Promotions Opportunity Analysis

Transcription

1 Chapter 4 Promotions Opportunity Analysis CHAPTER OUTLINE Promotions Opportunity Analysis A promotions opportunity analysis is the process by which marketers identify target audiences for the goods and services produced by the company. There are two objectives. 1. Determine which promotional opportunities exist for the company. 2. Identify the characteristics of each target audience so consumers can be reached with coherent advertising and marketing communications messages. There are five steps in developing a promotions opportunity analysis. As shown in Figure 4.1, they are: 1. Conducting a communications marketing analysis. 2. Establishing objectives. 3. Creating a budget. 4. Preparing a promotional strategy. 5. Matching tactics with the strategy. Communication Market Analysis Communication market analysis is the process of discovering the organization s strengths and weaknesses in the area of marketing communication, and combining that information with an analysis of opportunities and threats that are present in the firm s external environment. This includes examining five areas: 1. Competitors. 2. Opportunities 3. Target markets 4. Customers 5. Product positioning Competitors The analysis identifies major competitors. The objective is to discover who the competition 67

2 is, and what they are doing in the areas of advertising and communication. Make a list of all of the competing firms. Collect secondary data, from statements made by competitors about themselves in: advertisements, promotional materials, annual reports, a prospectus for a publicly held corporation, and Web sites. Study what other people are saying about the competition. Analyze the competition using primary research, such as a store visit. Opportunities Watch carefully for new marketing opportunities by examining all of the data and information about the market that is available. As shown in Figure 4.1, some questions that are helpful in conducting an opportunity analysis are: Are there customers that the competition is ignoring or not serving? Which markets are heavily saturated and have intense competition? Are the benefits of our goods and services being clearly articulated to our customers? Are there opportunities to build relationships with customers using a slightly different marketing approach? Are there opportunities that are not being pursued, or is our brand positioned with a cluster of other companies in such a manner that it cannot stand out? Target Markets Target markets are often carefully specified as part of the market segmentation process, which is discussed in detail later in this chapter. Customers There are three types of customers that should be studied: 1. Current company customers. 2. The competition s customers. 3. Potential new customers. Product Positioning Positioning is the perception created in the consumer s mind regarding the nature of a company and its products relative to the competition. Positioning is created by: The quality of products being sold Prices being charged Methods of distribution Image Communication tactics 68

3 Various product positioning strategies are shown in Figure 4.3 Establishing Marketing Communication Objectives As noted in Figure 4.4, the most common marketing communications objectives that firms establish are: Develop brand awareness Increase product/service category demand Change customer beliefs or attitudes Enhance purchase actions Encourage repeat purchases Build customer traffic Enhance firm image Increase market share Increase sales Reinforce purchase decisions Benchmark measures, which consider a starting point in relation to a degree of change following a campaign, are useful to IMC programs Establishing a Communications Budget Budgeting Assumptions There are several important budgeting items to consider, including: Promotional goals Threshold effects, which occur when enough attention is captured to increase sales Carry-over effects, which mean the consumer remembers the product or company when it is time to buy Wear-out effects, which means an ad can become old or boring Decay effects, when a company stops advertising, consumers forget the brand or the company Random events, which can disrupt any advertising or promotional campaign at any time. The Sales-Response Function Curve, Figure 4.5, displays many of these effects. The decay effects model is displayed in Figure 4.6. The concave downward function indicates when further advertising expenditures result in diminishing returns. A marginal analysis indicates when further advertising expenditures adversely affect revenues and profits. 69

4 Types of Budgets The various types of budgets are listed in Figure Percentage of Sales Method a. Sales from the previous year b. Anticipated sales for the next year 2. Meet-the-Competition Method 3. What We Can Afford Method 4. Objective and Task Method 5. Payout Planning 6. Quantitative Models The first three are self-explanatory. The Objective and Task method lists the costs associated with reaching a marketing objective. It is more difficult but may be useful to more accurately allocate funding. The Payout Planning methods establishes a ratio of advertising to sales or market share. It indicates the often the results of advertising are cumulative over time. Quantitative Models are simulations of relationships between advertising and sales or profits. They may be difficult to create accurately. Budgeting Expenditures In terms of budget expenditures: Media advertising normally accounts for 40% of a communications budget Trade promotions receive about 25% Consumer promotions are given on average about 25% The final 3-5% goes to other expenses. There are variances from industry to industry Business-to-business firms have allocations, which are not the same as consumer-oriented firms and also vary by industry Figure 4.8 is a graphic breakdown of marketing expenditures. Figure 4.9 shows those expenditures in other countries. Figure 4.10 breaks down advertising expenditures by media. Figure 4.11 breaks them down by industry. Preparing Promotional Strategies Strategies are sweeping guidelines concerning the essence of the company s marketing efforts. Strategies provide the long-term direction for all marketing activities. Matching Tactics with Strategies 70

