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Terms in this set (146)

Market segmentation - Companies divide customers into groups based on differences in the customers' needs (needs are discussed further in the next section) to make this decision. Dividing customers into groups based on their needs is called market segmentation. Market segmentation is a process used to cluster people with similar needs into individual and identifiable groups.

Basis for customer segmentation:
Consumer Markets
1. Demographic factors (age, income, sex, etc.)
2. Socioeconomic factors (social class, stage in the family life cycle)
3. Geographic factors (cultural, regional, and national differences)
4. Psychological factors (lifestyle, personality traits)
5. Consumption patterns (heavy, moderate, and light users)
6. Perceptual factors (benefit segmentation, perceptual mapping)

Industrial Markets
1. End-use segments (identified by Standard Industrial Classification [SIC] code)
2. Product segments (based on technological differences or production economics)
3. Geographic segments (defined by boundaries between countries or by regional differences within them)
4. Common buying factor segments (cut across product market and geographic segments)
5. Customer size segments

After the firm decides who it will serve, it must identify the targeted customer group's needs that its goods or services can satisfy. In a general sense, needs (what) are related to a product's benefits and features. Successful firms learn how to deliver to customers what they want, when they want it.
- Customer needs represent desires in terms of features and performance capabilities.

After deciding who the firm will serve and the specific needs of those customers, the firm is prepared to determine how to use its capabilities and competencies to develop products that can satisfy the needs of its target customers.
- core competencies are resources and capabilities that serve as a source of competitive advantage for the firm over its rivals. Firms use core competencies (how) to implement value-creating strategies, thereby satisfying customers' needs.
- Only those firms with the capacity to continuously improve, innovate, and upgrade their competencies can expect to meet and hopefully exceed customers' expectations across time. Firms must continuously upgrade their capabilities to ensure that they maintain the advantage over their rivals by providing customers with a superior product.

All organizations must use their capabilities and core competencies (the how) to satisfy the needs (the what) of the target group of customers (the who) the firm has chosen to serve
an integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors

Firms using the cost leadership strategy commonly sell standardized goods or services, but with competitive levels of differentiation, to the industry's most typical customers.
- As primary activities, inbound logistics (e.g., materials handling, warehousing, and inventory control) and outbound logistics (e.g., collecting, storing, and distributing products to customers) often account for significant portions of the total cost to produce some goods and services. Research suggests that having a competitive advantage in logistics creates more value with a cost leadership strategy than with a differentiation strategy.

Thus, cost leaders seeking competitively valuable ways to reduce costs may want to concentrate on the primary activities of inbound logistics and outbound logistics. In so doing, many firms choose to outsource their manufacturing operations to low-cost firms with low-wage employees.
- Outsourcing creates interdependencies between the outsourcing firm and the suppliers. If dependencies become too great, it gives the supplier more power with which the supplier may increase prices of the goods and services provided.

Cost leaders also carefully examine all support activities to find additional potential cost reductions. Developing new systems for finding the optimal combination of low cost and acceptable levels of differentiation in the raw materials required to produce the firm's goods or services is an example of how the procurement support activity can facilitate successful use of the cost leadership strategy.

Effective use of the cost leadership strategy allows a firm to earn above-average returns in spite of the presence of strong competitive forces
First Mover: a firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position

•First movers allocate funds for:
-product innovation and development
-aggressive advertising
-advanced research and development

•First movers can gain:
-the loyalty of customers who may become committed to the firm's goods or services
-market share that can be difficult for competitors to take during future competitive rivalry

Second Mover: is a firm that responds to the first mover's competitive action, typically through imitation
-study customers' reactions to product innovations
-try to find any mistakes the first mover made, and avoid them
-can avoid both the mistakes and the huge spending of the first-movers
-may develop more efficient processes and technologies

Later Mover
is a firm that responds to a competitive action a significant amount of time after the first mover's action and the second mover's response
•Any success achieved will be slow in coming and much less than that achieved by first and second movers
•Late mover's competitive action allows it to earn only average returns and delays its understanding of how to create value for customers

Organizational size: SMALL
•Small firms are more likely to:
-launch competitive actions-be quicker in doing so
•Small firms are perceived as:
-nimble and flexible competitors
-relying on speed and surprise to defend competitive advantages or develop new ones while engaged in competitive rivalry
-having the flexibility needed to launch a greater variety of competitive actions

Organizational size: LARGE
•Large firms are likely to initiate more competitive actions as well as strategic actions during a given time period
•Large organizations commonly have the slack resources required to launch a larger number of total competitive actions
•Think and act big and we'll get smaller. Think and act small and we'll get bigger. (Herb KelleherFormer CEO, Southwest Airlines)

exists when the firm's goods or services meet or exceed customers' expectations

•Product quality dimensions include:
-perceived quality

Service Quality Dimensions
1. Timeliness
2. Courtesy
3. Consistency
4. Convenience
5. Completeness
6. Accuracy