Study Guide Exam II

Chapter 8

80-20 principle- 80% of revenue comes from 20% of the market

Segmentation
 4 Characteristics- Homogenous within, Hetergenous between, Marketable, Profitable
o Behavior-
 Decision roles- people play five roles in a buying decision: Initiator, Influencer, Decider,
Buyer, and User.
 Behavioral variables- occasions, benefits, user status, usage rate, buyer-readiness
stage, loyalty status, and attitude.
o Psychographics- buyers are divided into different groups on the basis of
psychological/personality traits, lifestyle, or values. (VALS)
o Frequency- how often a consumer buys/uses a product. usage rate
o Use- How the consumer uses the product. where/when/how
o Product- features/benefits/attributes
o Geographics- Dividing the market into different geographical units such as nations, states,
regions, counties, cities, or neighborhoods.
o VALS-
 Innovators are successful, sophisticated, take-charge people with high self-esteem.
They have such abundant resources. They are change leaders and are the most
receptive to new ideas and technologies. Innovators are very active consumers, and
their purchases reflect cultivated tastes for upscale, niche products and services.
 Thinkers are motivated by ideals. They are mature, satisfied, comfortable, and reflective
people who value order, knowledge, and responsibility. They tend to be well educated
and actively seek out information in the decision-making process. They are well-
informed about world and national events and are alert to opportunities to broaden their
knowledge.
 Believers are motivated by ideals. They are conservative, conventional people with
concrete beliefs based on traditional, established codes: family, religion, community, and
the nation. Many Believers express moral codes that have deep roots and literal
interpretation. They follow established routines, organized in large part around home,
family, community, and social or religious organizations to which they belong.
 Achievers are motivated by the desire for achievement, Achievers have goal-oriented
lifestyles and a deep commitment to career and family. Their social lives reflect this
focus and are structured around family, their place of worship, and work. Achievers live
conventional lives, are politically conservative, and respect authority and the status quo.
They value consensus, predictability, and stability over risk, intimacy, and self-discovery.
 Strivers are trendy and fun loving. Because they are motivated by achievement, Strivers
are concerned about the opinions and approval of others. Money defines success for
Strivers, who don't have enough of it to meet their desires. They favor stylish products
that emulate the purchases of people with greater material wealth. Many Strivers see
themselves as having a job rather than a career, and a lack of skills and focus often
prevents them from moving ahead.
 Experiencers are motivated by self-expression. Young, enthusiastic, and impulsive
consumers, Experiencers quickly become enthusiastic about new possibilities but are
equally quick to cool. They seek variety and excitement, savoring the new, the offbeat,
and the risky. Their energy finds an outlet in exercise, sports, outdoor recreation, and
social activities.
 Makers are motivated by self-expression. They express themselves and experience the
world by working on it—building a house, raising children, fixing a car, or canning
vegetables—and have enough skill and energy to carry out their projects successfully.
Makers are practical people who have constructive skills and value self-sufficiency. They
 live within a traditional context of family, practical work, and physical recreation and have
little interest in what lies outside that context.
 Survivors live narrowly focused lives. Because they have few resources with which to
cope, they often believe that the world is changing too quickly. They are comfortable with
the familiar and are primarily concerned with safety and security. Because they must
focus on meeting needs rather than fulfilling desires, Survivors do not show a strong
primary motivation.
o Demographics- age, family size, family life cycle, gender, income, occupation, education,
religion, race, generation, nationality, and social class.
 Age and Life-Cycle Stage- consumers wants and abilities change with age. Ex.
toothpaste targets kids, adults, and older consumers.
 Life Stage- defines a persons major concern, such as going through a divorce, going
into a second marriage, taking care of an older parent, etc.
 Gender- men and women have different attitudes and behave differently, based partly
on genetic makeup and partly on socialization.
 Income- income segmentation is a long standing practice in such categories as
automobiles, clothing, cosmetics, financial services, and travel. (blue collar/white collar)
 Generation- each generation is influenced by the times they grew up in. Marketers often
advertise to a cohorts\ by using icons and images prominent during their time.
 Social Class- Strong differences in preferences in cars, clothing, home, leisure
activities, retailers, etc.

