Greg Kitzmiller01.01.05
Back to Basics
Many companies will need to head back to basics in 2005.
By Greg Kitzmiller
As we enter 2005 it is a good time to get back to the basics. Datamonitor, a market research firm, recently published a European-focused report on aging in which they state that marketers often focus on a younger generation, even in categories where seniors make the greatest amount of purchases. In recently reviewing several business plans, I noticed key errors, the most prominent of which related to segmentation. Companies cannot just assume “if we make it someone will buy it.” Another key error I noticed lies in the area of competition assessment.
Target Marketing
Fully understanding what market segments exist and which are most attractive is a fundamental for marketing products. Often firms seem to set general targets like “women 18-49.” It is very clear that 18-year-old women are very different than 30-year-old women, and both are different than 49-year-old women. The better a firm understands which segment is likely to purchase and what characteristics fit each segment the better it can direct messages and develop products. Even among seniors there is a huge difference between someone who is 55and still working and someone who is 64 and nearing retirement. The same goes for those ages 65-75, who may be active and traveling, compared to those who are 80 years old and older, who may have more physical impairments. When you boil it down even further, more differences arise when you look at factors like income, location and education. For example, some 75-year-olds are truly struggling to make ends meet, while others own three houses and are quite active.
So far we have discussed demographic factors, which are easily identified. However, when you add lifestyle or psychographic factors, segmentation can become even more precise. It is critical that companies consider what potential product users do in their life, what lifestyle segment they fit into and how they might use the product.
What Tools can be Used?
Currently, geographic information system (GIS) software is being deployed to best identify persons of certain characteristics by zip code or neighborhood. While this may be too sophisticated for some firms, they can still start asking the basic questions, such as: What are the key demographic characteristics that can be identified for product users? Which demographic segments are most likely to purchase and use my products? What lifestyle issues affect these products? Surely a firm can do some baseline research.
Far too many firms assume that if they make a product available that someone will purchase that product. As such, they often overlook how the package, promotion or even print on the package might impact a particular user group. Understanding different segments, how to define them and who to target is a critical part of marketing.
Just as it is important to understand who are product users, it is important to know what other products will attract the same users. It appears some firms underestimate or fail to recognize true competitive threats. Some firms’ presidents totally overestimate barriers to entrance in a business. They may believe there are key scientific or product development skills that seem highly proprietary and keep competition out. Yet just look at industry consolidation to see how quickly skills shift from one firm to another. Large firms have the resources to hire away knowledgeable scientists, wait out a non-compete agreement and invest heavily when warranted.
Competition
There are two types of competition. Direct competition is usually very easy to identify—i.e., other brands of the same basic product. There are many brands of any given nutrient or particular dietary supplement. Unfortunately, some companies get too comfortable with their large market share and as a result, undertake minimal marketing efforts because their previous strategies have been successful. However, eventually either a new brand unseats theirs or an acquisition puts their direct competitor into the hands of more skilled business firms. Who would have guessed 10 years ago that Coke and Pepsi would own the top two brands of bottled water in the U.S.? Who would have guessed that the number one energy drink (Red Bull) would enter the market from a totally unknown firm? Companies must always be on full alert watching for any possible competitor in the marketplace.
Indirect competition, the second type of competition, is often much more difficult to spot. In this vein, fully understanding what products consumers believe are substitutes is key. In addition, being aware of new science about indirect competition is also important. For example, there are new physiology studies comparing the benefits of drinking chocolate milk to drinking a sports drink. Chocolate milk did very well in these studies because of the carbohydrates and sodium provided by the milk. Thus, asking users of a product what else they might consume as an alternative and following scientific investigations into nutraceuticals are good ways to scope out indirect competition.
Finally, considering what threats and opportunities might affect a business can help in making predictions for the future. It seems interesting that the nutraceuticals industry focuses so much on regulatory issues—which certainly are important—and less on competitive issues.
Most executives are fully aware of the SWOT analysis tool—profiling strengths, weaknesses, opportunities and threats. It is common to list only internal characteristics under the “S” and “W” columns, which are those factors firms believe they can control. Opportunities and threats, however, are seen more as external factors, which are those the firm cannot control. For example, the firm cannot control Congress but should understand which members are likely to push for potentially damaging legislation. A diligent review of everything that might happen, both positive and negative, can provide great assistance in making contingency plans. It is not necessary for firms to “worry about” every possibility. It is important, however, that they have thought about most outcomes and even assigned a probability.NW