An Introduction to Markstrat

SONITE products: It is a well established market for SONITE brands. They have existed in the market for quite a long time and many products are available at different price points. Market analysts predict the strong growth sustainability of the Sonite products over a period of 5 years, starting from period 0.

VODITE products: They are a completely independent set of electronic goods that satisfy completely different customer needs compared to the Sonite products. R&D investment required for the development and introduction of this new kind of product in the market require significant amounts of capital compared to Sonite products.

Customer Segments

Sonite Products:

Buffs:

Singles

Professional

High earners

Others

Vodite Products:

Innovators

Early Adopters

Followers

Channels of Distribution:

Specialty Stores: Provides a high degree of technical expertise and customer service, it can be looked as a preferred channel of sales for Vodite products.

Department Stores: They stock a wide product assortment. Their level of service is extensive but their technological expertise is usually less than that experienced in specialty stores.

Mass Merchandisers: They operate on a high volume level with an objective to minimize overheads. The service level of thus channel is usually much lower than that of the other channels. They usually stock the low priced low performance products of the product line.

ANALYSIS OF PERFORMACE: TEAM A – INDUSTRY CHEETAH

Period 0

In this period, Sonite products of the company were faring quite competitively in the market. The Sonite products were – SAMA and SALT. SAMA had a total volume share of over 12% during this period. Total volume market share in the SONITE market (which was the entire market as there were no Vodite products) was 17.3% and a revenue market share of 11.8%.

SAMA customer segments: Others (37.9% of total Others purchase volume) and Singles (9.1%)

SALT customer segments: Singles (12.4%) and Buffs (5.9%).

Period 1

Strategic Decisions and Results:

Marginal growth in the volume share of both SAMA and SALT brands in the market. This must have been the result of the increase in channel distribution for the brands as well as the price rise of competing brands like SIBI (in case of SALT) and SIRO (for SAMA).

SAMA is positioned favorably in the minds of the Others. However is SALT is not suitably aligned in the brand map for any of the customer segments.

Steady growth in awareness for both SAMA and SALT brands in their respective target customer segments (Others and Singles respectively).

Low on brand perceptions for both SAMA and SALT across all the primary charactericticsc compared to competitors.

Period 2

Strategic decisions and Results:

The channel presence of both products brought down from 94 to 85. Advertising spends for both the brands were also pruned compared to last year.

There was a price rise effected on both SAMA and SALT brands which possibly contributed to the decline in market share of both the brands.

There were no R&D projects initiated to modify the brands in the face of changing marketing dynamics.

SEMI and SOLD brands were the major products in the market from the SONITE line of products with their premium pricing (>500) and advanced performance and convenience features. SAMA’s overall market share slid down from 12.1% to 10.8% (overall 5th).

Period 3

Strategic decisions and Results:

Very high drop in market share for SAMA – in the face of competition from brands like SOMO, SUSI, SIRO that were less expensive or higher priced with significantly better features of Power, Frequency and Design (overall market share of SAMA dropped from 10.8% to 6.9%.

SALT had a drop in market share from 6% to 4% due to no incorporation of changes in the product specification. Low share of the singles markets. Completely dominated by SYGU with over 45% market share overall in the Singles market.

New brand SAMN targeting Hi-earners was introduced at an introductory price point of 480. SYCA, SEMI and SOLD were its main competitors. Initial market share

(volume) was 2.1%.

Inventory holding costs were also adding to the additional expenditures of the company A.

Period 4

Strategic Decisions and Results:

SALT withdrawn from the market because of weak prospects due to its lack of features and high incongruent price point

SAMA registered strong sales figures due to a price reduction from 255 to 240. And also focus was given in advertising to position the brand along the lines of strong requirements of the others – Economy and Performance (from the MDS scores). Strongest brand preferred by the Others with a total volume market share of 9.2% and Others market share of 30%.

SAMN registered good sales growth in the Hi-earners customer segment (price reduced to 475 from 480). Semantic scale brand perception placed SAMN being the closest brand for the Hi-earners segment. (Overall market share is 3.2%)

Period 5

Strategic Decisions and Results:

Drastic fall in the market share of SAMA compared to last year – dipped to a meager overall volume market share of 3.4% from 9.5%. Due to strong growth brands like SOMO, SUFI and SYGU (which are priced lower and have comparatively better features).