 Strategies- Niche(single-segment concentration), selective specialization, product specialization,
market specialization, full market coverage(undifferentiated marketing/differentiated marketing)
o Niche- firms gains strong knowledge of the segments needs/wants and achieves strong market
presence. Risk- market segment can turn sour or a competitor may invade segment.
o Selective Specialization- select a number of segments. There may be little or no synergy
among the segments. Advantage-diversify busniess
o Product Specialization- firm makes a certain product that sells to several different markets. Ex.
microscope manufacturer sells to universities, government, and commercial laboratories. Risk-
new technology may render product useless.
o Market Specialization- firm concentrates on serving many needs of a particular market
segment. Risk- customer group may suffer budget cuts or shrink in size.
o Full Market Coverage- firm attempts to serve all customer groups with all the products they
might need. Only large firms can undertake full market coverage.
 Undifferentiated marketing- firm ignores segment differences and goes after the whole
market with one offer. Design a product and marketing program that provides product
with superior image and appeal to the broadest number of buyers and it relies on mass
distribution and advertising.
 Differentiated marketing- firm operates in several market segments and designs
different products for each.

Chapter 9
Brand: a name, terk, sign, symbol, or design intended to identify goods or services of one seller or group of
sellers and to differentiate them from those of competitors.
Equity: Added value endowed on products and services.
    - brand identity (image): unique set of brand associations that represent what the brand stands for and
promises to customers. Concepts include brand personality, value
Brand valuation: estimating total financial value of a brand.
Branding:
    - need sufficient market size
    - product is worth more, market much be willing to pay for it.
    - unique selling proposition
    - company needs resources, ability, and expertise to promote and distribute product.
Trademarks: any name, symbol, mark, or combination that identifies a product or service (not a company)
    - unique, easy recognition (recall!), easy to pronounce
Brand Familiarity (5 degrees)
1. nonrecognition: consumer doesn’t recognize brand
    - primary brand promotion: promoting whole category (milk, eggs, lettuce)
2. recognition: customer sees and recognizes brand, but still shops price
3. preference: customer prefers particular brand, but will switch
    - promotion can happen outside of store
    - in-pack, on-pack coupons
4. insistence: customer insists on particular brand, no switching
5. rejection: tried product and hated it, never use again
Family brand: has multiple products under one brand (ie kitchenaid, Betty Crocker)
Parent brand: new line extension of brand.
Brand mix: set of all brand lines that particular seller makes available to buyers.
Brand strategy: reflects number and nature of both common and distinctive brand elements it applies to the
products it sells.
Line strategy: (??) anyone know this? (I think it’s more of the same type of product or similar products)-sean
Trading up: upward stretching, higher price on product added
Trading down: lower price on product added

Chapter 10
Brand Positioning
 Image of your product in the mind of the customer relative to competition.
 The act of designing the company’s offering and image to occupy a distinctive place in the minds of the
target market.
 The goal is to locate the brand in the minds of consumers to maximize the potential benefit to the firm.
 A good brand positioning helps guide marketing strategy by clarifying the brand’s essence, what goals
it helps the consumer achieve, and how it does so in a unique way.
 Everyone in the organization should understand the brand positioning and use it as context for making
decisions.

Points-of-Parity (POP)
 Associations that are not necessarily unique to the brand but may in fact be shared with other brands.
o Differences need to be on things other than the product
 Service
 Price
 Promotions
 Two types of associations: category and competitive
o Category POP
 Associations consumers view as essential to a legitimate and credible offering within a
certain product or service category.
 They represent necessary, but not sufficient, conditions for brand choice.
o Competitive POP
 Associations designed to negate competitor’s POD.