5 Tactics are the things companies do to support overall promotional strategies. Tactics include promotional campaigns designed around themes, which are based on strategic objectives. Methods used in tactical campaigns include: Advertisements based on the major theme or a subtheme Personal selling enticements (bonuses and prizes for sales reps) Sales promotions (posters, point-of-purchase displays, end-of-aisle displays, freestanding displays) Special product packaging and labeling Price changes Besides the methods of communicating with consumers and sales reps that offer the products, companies are able to add other enticements. The items that may be included in tactical efforts include: Coupons Gift certificates Purchase bonuses (a second product attached to a first) Special containers (e.g., holiday decanters or soft-drink glasses) Contests and prizes Rebates Volume discounts (larger sized packages, buy one, get one free promotions, etc.) Market Segmentation Market segmentation is the process of identifying purchasing groups based on their needs, attitudes, and interests. A market segment is a set of businesses or group of individual consumers with distinct characteristics. Some of the advantages of market segmentation are listed in Figure For a market segment to be considered a viable target for a specific marketing communications campaign, it should meet the following tests: The individuals or businesses within the market segment should be similar in nature, having similar needs, attitudes, interests, and opinions. This means persons or businesses within the segment are homogenous. The market segment differs from the population as a whole. Segments are distinct from other segments and the general population. The market segment must be large enough to be financially viable to target with a separate marketing campaign. The market segment must be reachable through some type of media or marketing communications method. Market segments occur in two general areas: consumer markets and business-to-business markets. 71

6 Market Segmentation by Consumer Groups Figure 4.13 displays the methods of segmenting the consumer market, including: Demographics (gender, age, income, ethnic groups) Psychographics Generations Geographic area Geodemographics Benefits Usage Segments Based on Demographics Gender Males and females purchase differing products, buy similar products with different features (e.g., deodorants for women versus men), buy the same products for dissimilar reasons (stereos, televisions), and buy the same products after being influenced by different kinds of appeals through different media. Age Children, young adults, middle-aged grown-ups, and senior citizens are all targeted by different types of marketing campaigns. Often age-related factors are combined with other demographics such as gender. Children have a major impact on the purchasing decisions their parents make. Another age-based demographic group, which appeals to many firms, is seniors, defined as individuals over the age of 55. Income Spending is normally directed at three large categories of goods: necessities, sundries, and luxuries. The amount of goods in each category a consumer will purchase is highly dependent on their income. Ethnic Groups The three major ethnic groups in the United States are African Americans, Hispanics, and Asian Americans. Although different in many ways, there are several common threads among these ethnic groups. They all tend to be more brand loyal than their white counterparts. They value quality and are willing to pay a higher price for quality and brand identity. They value relationships with companies and are loyal to the companies that make the effort to establish a connection with them. Ethnic marketing is similar in some ways to global marketing. It is important to present one overall message that is then tailored to fit the needs and values of various groups. Psychographics Psychographics emerge from patterns of responses, which reveal a person s attitudes, interests, and opinions (AIO). 72

7 Segments Based on Generations Table 4.1 identifies the characteristics of various generational segments. The idea behind generational segments is that each generation goes through similar events that create similar viewpoints and attitudes. Segmentation by Geographic Area This method is especially useful for retailers who want to limit marketing communication programs to specific areas and for companies conducting direct mail campaigns in target areas. Geodemographic Segmentation Geodemographics combines census data with psychographic information. An example would be PRIZM (Potential Rating Index by Zip Marketing), which is a company that specializes in geodemographics. PRIZM has identified 62 different market segments in the United States. Benefit Segmentation Benefit segmentation focuses on the advantages consumers receive from a product rather than the characteristics of consumers themselves. Demographics and psychographic information can be combined with benefit information to better identify segments. Usage Segmentation The goal of usage segmentation is to seek to provide the highest level of service to a firm s best customers although promoting the company to casual or light users. Many companies are able to identify heavy users by utilizing their own databases, using barcode scanners, point-of-sale systems, and credit/debit transaction cards data. Business-to-Business Segmentation Segmentation by Industry Many firms use the NAICS (North America Industry Classification System) code. The NAICS code is replacing the SIC (Standard Industrial Classification) coding system. Firms can target specific industries such as construction (23) or wholesale trade (42). They can also segment within a specific category. Segmentation by Size The rationale for this method is that large firms have different needs than smaller companies 73

