Product Markets

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Product Markets
BA 6324 Fundamentals of Marketing Professor
Dillon Lecture Notes Set 3
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Product Markets

• 1. Product Markets Defined
• 2. Estimating Long Run Market Share
• Repeat Purchase and Market Share
• Product Line Decisions
• 5. Strategic Growth Models
• 6. Practice Problems

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Product Markets
Theodore Levitt (HBS Professor) People dont
want to buy a quarter inch drill. They want to
buy a quarter inch hole.
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Product Markets
1. Product Markets Set of products judged to be
substitutes within those usage situations in
which similar patterns of benefits are sought and
the customers for whom such usages are relevant
Defining the Competitive Set
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Product Markets
1.1 Job-Based View of Products/Brands gt Consume
rs hire brands to do specific jobs in their
lives. gt These jobs have functional, social and
emotional dimensions to them. gt Understanding
the job provides essential guidance to product
design and to marketing/communication strategy.

• Example Arm Hammer-The Jobs
• Helps my mouth stay fresh and clean.
• Deodorize my refrigerator.
• Deodorize me.
• Clean and freshen my carpets.
• Deodorize my kitty litter.
• Make my clothes smell fresh.

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Product Markets
1.2 The Importance of Identifying Product
Markets
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Product Markets
1.2.1 A Hypothetical Illustration of the Product
Hierarchy for the Instant Coffee Market
a. Attribute-based hierarchy
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Product Markets
1.2.1 A Hypothetical Illustration of the Product
Hierarchy for the Instant Coffee Market
b. Brand-based hierarchy
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Product Markets
1.3 What Competes Against What?
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Product Markets
2. Estimating Long Run Market Share 2.1
Switching Tables
fij
(a) Purchasers of brands A, B, and C over two
purchase occasions 137 of the N 513 people
bought brand A on both purchase occasions.
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Product Markets
Pij fij/N
179/513
(b) Joint-probability matrix 137 of 513, or
.267 of the population, bought brand A on both
purchase occasions.
19/203
(c) Conditional-probability matrix of the 203
people who bought brand A on the first purchase
occasion, 137 or .674 (137/203) bought it on the
second occasion.
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Product Markets
2.1.2 Illustration
Segment Level Transition (Conditional)
Probabilities
Size Transition (Conditional)
Probabilities Segment () Brand PL Bounty Brawny
Scott Viva 1 23.41 PL 0.2076 0.1009 0.1835 0.4489
0.0591 Bounty 0.0192 0.9555 0.0091 0.0110 0.0052
Brawny 0.0995 0.0495 0.6381 0.1706 0.0422 Sco
tt 0.0456 0.0394 0.0382 0.8518 0.0250 Viva 0.052
0 0.0091 0.1045 0.0443 0.7901 2 41.05 PL 0.8687 0
.0278 0.0555 0.0444 0.0036 Bounty 0.1100 0.8689
0.0137 0.0063 0.0011 Brawny 0.1807 0.1121 0.6797
0.0100 0.0175 Scott 0.0411 0.0010 0.0091 0.9213
0.0275 Viva 0.0394 0.0008 0.0356 0.0099 0.9143
3 35.54 PL 0.4412 0.1699 0.1900 0.0983 0.1006 B
ounty 0.0523 0.9307 0.0099 0.0007 0.0064 Brawny
0.2110 0.0577 0.6789 0.0199 0.0325 Scott 0.3299
0.0345 0.0445 0.4999 0.0912 Viva 0.1445 0.1134 0
.0466 0.1933 0.5022
Interpret
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Product Markets
2.2 Estimation Conceptual Framework
X Probability of buying the brand a again
MS of brand a at t
MS of brand a

