initial strategy
Who do we target with our existing products?
R&D decisions only opened up after period 2, which meant that we could not modify product characteristics to match the needs of a particular segment. Since all products characteristics were homogeneous between teams, our initial strategy was to target multiple segments with each product. We decided to target SOLO to professionals and high earners, and SOFT to shoppers and explorers.
This initial strategy allowed us to learn how to allocate perceptual objectives, distribution channels, and other marketing expenses in a way that satisfies the needs of both segments. However, once we shifted from targeting two segments to one, our purchase intentions, brand awareness, and overall product success improved. Had we focused on targeting one segment with one product, our team may have been more successful in the long run as more cumulative expenditures could have been invested in each product.
A company that does a good job with segmentation is Toyota. They have hybrid cars like the Prius and Aqua for the environmentally conscious consumer, the Corolla for a price sensitive consumer, and the Lexus for a more affluent consumer. Unlike companies such as Mercedes-Benz, Toyota’s product portfolio is able to cater to a diverse set of market segments.
R&D decisions only opened up after period 2, which meant that we could not modify product characteristics to match the needs of a particular segment. Since all products characteristics were homogeneous between teams, our initial strategy was to target multiple segments with each product. We decided to target SOLO to professionals and high earners, and SOFT to shoppers and explorers.
This initial strategy allowed us to learn how to allocate perceptual objectives, distribution channels, and other marketing expenses in a way that satisfies the needs of both segments. However, once we shifted from targeting two segments to one, our purchase intentions, brand awareness, and overall product success improved. Had we focused on targeting one segment with one product, our team may have been more successful in the long run as more cumulative expenditures could have been invested in each product.
A company that does a good job with segmentation is Toyota. They have hybrid cars like the Prius and Aqua for the environmentally conscious consumer, the Corolla for a price sensitive consumer, and the Lexus for a more affluent consumer. Unlike companies such as Mercedes-Benz, Toyota’s product portfolio is able to cater to a diverse set of market segments.
Once R&D opens up, who should our new product be tailored for?
After doing a few queries, our team realized that we could realistically only afford to R&D one sonite product. This lead to a very crucial decision: who should the new product be targeted towards?
Our team believed that in the long run, potential margins are more important than quantities sold. We decided to create a higher end product - SOAR - which targeted high earners because their segment growth rate was higher than professionals, and we predicted that they would have lower price sensitivity. Once the product was released to the market, we planned to change our existing high end product to only target professionals. By offering a product for each segment, we are better able to cater to their individual needs.
After doing a few queries, our team realized that we could realistically only afford to R&D one sonite product. This lead to a very crucial decision: who should the new product be targeted towards?
Our team believed that in the long run, potential margins are more important than quantities sold. We decided to create a higher end product - SOAR - which targeted high earners because their segment growth rate was higher than professionals, and we predicted that they would have lower price sensitivity. Once the product was released to the market, we planned to change our existing high end product to only target professionals. By offering a product for each segment, we are better able to cater to their individual needs.
What did we learn?
By making a new product targeting high earners, we were able to better meet their needs. This proved to be extremely beneficial as our product, although priced higher, consistently did better than MOVE, which also targeted high earners.
Application to Industry: LVMH
An industry example that illustrates this strategy is LVMH, a luxury fashion conglomerate. LVMH's business model has 4 elements: product, distribution, communication, and price. A LVMH executive explains that their goal is to excel on the first three elements so consumers do not consider price as a major decision factor. Similar to how SOAR matched the characteristics that high earners wanted, consumers were willing to pay higher for SOAR just as consumers are willing to pay higher for LVMH products.