Points-of-Difference (POD)
 Unique differences between products.
 Attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe they
could not find to the same extent with a competitive brand.
o Quality (Lexus)
o Performance (Nike)
o Design (Apple)

Positioning maps (will not be on the exam)

Differentiation
 Product Differentiation
o Offering consumers alternative product options that the competitors cannot.
o Swatch offers colorful, fashionable watches.
o Subway offers healthy sandwiches as an alternative to fast food.
 Personnel Differentiation
o Companies can have better-trained employees.
o Singapore Airlines is well regarded in large part because of its flight attendants.
o More knowledgeable and helpful customer service
o Sales forces of such companies as GE, Cisco, Frito-Lay, Northwestern Mutual Life, and Pfizer
enjoy an excellent reputation.
 Channel Differentiation
o Companies can more effectively and efficiently design their distribution channels’ coverage,
expertise, and performance.
o In 1946, pet food was cheap, not nutritious, and sold exclusively in supermarkets and the
occasional feed store. Iams pet food found success in selling premium pet food through regional
veterinarians, breeders, and pet stores.
 Image Differentiation
o Companies can craft powerful, compelling images.
o Marlboro’s extraordinary worldwide market share (around 30%) is that Marlboro’s “macho
cowboy” image has struck a responsive chord with much of the cigarette smoking public.
o Hyatt Regency hotels developed a distinctive image through its atrium lobbies.

Product Life Cycle

 A company’s positioning and differentiation strategy must change as the product, market, and
competitors change over the PLC. To say that a product has a life cycle is to assert four things:
1. Products have a limited life.
2. Product sales pass through distinct stages, each posing different challenges, opportunities, and
problems to the seller.
3. Profits rise and fall at different stages of the product life cycle.
4. Products require different marketing, financial, manufacturing, purchasing, and human resource
strategies in each life-cycle stage.
 Most product life-cycle curves are portrayed as bell-shaped. This curve is typically divided into four
stages:
o Introduction
 A period of slow sales growth as the product is introduced in the market.
 Profits are nonexistent because of heavy expenses of product introduction.
 Immature market. You must educate consumers.
o Growth
 A period of rapid market acceptance and substantial profit improvement.
 Wider distribution
 Competitors arriving
o Maturity
 A slowdown in sales growth because the product has achieved acceptance by most
potential buyers.
 Profits stabilize or decline because of increased competition.
 Channels filling up.
o Decline
 Sales show a downward drift and profits erode.

Style, Fashion, and Fad Life Cycles

 Style
 o Basic and distinctive mode of expression appearing in a field of human endeavor.
o Styles appear in homes, clothing, and art.
o A style can last for generations and go in and out of vogue.
 Fashion
o A currently accepted or popular style in a given field.
o Fashions pass through four stages: distinctiveness, emulation, mass fashion, and decline.
o The length of a fashion cycle is hard to predict.
 Fad
o Fashions that come quickly into public view, are adopted with great zeal, peak early, and
decline very fast.
o Their acceptance cycle is short, and they tend to attract only a limited following who are
searching for excitement or want to distinguish themselves from others.
o Fads fail to survive because they don’t normally satisfy a strong need.

Alternate patterns of PLCs

 Growth-Slump-Maturity Pattern
o Often characteristic of small kitchen appliances such as handheld mixers and bread makers.
o Sales grow rapidly when the product is first introduced and then fail to a “petrified” level that is
sustained by late adopters buying the product for the first time and early adopters replacing it.
 Cycle-Recycle Pattern
o Often describes the sales of new drugs.
o The company aggressively promotes its new drug, and this produces the first cycle.
o Later, sales start declining and the company gives the product another promotion push, which
produces a second cycle (usually of smaller magnitude and duration).
 Scalloped Pattern
o Sales pass through a succession of life cycles based on the discovery of new-product
characteristics, uses, or users.
o Sales of nylon, for example, show a scalloped pattern because of the many new uses –
parachutes, hosiery, shirts, carpeting, boat sails, automobile tires, etc.