8 and therefore should be contacted in a different manner. Segmentation by Geographic Location This approach is especially beneficial for businesses that have customers concentrated in geographic pockets such as the Silicon Valley area of California. Companies can also use geodemographics, combining geographic areas with demographic and psychographic data. Segmentation by Product Usage Business markets can be segmented by how the good or service is used. Many services (financial, transportation, shipping, etc.) have a variety of uses for distinct customers. Segmentation by Customer Value This method of segmentation is much easier for business-to-business firms to utilize than it is for consumer businesses, due to the availability of in-depth data about each business customer. A more precise value can be assigned to each individual business through sales records and other sources of data and information. International Implications Figure 4.15 identifies some of the tactics used by successful globally integrated marketing communications programs. Recognizing the many cultural nuances throughout the world is an important key for GIMC programs. A borderless marketing plan suggests that the firm is going to use the same basic marketing approach for all of its various markets. At the same time, it allows each subsidiary the freedom to determine how that marketing plan will be implemented. A successful GIMC is likely to develop local partnerships to assist in developing borderless marketing plans. Local partners can be marketing research firms or advertising firms that are familiar with the local language and culture. As with domestic markets, segmentation is critical. It is also important to conduct a welldesigned market communications analysis. Marketing managers must identify strengths and weaknesses of local competitors and places where opportunities exist. They must also develop an understanding of how their own firms are perceived in the international marketplace. A cultural assimilator can be of great help in this area. Solid communication objectives based on an effective market communication analysis will greatly improve the chances that a GIMC program will be successful. Language, culture, norms, beliefs, and laws all must be taken into consideration as the GIMC program is being developed. 74

9 IMPLICATIONS FOR BRAND AND PROMOTION MANAGERS (Note to professors -- these materials are not in the text. They provide a method for you to summarize the chapter in a different way) Recognize the connection between planning processes and evaluation processes. In other words, planning should only begin after previous efforts have been reviewed and analyzed. This would lead the account executive to ask the following questions about previous marketing communications and campaigns. What was done right? What was done wrong? What are the company s strengths and weaknesses? Did the last campaign (or previous promotional efforts) change this company s strengths and weaknesses? When conducting a promotions opportunity analysis, the account executive should be aware of the following items: What the competition is doing (and plans to do, if that can be discovered) What opportunities are present in the environment How current company objectives can be integrated into the overall IMC approach What kinds of promotional strategies are in place Alternative tactics that will help support the company s strategies As potential new market segments are being examined, consider the following criteria. Contribution to sales Contribution to profits, including how much should be spent in order to induce sales and revenues from the segment Potential for growth of the segment Potential to build company and brand loyalty in the segment Potential for competition from other firms seeking to capture the same segment The ability to match the firm s message to the particular attitudes and needs of the segment The possibility of combining segments or designing similar appeals to segments. Other short- and long-term implications of designing promotional efforts toward the segment Appraise global markets using the same criteria as were used for local target markets. REVIEW QUESTIONS 1. What is a promotions opportunity analysis? Why is it a critical part of a 75

10 company s marketing effort? A promotions opportunity analysis is the process by which marketers identify target audiences for the goods and services produced by the company. It is important to companies because it gives an idea of who buys company products, which allows the company to market to a particular group. 2. What are the five parts of a promotions opportunity analysis planning process? The five parts in the promotions opportunity analysis are: 1. Completing a communications marketing analysis 2. Establishing objectives 3. Creating a budget 4. Preparing a promotional strategy 5. Matching tactics with the strategy 3. What common marketing communications objectives do firms establish? The most common marketing communications objectives that firms establish are: Develop brand awareness Increase product/service category demand Change customer beliefs or attitudes Enhance purchase actions Encourage repeat purchases Build customer traffic Enhance firm image Increase market share Increase sales Reinforce purchase decisions 4. Name and describe the types of communications budgets. Which is best? Why? The types of communications budgets are: Percentage of sales method, which uses a percentage of the previous year s sales and a projection of the coming year s sales. Meet the competition, which is designed to prevent a loss of market share. What we can afford, which establishes the marketing budget after all other budgets have been set. Objective and task method, which allows management to set goals and ways to achieve those goals through marketing dollars. Payout planning, which establishes a ratio of advertising to sales or market share based on Nielsen ratings. Quantitative models, which uses computer simulation models to locate relationships between advertising and promotional expenditures and sales or profits. 76