SALT has good market share among the Hi-earners but loses out on overall market share because of strong brands competing with it like SYCA, SOLD and SULI which caters effectively not just to hi-earners but also to Pros and Buffs (in some cases).

Decrease in advertising spends and increase in channel presence through presence increased in Specialty stores and department stores for SAMN brand.

Brand perceptions for SAMN is favorable for Hi-earners across Price, Power and Design factors but it does not cater favorably to the other segments like Pros or buffs thereby placing the onus of generating sales entirely through this segment.

Period 6

Strategic Decisions and Results:

SAMA’s contribution to the company has gone down drastically. Most of its market share taken by SOMO and SUFI in the Others customer segment. Almost halved form 3.3% in round 5 to 1.7% in round 6. Noticeable increase in the sales of SAMN brand in the Hi-earners segment (overall market share in volume close to 5%) on the back of changes in positioning communication changes in advertising messaging.

Vodite brand VAMN launched with and initial market price of 675 targeted at the top of the line customers – Innovators and Early Adopters. Initial year market share is 5%.

VAMN brand perception more aligned for Innovators than any other customer segment in the Vodite market.

Period 7

Strategic Decisions and Results:

A modified SAMA brand was introduced with a change R&D project initiated last year with improved Power and Max Freq parameters with no change in selling price i.e. 190.

SALT was sold at a reduced price point of 475. SYCA from company Y was another brand that was introduced with modifications with a price point of 570.

The change in SAMA was reflected in immediate pickup in sales for the brand which reported an increase of 120% in volume sales over last year (round). (overall market share is 3.4%). But SOMO and SUFI already had well entrenched market share of the Others customer segment with higher expenses in advertising and higher presence in sales channels.

VAMN makes very good progress with almost 100% increase in sales. VOID has a very good market share in Vodite market with a market share of 33.4% with a good share of both the Adopters and Followers segments.

Period 8

Strategic Decisions and Results:

Most of the Vodite sales through brand VAMN was coming from the Buffs which was a disturbing trait given the dwindling customer base in this segment (almost 33% of all Buff purchase was in the VAMN brand). Total market share of company A in Vodite was 7.8% of all volume sales.

SAMA’s market share was almost halved due to the introduction of new brand SILT from company I with improved Performance and Design features. SOMO and SUFI continued their strong show in the Others customer segment.

The price decrease in SAMN had negligible on the overall market share of the brand. SINS had almost 50% share of the Hi-earners customer segment. SOLD was also a strong competitor in this space.

Period 9

Strategic Decisions and Results:

New brand SALN was launched targeting the Singles market. It had an overall market share of 2.5%. SIBI and SUSN were the major brands for Singles market with higher advertising budgets and increased channel presence.

SAMA was solely playing on price now with another price decrease of 10 to sell at 180 from 190 in the last year. This effected a marginal increase in its overall market share of 2%.

SAMN also had a marginal market share increase of 0.01% due to increased advertising expenditures and positioning along the lines of Singles prime characteristics of importance (from the Semantic scales).

Vodite brand VAMN had almost a negligible role to play in the market.

Period 10

Strategic Decisions and Results:

Only SALN targeted at the singles market could register any increase in growth in this period because of the decrease in price (knocked down by 20 to 230 from 250). SAMA and SAMN faced decrease in market shares quite drastically to 1.8% and 3.3% respectively. There was siginificant inventory stock up because of that.

VAMN lost good market share in the Vodite market due to strong growth in VEER and VUMI brands.

Period 11

Strategic Decisions and Results:

Overall market share of the company A drops to 4.7% from 5.7% of last year i.e. round 10.

Market shares of its brands are as follows: SAMA: 1%, SAMN: 3%, SALN 2.3% and VAMN: 1.8%

ROI drops from 2.28 in Period 0 to 0.99 in Period 11. Final SPI = 596.

Key characteristics of overall marketing strategy of TEAM A and learnings:

Pricing:

The pricing strategy adopted by team A was very reactive in nature and was based on competitive benchmarking. The overall industry Cheetah was marked by continual price wars between the players which left the teams with low capital in a bad state of finance.

In a product category like Vodite which should have been marked by Skimming price strategies; the entire industry started off at a low price point and price essentially became the core product proposition. The whole industry did not utilize the concept of value pricing where products where reasonably priced for what they were worth.

No strong steps for long term marketing strategy was adopted by Team A by pricing the products at the sweet spots for each customer segments they were targeting.