Chapter 11

Competitive Forces
 Threat of intense segment rivalry- A segment is unattractive if it already contains numerous, strong,
or aggressive competitors.  Even more unattractive if it’s stable or declining, if fixed costs or exit
barriers are high, or if high competitors have high stakes in staying in the segment.  THese conditions
will lead to frequent price wars, advertising battles, and new-product introductions and will make it
expensive to compete.  
 Threat of new entrants- The most attractive segment is one in which entry barriers are high and exit
barriers are low.  When both exit and entry barriers are high, profit potential is high, but firms face more
risk because poorer-performing firms stay in and fight it out.  When both entry and exit barriers are low,
firms easily enter and leave the industry and the returns are stable and low.  The worst case is when
entry barriers are low and exit barriers are high, the result is chronic overcapacity and depressed
earnings for all.  
 Threat of substitute products- A segment is unattractive when there are actual or potential
substitutes for the product.  Substitutes place a limit on prices and on profits.  If technology advances or
competition increases in these substitute industries, prices and profits are likely to fall.  
 Threat of buyers’ growing bargaining power- A segment is unattractive if buyers possess strong or
growing bargaining power.  Buyers’ bargaining power grows when they become more concentrated or
organized, when the product represents a significant fraction of the buyers’ costs, when the product is
undifferentiated, when buyers’ switching costs are low, when buyers are price sensitive because of low
profits, or when they can integrate upstream.  To protect themselves, sellers might select buyers who
have the least power to negotiate or switch suppliers.
  Threat of suppliers’ growing bargaining power- A segment is unattractive if the company’s suppliers
are able to raise prices or reduce quantity supplied.  Suppliers tend to be powerful when they are
concentrated or organized, when there are few substitutes, when the supplied product is an important
input, when the costs of switching suppliers are high, and when the suppliers can integrate
downstream.  

Strategic group- A group of firms following the same strategy in a given target market.  

In general, a company should monitor three variables when analyzing competitors:

 Share of market- the competitor’s share of the target market.
 Share of mind- the percentage of customers who named the competitor in responding to the statement,
“name the first company that comes to mind in this industry.”
 Share of heart- the percentage of customers who named the competitor in responding to the statement,
“name the company from which you would prefer to buy the product.”
o Companies that make steady gains in mind share and heart share will inevitably make gains in
market share and profitability.

Staying the number one firm calls for action on three fronts:
 Firm must find ways to expand the total market demand.
 Firm must protect its current market share through good defensive and offensive strategies.
 Firm can try to increase its market share, even if market size remains constant.

A company can search for new users among three groups:

 Those who might use it but do not (market-penetration strategy)
 Those who have never used it (new-market segment strategy)
 Those who live elsewhere (geographical expansion strategy)

The amount of consumption can sometimes be increased through packaging or product redesign.  Larger
package sizes increase the amount of product that consumers use at one time.  

Frequency of consumption requires either:

 Identifying new opportunities to use the brand in the same basic way or
 Identifying completely new and different ways to use the product.

One strategy to speed up product replacement is to tie the act of replacing the product to a holiday, event, or
time of year.  Another might be to provide consumers with better information about either:
 When they first used the product or need to replace it or
 The current level of product performance.

The second approach to increasing frequency of consumption is to identify completely new and different
applications.  

Position defense- Position defense means occupying the most desirable market space in consumers’ minds,
making the brand almost impregnable.  I.E. Procter & Gamble

Flank defense- Although a position defense is important, the market leader should also erect outposts to
protect a weak front or possibly serve as an invasion base for counterattack.  
 Ex- When Heublien’s brand Smirnoff was attacked by low priced competitor Wolfschmidt, Heublien
raised its prices and put the increased revenue into advertising.  Heublien even introduced two new
products to compete with Wolfschmidt.
Preemptive Defense- A more aggressive maneuver is to attack before the enemy starts its offense.
Marketers can introduce a stream of new products, making sure to precede them with pre-announcements-
deliberate communications regarding future actions.  Pre-announcements can signal to competitors that they
will need to fight to gain market share.  

Counteroffensive Defense- In a counteroffensive, the leader can meet the attacker frontally or hit its flank or
launch a pincer movement.  An effective counterattack is to invade the attacker’s main territory so that it will
pull back to defend it.  After FedEx watched UPS successfully invade its airborne delivery system, FedEx
invested heavily into ground delivery service through a series of acquisitions to challenge UPS on its home turf.
Another common form of counteroffensive is the exercise of economic or political clout.  The leader may try to
crush a competitor by subsidizing lower prices for the vulnerable product with revenue from its more profitable
products, or the leader may prematurely announce that a product upgrade will be available, to prevent
customers from buying the competitor’s product.