11 Students should probably answer that the objective and task method is the best because it relates dollar costs to achieving specific marketing objectives. 5. What is a strategy? Give an example of a promotional strategy. A strategy is defined as sweeping guidelines concerning the essence of the company s marketing efforts. An example of a promotional strategy would be Nike trying to market to the physically fit, sporty individuals (student answers will vary). 6. What are tactics? How are they related to strategies? Tactics are the activities companies perform to support overall promotional strategies. They are related to strategies because they support the overall theme or message of the company through short-term promotional actions. 7. Define demographics. How are they used to segment consumer markets? Demographics are population characteristics. They are used to segment markets by differentiating consumers by certain characteristics such as gender, age, education, income, race or ethnicity, and psychographic information. 8. How can firms take advantage of target markets by gender? Firms can take advantage of target markets by gender because it is easier to identify buyer characteristics. There are differences in buying patterns, products used, and personal preferences of both genders. 9. What generational cohorts have marketing experts identified? Marketing experts have identified the following generational cohorts: Generation Y, Generation X, Younger Boomers, Older Boomers, Empty Nesters, and Seniors. 10. What problems are associated with segmented markets by geographic areas? The main problems associated with segmenting the market geographically are that everyone in the geographic area is targeted, with no focus on personal preferences or individual differences. 11. What are geodemographics? Why have they been so successful in defining marketing segments? Geodemographics is a combination of using census data with psychographic information. This approach can be successful because marketers can conclude that people in certain areas tend to have the same basic needs. Geodemographics segmentation goes a step further by suggesting common personal preferences in 77

12 individual geographic areas. 12. Describe usage segmentation and benefit segmentation. Usage segmentation is defining the market by usage or purchases. It is designed to maximize sales to all user groups. Companies then gather information from their most frequent customers and form their own database of customers describing their wants and needs. Benefit segmentation is focusing on the advantages consumers receive from a good or service rather than the characteristics of consumers themselves. Companies use this technique to understand the preferences of different groups of consumers. 13. What are the common business-to-business market segmentation concepts? The common business-to-business market segmentation concepts are by industry, business, and size. Segmentation by industry is utilizing the NAICS codes to identify a company s potential of being a quality customer. 14. Describe the NAICS approach to segmentation. The NAICS approach to segmentation is using the company s business code to decipher what products the firm will need or purchase. It is better than the old SIC code because it broadens the product categories from 10 to 20. This allows for a more precise classification of businesses. 15. Describe a usage segmentation approach in a business-to-business setting. An example of a usage segmentation approach in a business-to-business setting would be that although Xerox markets to most businesses, the company pays extra attention to schools, because these organizations utilize so many copiers, allowing for both sales and service contracts. (Student answers will vary.) 16. Describe a segmentation approach based on company size. A segmentation approach based on company size would target companies within a certain range. For instance, an advertising agency may target firms that have sales from $3 million to $20 million. Another agency may target the small firms, with incomes less than $3 million. Another agency may go after extremely large international firms, with sales over $1 billion. 17. How does the idea of a promotions opportunity analysis fit with a GIMC program? The promotions opportunity analysis process must be taken into consideration when the GIMC program is being developed. Laws concerning marketing and advertising 78

