Segmentation Psychographic

Positioning Statement: The Chrysler PT Cruiser is an [POD

Profit = Industry Sales (Industry Competition /
Diffusion Analysis / Regression / Forecasting) X
Market Share (Product / Price) X Margin (Demand,
Power (Competition), Cost) - FC
inexpensive, small car, that is versatile, fun to drive], and
will appeal to [Target Segment active singles and young
couples with children] who otherwise would have bought
an [Frame of reference SUV or a minivan].

SWOT Strengths Weaknesses ANSOFF Current New Products

Matrix Matrix Products

Opportu SO: Use Strength WO: Overcoming Current Market Product

nities take advantage of weaknesses by taking Market Penetration development
Opp. advantage of Opp.
New Market Diversification
Threats ST: Use strengths WT: Minimize Market Development
to avoid threats weaknesses & avoid
threats
3 paths of market leadership:
1. Customer Intimacy (Nike)
2. Operational Excellence (WalMart)
3. Product Leadership (intel)
Competitor Based Strategies (by Industry Position)
Market Leaders (Barco) (Defensive Warfare Strategy)
Attacking yourself + Block Moves)
Market Challengers (Sony) (Offensive Warfare Strategy)
Attack Leaders Weakness(in str) + Narrow Attack)
Market Followers (FLANKING Strategy) (Uncontested
Area (Product / strategy) + Surprise + Follow-up)
Market Nichers (PLM) (Gorilla Strategy) (Identify small
segment that could be defended / Never act like a leader
/ Flexible, prepare to enter or exit)

Pioneering

Endowment Effect
Prospect Theory
Consumer Based Strategies Un Bundle Profits, Bundle Losses
Introduction Stage (Awareness / Protection / Pricing /
Intro Promotion Promotion Bundle smaller losses with larger gains
Distribution / Promotion (Innovators & Adopters) / High Low (Savings through payroll reductions)
Skimming (High Price for Prem segment, then lower)) Stage Unbundle smaller gains from larger
Growth Stage (Improve service quality / pursue new losses (Small rebates with sale of cars)
Price Rapid Slow
target markets / new channels / lower prices
High Skimming Skimming Peak End rule (Give a good experience
(penetration) / shift ad expenses from awareness to at the end) Ending experience is imp.
(Intel / AMD) (Windows)
desire & action) Influence of Past Prices
Market Followers ( Market / product / Mix Modification Price Low Rapid Slow Introduce higher prices and then reduce
strategy) Penetration Penetration (Pricing new products in new categories)
Market Nichers (PLM) (Reduce Cost & Milk / Sell off) (Google) (Followers) Combat skepticism of sales; avoid
presenting regular price and sale price
Technology Disruption together (Use of coupons, rebates,
special packages)
Decision Numerous small price increases rather
Process than infrequent large increase

Prepared by: Dhruv Gandhi (CO2013)

 DIFFUSION
ANALYSIS
Adoption process for
innovation
IMP: Relative Advantage / Compatibility / Complexity / Trial-ability / Observable Benefits
Developing Pricing Strategies
Step 1: Selecting the pricing objective
Survival (Telecom operators) / Max profits (Luxury goods) /
Max market share Higher sales volume > lower costs >
higher profit (Wheel) / Max market skimming Prices start
high and slowly drop (eg. Sony) / Product Quality Leadership
(BMW, Taj Hotels)
Step 2: Determining demand
Price Sensitivity / Estimating demand curves / Price elasticity
of demand Avg price elasticity across all products, markets &
time periods -2.62.
Step 3: Estimating Costs
FC /VC / Average costs / Experiential curve / Target Costing
(Nano)
Step 4: Analyzing competitors costs, prices and offers
Competitors react if (few firms/ Homog. Product /Informed
Buyers) (eg.Kodak didnt react Fuji challng (bcz High Margin)
How will competitors react?? (know competitors current
financials, sales, customer loyalty and corporate objectives)
If competition has a market share objective: match price
differences or changes (Rin Vs Tide) / If profit-maximization
objective: Increasing Ad budget or improving product quality
Step 5: Selecting a pricing method
Mark-up Pricing (MU + FC + VC)
Target return pricing - UC + (ROI*invested capital)/unit sales
Break even volume = fixed cost/ unit contribution
Perceived Value pricing (Caterpillar)
Value Pricing Win loyal customers by charging a fairly low
price for a high quality offering. (eg: Southwest Airlines,
P&G) (1) Everyday low pricing (EDLP) constant low price
with little promotion (Wal-Mart) (2) High-low pricing
Higher prices on everyday basis but runs EDLP promotions
temporarily
Going rate pricing (competitors prices) /Auction Type pricing
Step 6: Final Pricing (Coherence with company policy)
Price Skimming: (low margin-high volume, good if "economies of
scale" in production costs (capture a large share of the
market (first mover advantage))
Skimming (Prestige Pricing): high margins at expense of volume
"early adopters" are less price sensitive, good if little risk of
competition, good if a strong price-quality association
BCGs Idea: Market leader will lose share if prices do not fall as fast as costs. If prices
decline faster than the leaders costs, there exists a competitor who is growing faster
than industry average.
Price and market share are stable only when costs and price declines are parallel.
PRICE WAR
Non Price Responses: Reveal strategic intentions (Offer to match competitors prices,
Offer EDLP), Compete on quality, Heavy Promotional Spending.
Price responses: Use complex price actions (Offer bundled prices, two-part pricing,
quantity discounts etc., Introduce new products (Flanking / Fighter brands), Reduce the
scope (Cut prices in only certain channels), Fight it out, Retreat
Experience
Curve Eq:
Bass Model Insights
1. Use data on past sales and estimates
of market size to predict future sales
2. Determine the time required to hit
peak sales (s*) / (t*)
3. Estimate the advertising effect
(coefficient of innovation)
4. Estimate WOM effect (coeff of imit.)
Break Even Analysis
Economic Value of customers: Measure of Maximum willingness to pay & and to
quantify economic or financial reasons for that customer to buy the product.
EVC = Competitor's Lifecycle Cost Our Start-up Cost Our Post-Purchase Cost + Our
Incremental Value (If EVC > Purchase Price, customer shall be willing to pay)
Customer Lifetime Value (CLV) or (LTV): Customers buy products repeatedly. Single
transactions do not represent the value of customers to the firm. So we estimate the
PV of a customer wholl generate a stream of revenue and costs over a relatively long
period of time. WHY? Determine Ad Budget / which segments to target/ more
profitable to acquire new customers? or to better serve current customers.
LV = Sum [m (r/(1 + I r)) AC] (1 to n) Based on this we calculate retention cost
[m= margin; r= retention rate; i= discount rate; AC= Acq cost]
3 startegies out of CLV to increase sales: Prepared by: Dhruv Gandhi (CO2013)
Increase Acquisition / Customer Expansion / Increase Customer Retention