R&D:

Minimal efforts towards R&D by Team A. Just 5 R&D projects in all implemented and all of them were at inappropriate times which did not give the company any significant advantage in terms of product introduction in the market.

No cost improvements projects were initiated.

Successful brands were not modified to suit the changing consumer tastes of the target customer segment.

Because of lack of products at good price points catering to more than one customer segment it became imperative for 1 or 2 products to become the primary revenue generators for the company.

Positioning and Advertising Expenses:

Initial advertisement expenses were made with no differentiation made between the customer segments. Thus a strong brand like SAMA which was quite popular with the Others fell down in brand awareness and eventually brand purchase intentions.

Also new brands that were introduced like SAMN and VAMN did not get enough mileage from its advertisement spends because of nil or wrong positioning adopted in its communication content messaging.

Customer segments were not exclusively targeted in advertising communication thereby diluting the impact of the message on any particular target group.

Sales channel distribution/Sales force management:

There was no proper distribution of sales channel presence to start with for the Sonite products. For example, SAMA and SALT which essentially catered to two different customer segments – Others and Singles respectively – had almost the same sales channel distribution pattern across Dept stores, specialty stores and mass merchandisers.

Not much application was seen in the front of using the customer buying pattern information in the implementation of sales force design.

Product portfolio management:

The product portfolio of the company A was very limited right from the start. It did not have enough products/brands catering to the customer segments with high growth potential at various price points. SALT, which was a product essentially meant for the Singles segment, was withdrawn only to have another completely new product targeting the singles market incurring R&D expenses rather than employing an R&D project for modifications to the brand SALT which would have been less expensive.

Also, the entry to the Vodite market was very late and with no strategic goal. VAMN was introduced with exceptionally high specification that targeted the Buffs rather than the Adopters or Followers.

APPLICATION OF CONSUMER BEHAVIOUR – AREA OF INTEREST

Understanding consumer behavior theory and its various constructs and models lies at the heart of every marketing strategy implementation. Every marketing activity caters to its set of customer sub groups with a common underlying set of usage attitudes and identifiable cultural values – these are known as customer segments and at the practice of identifying those groups are known as segmentation.

Customer segmentation is done along various variables and based on them the primary forms of customer segmentation are as – Geographic, Demographic, Psychological¸ Psychographic, Sociocultural, Use-related, Usage-situation, Benefit and Hybrid Segmentation.

The customer segmentation in the Sonite and Vodite markets is an example of hybrid segmentation wherein multiple variables are used to define and identify the customer segments. In this case – Singles, Professionals, Hi-earners, Buffs, Others (Sonite market) and Innovators, Adopters and Followers (Vodite market) – is an example of segmentation involving using demographic, psychographic and use-related variables.

One of the most important consumer behavior models that comes into direct play and is of significant relevance when it comes into technological products like Sonite and Vodite products is the Diffusion of Innovation Model of Everett Rogers (1962-95). This model and its theoretical construct basically talks about as to “how an innovation is communicated through certain channels over time among members of the social system.” According to Rogers, the entire process of innovation happens over a period of four stages: invention, diffusion (or communication) through the social system, time and consequences. The information flow through the social networks happens with the influence of opinion leader but not without the impact of additional intermediaries which are called change agents or gatekeepers. And finally the adoption for consumption of the new technology or innovation takes place and this is again marked by 5 adopter categories (Ryan and Gross, 1943): (1) innovators, (2) early adopters, (3) early majority, (4) late majority, and (5) laggards. These categories follow a standard deviation-curve, very little innovators adopt the innovation in the beginning (2,5%), early adopters making up for 13,5% a short time later, the early majority 34%, the late majority 34% and after some time finally the laggards make up for 16%.

Another very important construct in terms of innovation adoption and diffusion process is the role of opinion leadership and multi-step flow of communication. It is a follow through of the two step communication flow (Paul Lazarsfeld et al, 1944) which says messages are interpreted by opinion leaders after reception from mass media and then are passed onto the opinion receivers or mass audience after simplification and interpretation on their behalf.

Multistep flow of communication model:

Information receivers

Opinion receivers/Seekers

Opinion Leaders

Mass Media

This revised model incorporates the fact that communication and information flow are tow way processes in which opinion leaders both influence and are influenced by information receivers.