Mobile defense- In mobile defense, the leader stretches its domain over new territories that can serve as
future centers for defense and offense through market broadening and market diversification.  
 Market broadening shifts focus from the current product to the underlying generic need.
 Market diversification- shifts into unrelated industries.

Contract defense- Large companies sometimes must recognize that they can no longer defend all their
territory.  The best course of action then appears to be planned contraction (also called strategic withdrawal):
giving up weaker territories and reassigning resources to stronger territories.

Frontal attack- In a pure frontal attack, the attacker matches its opponent’s product, advertising, price, and
distribution.  The principle of force says that the side with the greater resources will win.  A modified frontal
attack, such as cutting price, can work if the market leader doesn’t retaliate, and if the competitor convinces the
market that its product is equal to the leader’s.

Flank attack- An enemy’s weak spots are natural targets.  A flank attack can be directed along two strategic
dimensions:
 Geographical attack- the challenger spots areas where the opponent is underperforming.
 Segmental is to serve uncovered market needs.

A flanking strategy is another name for identifying shifts in market segments that are causing gaps to develop,
then rushing in to fill the gaps and develop them into strong segments.  Flanking is in the best tradition of
modern marketing, which holds that the purpose of marketing is to discover needs and satisfy them.  It’s
particularly attractive to a challenger with fewer resources than its opponent and much more likely to be
successful than frontal attacks.

Encirclement attack- The encirclement maneuver is an attempt to capture a wide slice of the enemy’s territory
through a blitz.  It means launching a grand offensive on several fronts.  Encirclement makes sense when the
challenger commands superior resources and believes a swift encirclement will break the opponent’s will.  

Bypass attack- The most indirect assault strategy is bypassing the enemy altogether and attacking easier
markets to broaden the firm’s resource base.  This strategy offers three lines of approach: diversifying into
unrelated products, diversifying into new geographical markets, and leapfrogging into new technologies to
supplant existing products.  Technological leapfrogging is a bypass strategy practiced in high-tech industries.
The challenger patiently researches and develops the next technology and launches an attack, shifting the
battleground to its own territory where it has an advantage.  

Guerrilla Warfare- Guerrilla warfare consists of waging small, intermittent attacks to harass and demoralize
the opponent and eventually secure permanent footholds.  THe guerilla challenger uses both conventional and
unconventional means of attack.  These include selective price cuts, intense promotional blitzes, and
occasional legal action.  A guerrilla campaign can be expensive, although less so than a frontal, encirclement,
or flank attack.  

Market follower- The innovator bears the expense of developing the new product, getting it into distribution,
and informing and educating the market.  The reward for all this work and risk is normally market leadership.
However, another firm can come along and copy or improve on the new product.  The follower can achieve
high profits because it did not bear any of the innovation expense.  Because the follower is often a major target
of attack by challengers, it must keep its manufacturing costs low and its product quality and services high.  It
must also enter new markets as they open up.  4 broad strategies exist:
 Counterfeiter- the counterfeiter duplicates the leader’s product and packages and sells it on the black
market or through disreputable dealers.
 Cloner- The cloner emulates the leader’s products, name, and packaging, with slight variations.
 Imitator- the imitator copies some things from the leader but maintains differentiation in terms of
packaging, advertising, pricing, or location.
 Adapter- The adapter takes the leader’s products and adapts or improves them.  The adapter may
choose to sell to different markets, but often it grows into the future challenger.  

Market-Nicher- Firms with low shares of the total market can become highly profitable through smart niching.
Such companies tend to offer high value, charge a premium price, achieve lower manufacturing costs, and
shape a strong corporate culture and vision.  Why is niching so profitable?  The main reason is that the market
nicher ends up knowing the target customers so well, it meets their needs better than other firms selling to this
niche casually.  As a result, the nicher can charge a substantial price over costs.  The nicher achieves high
margin, whereas the mass marketer achieves high volume.  Nichers have tree tasks: creating niches,
expanding niches, and protecting niches.  Firms entering a market should initially aim at a niche rather than the
whole market.  

Essay- VALS, Brand Familiarity, Segmentation Strategies, Defensive Strategies (6 types)