13 are different in each country. Effective marketing occurs when the company s marketing team is aware of these differences when creating a marketing approach tailored to markets identified in individual countries and the competitors in those countries. CRITICAL THINKING EXERCISES Discussion Questions 1. For each of the following goods or services, identify the various benefits that consumers may derive when buying them. Does the advertisement or any other element of the IMC use this benefit as the central part of its appeal? a. AXA life insurance b. Dulux paints c. Tourism Malaysia d. Panadol or any other brand of paracetmol Benefits include peace of mind for AXA, intrinsic and extrinsic benefits for Dulux e.g. personally feeling nice at home and showing off to friends, relaxation for touring Malaysia, and getting rid of a headache and feeling better for Panadol. 2. Gather marketing information on five hotel brands. Perform a competitive analysis on these five branded hotels. Determine how they differ in terms of their product/service, including their star rating, rooms, restaurants, unique features, and other services and facilities. What types of promotional appeals and special offers does each hotel brand use? Students could get information from ads, brochures, websites or on their visits to any of the hotel brand, and then come up with a matrix. A collection of promotional material i.e. ads from magazines, DVD tapes of the hotels ads, brochures can bring life to the discussion. 3. Marketers recently have been targeting older consumers. These consumers have more disposable income than younger consumers, and they are ready to spend their money. In 2005, 96-year-old Irene Sinclair became the new face of Unilever s Dove soap on billboards in London, New York, and Paris. Identify five consumer goods or services that are segmented based on older consumers. Discuss these products and services in terms of the benefit offered, the message strategy, and the advertisement campaign. One such product is Nivea Vital targeted to the 50+ woman this text comes with a 79

14 DVD which illustrates this. It would be a good idea to show this during this session. 4. The romantic comedy The Holiday created a boom in the online home-swap business. Visit HomeExchange.com ( to learn more about this rather new and unique product. If you were the marketing manager of a home-exchange business, what would your primary target market be? What benefits would this target market be looking at? Do you think this form of accommodation is likely to grow into the future? Young and educated, long stay traveller. Benefits would be saving accommodation money, a relaxed experience staying at home away from home and not a hotel. Very likely do an investigation and come up with statistics. INTEGRATED LEARNING EXERCISES 1. Adage.com provides the latest ad agency news and account news. Go to the Web site at Scan through the news articles about advertising, accounts, and ad agencies. Pick two that interest you and write a short summary report about the contents of each article. Student answers will vary based on the articles they select. 2. For consumer markets, a leading geodemographic firm is Claritas. Go to the Web site at and explore the various methods of segmentation. What information does Claritas provide? How would it help a company develop an integrated marketing communication plan? Claritas offers "precision marketing tools" that cover customer segmentation systems, geodemographic solutions, enhanced and updated census data, consumer and business data, and market analysis and site selection page. Each could be used as part of a promotions opportunity analysis program. 3. Values and lifestyles (VALS) psychographic segmentation can be a valuable tool for marketers as they prepare their marketing materials. Access VALS2 on the Business Intelligence Center Web site: Once at the VALS site, examine the characteristics of each of the groups. Then take the test to determine which group you belong to. How can VALS2 help marketers develop advertising messages? Students will receive different group locations based on their answers. VALS2 can then target the individual groups with more specific messages. 4. A current trend for many companies is the development of marketing messages for specific demographic, ethnic, or lifestyle group. This allows for a more targeted message than is possible for the mass audience. Go to the 80

15 following Web sites. What types of marketing messages are on each site? How could the information on these Web sites be used to develop integrated marketing communication plans? a. Women ( b. Hispanics ( c. African Americans ( d. Gays and lesbians ( ivillage features sections on beauty and style, health and well-being, diet and fitness, love and sex, pregnancy and parenting, house and home, entertainment, and magazines. Hispanic Online.com has sections on arts and entertainment, politics and opinion, lifestyle, business and finance, a career center, technology, education, research and resources, and sports. Targetmarketnews.com has a wide list of media featuring black performers and participants. PlanetOut.com offers personals, shopping, entertainment, news, and other topics including money and careers, families, health and fitness, living, pride, romance and dating, and travel. 5. Choose one of the following Internet companies. Examine each company's Web site to determine what segmentation strategy the firm uses. Describe the intended target market for the Web site. Using Figure 4.3 as a guide, what communication objective(s) do you think the company is trying to accomplish? a. Sports Spectrum Greeting Cards ( cards.com) b. Ty Beanie Babies ( c. Sara lee ( d. Dr. James R. Romano ( Answers will vary depending what is on the Web site at the time the students access them. Student Project: Creative Corner This exercise is designed to help students create ads for DIRECTV using the VALS2 typology of segments. CASES 81