X Probability of switching to brand a from brand b
MS of brand b at t

Conditional (transition) table
Notation Convention
Time 2
Brand a Brand b
paa pab MSa. pba pbb MSb. MS.a
MS.b
Brand a Brand b
Time 1
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Product Markets
2.2.1 Estimation Illustration
Time 2
MS.a MSa. x paa MSb. x pba MS.b MSb. x pbb
MSa. x pab MS.a .67(.5) .33(.4)
.467 MS.b .33(.6) .67(.5) .533 MS.a
.467(.5) .533(.4) .4467 MS.b .533(.6)
.467(.5) .5533 MS.a .4467(.5) .5533(.4)
.4447 MS.b .5533(.6) .4467(.5) .5553
Brand a Brand b
100 100 200 40 60 100 140 160 300
Brand a Brand b
Time 2
Time 1
Time 3
Form conditional table
Time 4
Time 2
Brand a Brand b
paa .5 pab .5 MSa. .67 pba .4 pbb
.6 MSb. .33 MS.a .467 MS.b .533
Brand a Brand b
Time 1
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Product Markets
3. Repeat Purchase and Market Share gt High
market share brands have disproportionate high
repeat purchase rates. WHY?
1. High share brands have more buyers than low
share brands. (GREATER MARKET PENETRATION) 2. Buy
ers of high share brands purchase these brands
more frequently. (HIGHER PURCHASE FREQUENCY)
gt Implications for Niche Brands?
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Product Markets
Market Share MSi
0.00 0.05 0.10 0.15 0.20
Market Share MSi
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Product Markets
4. Product Line Decisions 4.1 Product Line
Analysis gt of Total Sales from Each Item in
Line gt How is Line Positioned vis-à-vis
Competition - Major Attributes of Paper Board
are Paper Weight Finish Quality ? Create
a Product Line Map in Weight vs. Finish Quality
Space and see how Your Line Compares with
Competitors ? Also Helps to Identify Gaps in
market Offerings
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Product Markets
4. Product Line Decisions (Contd..) gt Product
Line Length - Optimal Number of Items in
Line gt Line Stretching Decision - Downward
Stretch.Line Filling vs. Cannibalization - Upwa
rd Stretch.Price/Quality Imputations - Two-Way
Stretch
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Product Markets
5. Strategic Growth Strategies
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Product Markets
5.1 Selecting Between Offensive and Defensive
Marketing Strategies
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Product Markets
5.2 Growth-Oriented Offensive Strategies
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Product Markets
5.3 Growth-Share Strategic Market Planning Matrix
Strategic Market Planning Cash Cows - Invest to
protect important strategic market position and
key source of cash flow. Dogs - With minimal
investment, maximize cash flow with protect,
reduce scope, harvest, or exit strategies. Proble
m Kids - Invest to grow market position and
harvest/divest to minimize drain on
resources. Stars - Invest to defend important
strategic market position and/or invest to grow
market at a faster rate.
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Product Markets
5.4 Brand Management 2 Dimensions, 4 Strategies
Premium Category
Value Category
Your Brands Best Strategy Vishwanath Mark HBR
1997
low
high
Relative Market Share
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Product Markets
6. Practice Problems
6.1 The Springs Mills company produced a line of
textiles sold to the healthcare and hospitality
industries. The company was founded in 1910.
Presently, Springs is the market leader in both
industries. A major issue discussed during the
marketing planning meeting was how could they
grow. Both the healthcare and hospitality
industries were growing at about 50 of GNP. GNP
was growing at 5 per year. They were very cash
rich, and therefore decided to grow by acquiring
a new company. Two consulting firms were
provided with an RFP and asked to recommend a
company that Springs should try to acquire.
Their recommendations are provided
below. Consulting firm 1 recommended company
XXX and consulting firm 2 recommended company
YYY. Each company had four SBUs. Market shares
for the company and its three major competitors
and growth rates of the industries are provided
below.
Company XXX SBU Growth US Market Shares
Competitor Rate XXX I II III A 4 20 5 25
10 B 10 30 10 15 20 C 7 40 25 5 30 D 1
1 25 10 30 10
Company YYY SBU Growth US Market Shares
Competitor Rate YYY I II III A 4 25 20 15
10 B 14 40 20 5 10 C 3 35 20 15 10 D
4 25 5 10 20
a. Which do you recommend? XXX
YYY b. Justify your choice.
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Product markets
6.2 Franken Pumps, Inc. manufactures and installs
pumps for hydroelectric facilities in the United
States. Company executives have begun to analyze
the firm's competitive position in the
hydroelectric industry for the purpose of
targeting growth opportunities. Industry dollar
sales volume had reached 100 million annually
and were projected to remain at this level for
the next three years. inspection of trade
association data indicate that 60 of the
industry sales volume occurs west of the
Mississippi River 40 of industry sales volume
occurs east of the Mississippi River.
Furthermore, 20 of total industry sales are for
new installations-- the 20/80 split in new and
replacement sales volume exists irrespective of
geographical location. Franken Pumps has
recorded annual sales of 10 million annually
with company sales split evenly between regions
east and west of the Mississippi River. Thirty
percent of all company sales were for new pumps
70 were for replacement pumps. However, 60 of
Franken Pumps sales east of the Mississippi River
were for new pumps. Firms that purchased
replacement pumps for a particular hydroelectric
facility typically purchased these replacement
pumps from the same company that manufactured and
installed the new pumps for the hydroelectric
facility. This practice existed because of the
ease of installing these replacement pumps.
Franken Pumps, Inc. sales data indicated that the
gross profit margin on the installation of new
pumps was 35. The gross profit margin on the
installation of replacement pumps was 20 .
(Source based on "Franken Pumps, Inc." HBS
9-520-205) a. Given this information, how
should the market for pumps in the hydroelectric
industry be structured? (Hint Draw a market
structure map). b. Which segment of the
hydroelectric industry should be Franken Pumps,
Inc. primary target for growth? Why? (Hint
You will need to first show how Franken Pumps
performs in each product-market). c. What
"product-market strategy" is indicated from your
choice of market target for Franken Pumps, Inc.?
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Product Markets
6.3 Brand purchases among three leading brands of
laundry detergent were recorded for a panel of
1000 households for the months of May and June.
The brand switching table is provided
below. a. Compute the brand market shares for
each month. b. Compute the conditional brand
switching table and interpret. c. Would you
consider the market to be brand or
attribute-based (draw the appropriate
structure)? d. If Bold wanted to introduce a
Tablet form of laundry detergent and target only
one of the other brands which brand would you
recommend they target? e. Forecast brand shares
in July. Interpret. Any idea as to long-run
market shares?