Innocent Inc. is a high end retail chain involving sale of luxury brands for their client’s and aims to be a one stop shop for people opting for niche segment goods. It employs around 2,000 people in the U.K and had annual revenue of 200 million USD in 2006 and strives to be one of the top providers of branded luxury products solutions in the next five years.
Part A- Marketing
Marketing is performed within a certain environment which itself is always changing. The marketing activities have, therefore, to change in consonance with environment to be continuously effective. In order to appreciate this process it is easier to divide the marketing activities into four basic elements which are together referred to as the marketing mix. These four basic elements (4Ps) are:
c) Promotion, and
d) Place (or physical distribution).
All corporate marketing activities have to be necessarily carried out in such a way that they lead to generation of surplus funds. Market segmentation helps in optimising the marketing mix for a segment.
The output of a segmentation analysis is a profile of customer target group focusing on details that will best help to develop product, promotional, pricing and distribution strategies.
The set of benefits sought to build the configuration of benefits sought and then select benefits in our offering that will constitute a critical advantage to act as the buying inducement. Segmentation of a market is not an arbitrary process, but neither is there a unique set of segments to be discovered. The two approaches, top down and bottom up (logical division and offering) which are used for breaking up.
It is an important element of the marketing mix which can be used as a strategic marketing variable to meet competition. Price is also an element which is highly perceptible to customers and significantly affects their decisions to buy a product.
The various considerations affecting pricing policies, the alternative pricing methods most commonly used. These methods are:
Cost-plus or Full-cost pricing
Pricing for a rate of return
Marginal cost pricing
Going rate pricing
1. Cost-plus or Full-cost Pricing
This is the most common method used in pricing where the price is set to cover costs (materials, labour and overhead) and a predetermined percentage for profit. The percentage differs strikingly among industries, among members—firms and even among products of the same firm. This may reflect differences in competitive intensity, differences in cost base and differences in the rate of turnover and risk.
Prices based on full-cost factual and precise and may be more defensible on moral grounds than prices established by other means.
Firms preferring stability, use full-cost as a guide to pricing in an uncertain market where knowledge is incomplete
Probable response to any price change. This makes it too risky to move away from full-cost pricing.
2. Marginal Cost Pricing
Fixed costs are ignored and prices are determined on the basis of marginal cost. The firm uses only those costs that are directly attributable to the output of a specific product and the firm seeks to fix its prices so as to maximise its total contribution to fixed costs and profit. Unless the manufacturer’s products are in direct competition with each other, this objective is achieved by considering each product in isolation and fixing its price at a level which is calculated to maximise its total contribution
Marginal cost pricing is more effective than full-cost pricing for Innocent on account of the prevalence of multi-product, multi-process and multi-market concerns makes the absorption of fixed cost into product costs non feasible.
Channels of distribution are the most powerful element among marketing mix elements. By developing a sound distribution network and launching aggressive advertisement campaigns, a company can carve out a niche for itself. Channels of distribution help movement of goods from one place to another and thus create place utility and make it possible for the consumer to get goods when he wants them and thus create time utility. They bring goods to the in a convenient shape, unit, size, style and package and thus create convenience and makes it possible for the consumer to obtain goods at a price he is willing to pay and conditions which bring him satisfaction and pride of ownership and thus create possession utility.
ADVERTISING AND PUBLICITY
It has acquired the distinction of being the most visible and glamorous method of marketing communication. Some of the major marketing and communication functions performed by advertising today include to inform, entertain persuade, influence, remind, reassure and add value to the product or service advertised. Advertising is an impersonal mass selling and communication method which makes use of various types of media to reach the target public in a short-time. Advertising broadly aims at gaining exposure, creating awareness, changing attitudes of target customers in favour of sponsor’s products and services, and also at effecting sales and improving corporate image. Management of effective advertising requires that the process be initiated by setting measurable and realistic goals. Matching with a firm’s advertising needs’ advertising budget be determined, message formulated, copy developed, and media selected and scheduled. Identification and knowledge of the economic, demographic, cultural and psychological characteristics of the target customers should trigger the process of advertising planning. This should be followed by selection of appropriate appeals, proper illustrations and unique copy themes in the language which the audience understands and should be transmitted to them through such media vehicles which have a meaningful reach and desired credibility.