16 Case 1 Burger Wars (1) Conduct a communication marketing analysis for one of the following: McDonald's, Burger King, Sonic, Wendy's, or Hardees. Student responses will vary depending on which chain is chose and which approach they decide to take. (2) Besides children, identify the target markets that are best suited to each of the following: McDonald's, Burger King, Sonic, Wendy's, or Hardees. Some potential answers include business people for lunch, people close to the unit (geographic), mothers with children, vacationers, and others. (3) What types of promotional budget should each major competitor use? Student answers will vary. The smaller chains would have a hard time with meet the competition. (4) Base on the information in this chapter, how would a company like Hardees or Carl's Jr. (which owns Hardees) compete effectively against McDonalds? What type of communication strategy and budget would work best? Student answers will vary. The companies could focus on specific market segments, such as older males, sports fans, or some other category. An objective and task method could be used to reach these specific segments. Case 2 It s Not A Burqa Or A Bikini: It s A Burqini (1) Perform a promotions opportunity analysis for the Burqini. For this question the answer lies in a discussion on conducting a communication market analysis, then establishing a communication obkective, followd by promotional strategies and tactics. (2) Identify the market segments that Aheda Zanetti must maintain. What secondary segments can she attract? (Think of some not mentioned in the case.) Females between a certain age group that belong to the Muslim religion and other religions and cultures that have a strict code of dress for females e.g. Orthodox Hindus and Jews. As the case mentions burn victims, athletes, and swimmers. (3) Describe ways that Zanetti can reach key market segments effectively in your country. 82

17 This is country specific but Answer 2 could be a good guide. (4) Will the company be successful if it takes the business online, targeting and marketing the product online? Certainly since conservative and orthodox females prefer shopping for personal products online. May be other views that for personal items such as clothes online may not be an ideal channel. BONUS CASE COMMERCIAL CONSOLIDATED John Mulvaney had been a marketing account manager for many years. He left a private firm to take a position at a local bank, Commercial Consolidated. Bank officials concluded that because the marketplace for financial services had become so competitive, they needed an on-staff marketing executive to continually fine-tune the bank s advertising program. The company s headquarters were in John s hometown, only 12 blocks from his house. John saw the opportunity to make a lifestyle move while staying active in his chosen profession. Once he was settled in, the first issue John pursued was a promotional analysis, focusing on various customers. His research indicated that in most banks, 10 percent to 20 percent of the small-business accounts yielded 80 percent to 90 percent of the bank s profitability. Upon being informed of this statistic, bank officials set the goal of moving some of the small businesses within the 80 percent that was not currently profitable to become more like the 10 percent to 20 percent. John told the bank s leaders that he wanted to pursue a customer valuation 83

18 segmentation approach, assigning each business a value related to the bank s level of profitability. To illustrate how this segmentation method works, John described the ways banks could market to small businesses. He noted that the first step in customer value segmentation is to identify the drivers that impact each business customer s profitability potential. For a bank providing financial services to small businesses, the primary value drivers are: Deposit balances wherein interest and other revenues exceed requirements for servicing the account. Consistent fee income from sundry banking and financial services. Efficient lending practices emphasizing underwriting, approval, and processing of profitable loans. Targeted customer development focusing on building relationships that would lead to profitable transactions between the bank and the small business. Sales and service delivery programs that match the bank s profitability goals. John told Commercial Consolidated s management team that not all customers have the potential to be highly profitable accounts. He noted that by segmenting its small customers into customer value clusters, the bank could design different marketing programs for each segment to maximize effectiveness while minimizing marketing costs. He suggested putting a greater marketing effort into an account with high profitability potential than into one with low potential for profitability. The marketing team decided to segment various small-business customers along several dimensions. Codes placed in each customer s data file allowed for easy clustering. The team used seven characteristics to code the bank s small-business customers. 84

19 Account managers were given the following instructions for each account and its particular characteristics: Value segment. Code the account based on how profitable it has been over the last 12 months. Codes range from highly profitable to unprofitable..long-term value segment. Code the account based on profitability potential for the next 5 years. Industry growth potential segment. Code the growth potential of the industry in which the firm operates, from high-growth industry to negative anticipated growth. Industry position segment. Relative to the industry, code the size of the firm from large to small within the same industry. Transaction frequency segment. Code the business customers from high to low based on frequency of transactions with the bank over the past 6 months. Product propensity segment. Code the business customers based on their propensity to purchase a 401(k) plan with the bank. This code would be based on the firm s size and growth characteristics, from high potential for a 401(k) to low potential. Creditworthiness segment. The code indicates the businesses relative credit risk. This coding system allowed the bank greater flexibility in designing its marketing program. The codes identified customers with the highest profit potential based on these factors. Commercial Consolidated s overall theme had always been focused on its hometown bank image. Advertisements and other promotions restated the message that 85