The customer segments in the Vodite market can be mapped to the diffusion adopters as –

Innovators

Early Adopters

Followers – Early and Late Majority

Most of the opinion leaders are from the early adopters and it thus becomes extremely important to target this customer segment especially when we are operating in a product category of technology goods which is high involvement and the lack of information due to the novelty of the products also plays an important role in accentuating the role of this segment as they are the ones who help in minimizing the sense of risk and uncertainty while buying into the category. It has been well reflected in the Vodite market as the products/brands that targeted the Adopter segment always somehow helped the other products from its company stable to effectively be positioned for the Followers as a good brand image and awareness was already established

Another important model of consumer behavior that suits the world of technological products is the EPS, LPS and RPS models for consumer information processing and purchase behavior in technology products.

A normal and normative consumer decision making model is a derivative of the AIDA model for consumer behavior in evaluation of purchase or consumption alternatives. This can be represented as follows:

This is the basic EKB model (Engel, Kollat and Blackwell). This model sustains in case of a product category that a consumer already is well aware of. But in case of entirely new product category where there are no set notions or standards or even any alternative this model does not quite capture the consumer decision making process during the purchase. This is where the EPS, LPS and RPS models fit very well in the realm of CDM for technology products and their innovation adoption process by the consumers.

EPS or extensive problem solving model comes to the fore when the consumer has no knowledge of the product category at all and has no or very limited information of the product in question. EPS decisions are seldom taken by the company but the criticality of an EPS decision is very high as it leads to the success or failure of the company. This is largely because of the difficulty in determining the consumer needs at the beginning of any product life cycle and in this way it becomes important for the company who makes the first move in this category with the introduction of a completely new product like VITI in the Vodite market for Cheetah industry. The product should rightly target the Buffs as they are the ones who usually undergo EPS for technology products.

Some important characteristics of EPS consumers regarding certain key characteristics are as follows:

Product Design: High on need for optimal feature set that can meet an unfulfilled need. Emphasis on convenience and performance features for a product.

Price: The impact of price fluctuations is minimal as the consumer is mostly concerned about the product features and its effectiveness in solving a relevant consumer situation. This is the period for high markups and premium pricing of product offerings as there are no competitors in the market as well.

Sales Channel distribution: Specialty stores are the preferred points of retail purchase for the EPS consumers.

LPS is limited problem solving which essentially means the consumer already has a category concept in the mind and this makes the issue of devising marketing strategies relatively easier compared to EPS consumers. This set of consumers can be compared to the Adopters of the Vodite market or Singles or Professionals of the Sonite market as they get into the market for consumer purchase after the Buffs or the Innovators have made their respective consumer purchase. They are usually price sensitive and are less particular about the product design characteristics although they would still want a high level of performance and quality of the products. Given these characteristics of the LPS consumers, they usually go to the departmental retail outlets for the purchase as they give a better value proposition from the respect of price compared to specialty stores.

RPS or routine problem solving involves a set of consumers who have comparatively less involvement with their product purchase and are usually influenced by price and availability of the products. Although price is supposed to be a major determinant of the product decisions for an RPS consumer, they generally are seen to be price inelastic as it is still is a technology product and quality and product specs are not compromised upon and so engaging in price wars can also turn out to be a risky proposition for this RPS consumer. Mass merchandisers is the preferred way of distribution for RPS consumers as reduced cost of distribution can be passed on to the value conscious RPS consumer.

APPLICATIONS OF MARKSTRAT TO LENOVO

Lenovo is a Chinese origin company that is into the business of manufacturing and marketing personal computers (notebooks/laptops and desktops), workstations, servers, storage drives, IT management software and other associated services. It was formed in 1984 and was incorporated as Legend in 1988 in China. It is headquartered across 3 geo-strategic locations – Beijing (China), Morrisville (North Carolina, USA) and Singapore. According to the latest IDC Q1 data, Lenovo is the 4th largest computer manufacturer and seller globally after HP, Acer and Dell. It shot into global prominence in 2005 when it bought off IBM’s PC hardware division which had the famed and much respectable ThinkPad line of notebook PCs. It has the largest share of market in China with close to 30% of market share overall. Given the dynamic nature of the PC industry with its varying geographical considerations and their strategic implications on the company’s marketing decisions, it becomes an interesting study as it is a real world technology company whose strategic decisions and marketing imperatives may be assumed to closely resemble the Vodite and Sonite markets of Markstrat.

