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Principles of Marketing

Marketing Methods and Strategies

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Market segmentation is a marketing strategy that divides a large target market into smaller groups of customers who have the same needs. It then attempts to create strategies that would fit to the needs of the smaller groups. There are plenty of ways to split larger markets into small-er ones, and we’ll go through those here.

Behavioral Segmentation — In behavioral segmentation, consumers are grouped according to their knowledge of a product. They are also divided according to their response and attitude towards that product. For example, orange juice is usually thought of as a breakfast drink by most peotple, so it would be marketed accordingly.

Geographic Segmentation — Geographic segmentation is when a market is grouped according to loca-tion or geographic criteria: countries, cities, zip codes or nations. Through this kind of segmentation, a business could easily identify which among the groups would need the product most and which would most likely have other needs.

Psychographic Segmentation — In psychographic segmentation, consumers are grouped according to the lifestyle that they have. They are also grouped according to personality, social class. For example, parents with children tend to buy certain products, whereas parents without children usually have more money to spend on extravagant items. The variables in psychographic studies are called A10: Activity, Interests, and Opinions. Note that psychographics are not the same as demographics.

Demographic Segmentation — In demographic segmentation, characteristics such as sex, age, income, education, occupation, etc. are considered. This is often used since it identifies the kind of products that the consumers are looking for.

Concentration Strategy — Single-segment or concentration strategy is a strategy where marketing is fo-cused on one segmentation variable, like a specific demographic. It is less expensive, but unable to tar-get large numbers of people since it focuses on just a single segment.

Differentiated Strategy — Differentiated Strategy is also called Multi-Segment strategy. This strategy fo-cuses on reaching multiple segmented markets. It is more expensive than concentration strategy, but it is also more flexible. Typically, lengthy advertising and multiple types are used in order to appeal to multiple market segments.

Promotional Mix — A promotional mix is a list of tools that a company uses to market a particular prod-uct. They are used together to reach as many of the target audience as possible. It’s not necessary to use them all, as some markets are best reached with only one or two of the below. Part of putting to-gether an effective marketing mix is deciding which and how much of each to use. The five main options of a promotional mix are:

  • Advertising — Letting the consumers know about a certain product. This could occur through all different kinds of media: television, radio, newspapers, magazines, billboards, etc.
  • Personal Selling — Personal selling is when a product is presented to the consumers directly by a seller. The seller makes a presentation of the product, gives details about it and persuades consumer to purchase said product. Think of travelling vacuum salespeople or even timeshare pre-sentations.
  • Sales Promotion — This occurs for a specific period of time, and it increases demand for the product. Examples: A contest, coupons, discounts, rebates, etc.
  • Public Relations — Public relations manages how information would be disseminated between a company and the public. Examples of public relations press are winning awards, organizing or speaking at events and conferences or being complimented by the press. Anything to get the company (and the product) in front of the customer.
  • Direct Marketing — Direct Marketing is a form of advertising which allows companies to directly communicate with their customers. It includes in—home marketing, telemarketing and mail order advertisements. The term was coined by Lester Wunderman in 1967, who is considered the fa-ther of direct advertising.

Cold Calling — A phone book, start at ‘A’ and keep dialing” is usually a form of cold—call marketing.

Product Placement — Product placement is a form of advertising in which the company places its logo or its product logo in easy to see locations. This innocuous form of advertising slowly places the idea of a company’s product into the consumer’s head, because they likely see it every day. An example is that in many movies, the actors drink Coca—Cola or use Apple products.

Price Skimming — Price-skimming is a market strategy used to generate more profit at the initial release of a product. The price is initially set high, and then lowered over time to capture more market share. The idea is that early adopters of the product will be willing to pay a high price, gaining the company more profit. I always got this and price fixing mixed up for some reason. Just remember that price skimming is legal. We’ll talk about price fixing a bit later on.

Product Bundling — Product bundling is a marketing strategy where several products are sold as one combined product. An example is Microsoft Office, which bundles Excel, Word, and PowerPoint, as well as other software together.

Product Lining — Product lining is a marketing strategy which provides related products for sale as separate or individual items. Think of a spatula. Often times they come grouped with a few other spat-ulas (product bundling). Other times they are sold separately (product lining).

Loss Leader — A loss leader is a product that is sold for below the price it costs to create and market. Businesses do this because they are betting that they can make the profit back on other, related items that are not discounted. The Xbox 36o was a prime example of this pricing strategy in action. When they first came to the market, Microsoft took a loss of over $150 on every Xbox 36o sold, knowing they would make the money back on accessories and game royalties. As more Xbox’s were sold, they were able to cut down on manufacturing costs until it was no longer a loss leader.

Pull Policy of Product Promotion — In a pull policy of product promotion, the manufacturers directly promote the products to customers. It aims is to develop a strong demand for the products. The idea is to “pull” the product down the market because of the high demand of the products by the con-sumers. The new Xbox and PlayStation models are prime examples of this. Microsoft and Sony both market heavily to build up demand for the consoles before they ever hit the street. They can then go to the distributors (GameStop, Amazon) with a much strong negotiating position since the customer demand for pre—orders is so high.

 

Push Policy of Product Promotion — In a push policy of product promotion, the producer promotes their product to the next institution down the marketing channel. For example, Microsoft promotes its operating system to computer manufacturers (Dell or Hewlett Packard). Those manufacturers then promote the product to the next member down the channel, or to the consumers themselves.

Market Development — The goal of market development is to change a market’s non—buyers into active buyers. Essentially, market development strategies try to increase the number of people interested in buying a product. If your product is targeted at college students in their 20’s and only women are cur-rently buying your product, market development might concentrate on converting men in their 20’s into active buyers. The goal is a higher market penetration.

Market Penetration — Market penetration occurs when a company enters a market where a similar item or product already exists. For example, in 2001 Microsoft successfully penetrated the video game con-sole market with the introduction of the Xbox. Previously, Microsoft had not manufactured video game consoles at all.

Diversification — Diversification is a corporate strategy to increase the volume of sales in new products and new markets. This can mean either investing in an outside market or expanding into a new seg-ment in the market where the company is already in.

Product Differentiation — In marketing, product differentiation is a process where a company tries to make a certain product or service more attractive to customers than its competitors. For example, all cell phones allow you to make calls. However, Apple’s iPhone has different features from the Nokia Lumia, and the Samsung S4, etc. If successful, marketing differentiation results in a differential advan-tage, which we’ll talk about when we get to consumer decision making.

Product Positioning — Product positioning is the attempt to leave a perception of a product in a con-sumer’s mind. Taking our cell phone example from above, Apple has done an outstanding job at con-vincing consumers that its iPhone is “popular” and “easy to use”.

Product Mix Contraction — Product mix contraction refers to reducing the number of products being of-fered. If a company offers 10 different shoe styles and only seven of them sell, then a contraction strat-egy would say to get rid of the underperforming three styles.

Product Mix Expansion — This is the opposite of contraction. This strategy would increase the number of products the company has for offer.

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