy availability
of writing pads, ink and other accessories that can be used in conjunction with the product because this
group places a high value on the convenience of spontaneous creativity.

To increase interest among the other segments identified, we will increase print and video advertising
online and in stores to improve customer knowledge of product and create a desire to learn more. Since
sales were linked with user knowledge on the website, this will create an opportunity to attract more in-
store rather than web shoppers. We will perform in-store tutorials with the pen and ensure proper training
with store employees. Price sensitivity is a common theme among the segments and the price must be
reduced from $199 to $149 to reach all segments. We will offer promotional discounts to key groups such
as students, travelers, and/or recent college grads entering the work force. Bundling with other Logitech
products such as mice or keypads will promote the reliability of the product and its brand name.

The two target markets are ideal not only for their short term potential, but also because they provide a
source for long-term growth as well. Once convinced of the product’s superior technology and
convenience, these individuals can be leveraged for business-to-business prospects. We will solicit new
usage from existing corporate accounts and utilize word-of-mouth enthusiasm generated by Professionals
and Artistes. Since they deal with clients and other professionals on a daily basis, their opinions will be
trusted and valued among their colleagues, generating a high amount of word-of-mouth advertising
potential. After a market segmentation analysis, we will aim to partner with interested third parties to
expand into the medical and animation sectors to ease creativity and simplicity in the work place.

To maintain customer enthusiasm amongst individuals who have already purchased the pen, we will
create software and physical updates for the pen. The second generation will be a sleeker, more
sophisticated look based on consumer feedback. We plan to offer the ability to customize the pen with
different colors, password protection, and added technology such as voice recognition and bluetooth
capabilities. The second generation of pens will be sold for a basic model at $99, with options for
upgrades at additional costs. This will encourage users who really enjoy the pen to invest in additional
features or to upgrade to the new generation. We also aim to develop our own paper brand to increase
sales where we are missing out by contracting with 3M (Post-It) and Mead.

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In conclusion, the product positioning statement reflects the need to have the most easy-to-use product, as
evidenced by the success of in-store education and lagging sales when no education was offered.

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