Lenovo Product Portfolio:

Lenovo has a diverse product portfolio with good depth and width. Although its primary area of focus as a technology hardware company is the PC industry it also has offerings in the servers, workstations and storage domains.

Lenovo Product portfolio in the PC division is actually segmented along two brands or customer segments – The Think branded series (oriented to the commercial business – Large Enterprise and SMB) and the Idea branded PCs (oriented to the consumer segment – Home Users).

Think Branded PCs: ThinkCentre desktops, ThinkPad laptops, ThinkStation Workstations

Idea Branded PCs: IdeaCentre desktops, IdeaPad notebooks.

Over and above all this, Lenovo also a very strong novel offering in terms of price point offering and depth in the All-in-One PC category.

Product Positioning and Segmentation

Lenovo has a very well defined product positioning strategy for its target customer segments.

Think branded PCs: This line of products is meant for the commercial buyer and technology professional segment with a high degree of affinity and knowledge for tech offerings. His price sensitivity is less compared to the value conscious consumer buyer. The value proposition for a Think branded is distinctively different from an Idea branded PC – it is positioned on the Security and professional features of the PC (shock mounted hard drive, rescue and recovery, fingerprint reader etc).

Idea branded PCs: This line of Lenovo products is positioned for and targeted toward the consumer buyer – student, young professionals, young home owners etc. It has an entirely different value proposition of aesthetics and fun element in its core product positioning. The main product features that are communicated strongly to the consumer are its multimedia features, ergonomic design, aesthetic appeal as well as its reliability quotient comparable to a Think branded PC. The consumer segment is value conscious and as such the average price from the Idea stable is priced markedly lower than products from the Think branded stable.

R&D

Lenovo has a very strong credential of being a technologically superior company in terms of its product quality and new product roll outs. The Idea branded PCs which hit the market in early 2008 and is already gaining significant market share from the well entrenched players like HP, Dell and Acer had a turnaround time of 6 months for its NPD cycle. In a market marked frequent price revisions and commoditization of product features, Lenovo’s technological bent of product development gives it a clear identifiable brand proposition to break through the clutter and occupy a distinctive mindspace in the consumer. Products like U1 Hybrid form which is a dual tablet PC with detachable screen has won awards at the last CES in Las Vegas. According to Lenovo’s commercial and consumer brand trackers, the company is rated unanimously as “Pioneering brand” across all geos for both its commercial and consumer business.

In order to facilitate the rising value conscious commercial buyer in the SMB space, Lenovo has also created customized new offerings for the SMB segment which has a vcery strong growth potential in the next 4-5 years – the ThinkPad Edge and ThinkPad X100E are such products.

Pricing

Lenovo follows two different pricing models or benchmarks for pricing its PC products.

Value Pricing: Lenovo has adopted a value pricing based approach for its Think branded PCs. Till some time ago, it was following a premium pricing for its Think line of products given its rich heritage and credibility as a technologically superior product but due to the impact of recession and restrained and rational buying from the commercial segment, it has the value pricing model without compromising on both price and quality. The average price of a Lenovo Think branded PCs in the commercial segment is between $600-$800.

Competitive Pricing: For its Idea branded PCs which are targeted to its value conscious and price elastic customer segment, Lenovo adopts a competitive pricing model as it is a new entrant in the field which is already heavily dominated by industry heavyweights like HP and Dell. Most of its products in the Consumer products have an average price between $400-$600.

Sales Channel and Distribution

Lenovo sells majority of its PC products in a variety of form factors across 5 major sales channels. They are –

Dealer/Value Added Reseller/System Integrators: They form the majority of the sales channel sales for Lenovo for both its portable (notebooks) and desktop form factors contributing almost 50% of its total volume sales.

Direct Inbound: This is the company call center for sales. Although it does not contribute majorly to the sales, it has a unique role to play in the commercial segment in the relationship marketing front.

Direct Outbound: These are sales generated through circulation of brochures and datasheets to prospective customers.

Internet Direct: This is the company’s online retailing through its associations/alliances with various e-tailers.

Retail: After the Dealer/VAR/Si route, this is the second most important sales channel for Lenovo. It is of particular importance in the consumer segment wherein most of the consumer notebooks are sold though this channel. The volume sales through this channel in the consumer segment are almost equal to the sales through the Dealer route.