Advertising decisions are complex and capable of getting influenced by various forces. The decisions arrived at should, therefore, be evaluated in a regular manner so that remedial measures and corrective actions could be taken before it is too late. The use of professionally managed advertising agency proves by and large advantageous to the company. Organisation of news worthy events and good relations with media help.
1) Market Structure for Innocent
Innocent’s segments will be distinguishable on the basis of the market they capture out of their products. On account of segmentation, Innocent would garner benefits as:
Exploit its market better by selecting market niches (suitable segments) that are compatible with its resources
Focusing strategies more sharply on target groups
Result in instilling customer ‘loyalty’ since the firm’s offering is better matched to those in the segment.
Bases for Segmentation
1. Demographic basis
Instead of focusing on the differences in benefits sought, focus should on the market basis of demographic variables such as age, sex, fami1y size, income, occupation, education, location, religion, race and nationality. Demographic variables are the most popular bases for distinguishing customer groups.
2. Social class
A number of demographic variables vary from a single indicator like occupation to the use of a combination of factors like occupation, source of income, type of home or residential area. Social class has a strong influence on the person’s preferences in regard to clothing, home furnishings, leisure activities, reading habits.
3. Family life cycle
Another basis for segmentation that draws on demographic factors is family life cycle, where each stage in the cycle is a combination of age, marital status and age of children.
4. Research on consumption systems
Observing and studying the total consumption system associated with the product in use helps generate new ideas for benefit segmentation
5. Research on attitudes and perceptions:
There are two approaches which are used for breaking up a market from the top down or from the bottom up. Logical division starts with the market and break it down into more and more refined markets or market segments.
II) Influence and Shape of Business
To evaluate the economic opportunity for Innocent the factors specific to the situation can be considered in evaluating segment options against these criteria and the resultant impact on the profits.
Innocents segmenting its market needs to identify the requirements for success in the concerned target market. It must determine what particular business system consisting of marketing, production, finance, personnel. etc., be needed to meet the requirements for success in that segment. The firm’s thrust should be such that it gives the company a critical advantage in that segment.
Size and growth potential:
Not only the present size but also the future growth potential the concerned target market must be considered. The current market demand by itself prove misleading. The measurement might also create its own problems.
Investment needed for tapping that particular target market is another factor to consider and take care to see that both entry costs and costs associated with building market share have been included.
The question of profitability is associated with investment decision. To calculate it we have to estimate both future sales and costs in the concerned segment. It must also be considered is value-added to the product that is to be marketed in that large segment, for a low value-added product makes profitability more hazardous.
There are the usual risks associated with the extent to which a particular target would respond. Other risks like the new product taking away part of the market share form the existing product(s) of the company in that target market need also be considered.
The selection of target market also implies selecting the competitors with whom the company will compete. Another important point to note in this context is that segment may be large but may already be will served by several well-entrenched competitors. The question naturally would be whether one would like to enter such a segment.
Specific segmentation factors
The specific segmentation factors are as follows:
Segments based on fads and fashions are of a short duration, that is their life cycles are ephemeral and your plans to tap such segments must be taken into account.
If the mobility rate of target group members is high in respect of a certain product, the company in order to keep its sales stable would have to attract new use its product.
If the members of that segment are perceived as very different from what is sought in other segments, the segment ‘loyalty’ will be greater.
Understanding of the general environment in which an organization operates is the foremost pre-requisite towards strategy formulation. The six broad dimensions which the framework provides are political, economic, socio-cultural, technological, environmental and legal. These are capable of giving a comprehensive overview of how things may be unfolding. The objective of the analysis out of this framework however should not only restrict to the present and past but the real focus should be on projecting the trends into future in order to get the real feel of the environment.. This shall enable the firm to proactively strategize for future considering the general environment it is going to face and the issues which will be of importance.
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