20 dollars invested locally were more valuable to the community than those shipped to the home office of a competitor in another city or state. Using this technique, a bank could assign customers to clusters based on loan usage. Another set of clusters could be developed for investment services. A bank could develop many different clusters with customers assigned to clusters based on their purchase behavior of that particular type of service. From there the bank generated an aggressive marketing program including advertising, direct-mail pieces, and some personal visits to companies with high profit potential. Customers with a medium level of transaction frequency could be targeted to increase their transactions with the bank if their potential was high. The bank aimed the direct marketing program at its top 20 customers; advertising was designed to reach the next 100 customers (in terms of profit potential); and the remainder of the firm s advertising funds were spent on brand awareness commercials. Next, individual consumers were segmented and targeted. The bank was most interested in increasing use of their highly profitable consumer credit card. To do so, it needed to understand the usage of the credit card. The bank s customer cluster analysis identified the following seven clusters: 1. The uncommitted. The newest users of the credit card, these individuals tended to use the card infrequently and make relatively small purchases. This cluster primarily consisted of retired persons and individuals with low incomes. 2. Convenience users. These customers used their cards frequently and normally paid off their balances at the end of each monthly billing cycle. This cluster tended to have 86

21 below average assets and slightly less than average household income. 3. Starting out. This cluster was predominantly young adults with lower than average incomes and low assets. They tended to have high purchases and carry moderate to high balances on their cards. 4. Channel shoppers. Consisting of older cardholders, these individuals had the highest income levels and were primarily females or married couples. This cluster had a low level of delinquency, low service charges, and moderate card activity. 5. Credit addicts. This group had the longest tenure of cardholders in the bank. They had the highest credit limits, the greatest spending, and the highest payments due each month. This cluster was of average age with above average income. 6. Cash driven. As the cash-hungry cluster, these individuals tended to pay off account balances slowly, had moderate credit limits, and used the card frequently to garner cash advances. This cluster generally included younger males and other singles with low assets. 7. Borderline. The youngest of the clusters with the lowest card activity, these customers had a high delinquency rate and had low incomes. Using the cluster information, the bank sought to expand revenues by targeting current customers. They developed specialty marketing communication pieces for each cluster. Based on the demographic and psychographic information from each cluster, marketing pieces were designed to elicit responses. This clustering information helped the bank prevent customer defections to the competition by meeting the needs of each individual segment. To maximize the success of the program, the firm s marketing team 87

22 made sure that the correct services were matched with customer needs. This information was used to focus media and advertising strategies creating specific messages for specific customers. Within a few months, bank profits had risen significantly. John received a healthy raise and concluded he had made a wise choice in moving to this particular organization. (1) Explain how the steps of a promotions opportunity analysis are present in this case. To explain the steps of a promotions opportunity analysis present in the Commercial Consolidated case, the company s strengths and weaknesses were examined and a response was formed. This completed the communications marketing analysis part of the plan. Setting the objectives was accomplished by differentiating customers. The company established objectives and a budget was set to support the objectives. By preparing a promotional strategy targeting different customer groups, the company tried to generate growth in those individual segments. The overall strategy was to target customers based on segments, so tactics would be to offer different promotions geared toward the different groups, advertising differently, and many others matched the tactics with the strategy. (2) Explain why John and Commercial Consolidated were so successful. Commercial Consolidated was successful because John successfully identified markets for Commercial Consolidated and he used promotions to target these specific markets. This helped the company get the best return out of their investment. (3) Based on information in this case, design a business-to-business print advertisement offering local businesses loans or investment services. Where should the ad be placed? Why? Student answers will vary. Advertising messages should show how the bank could meet the needs of various businesses. (4) Choose one of the credit card customer clusters listed in the case. Design a print advertisement to reach this group. Where should the print ad be placed? What other marketing tools could be used with the print advertisement? Student answers will vary. They could show elderly people using the credit (debit) 88

23 card in a senior citizen s magazine. An informative commercial aimed at young people could talk about using credit responsibly in teen magazines. 89