Chapter 2 Enhanced Lecture Slides Framing Market Opportunity

Chapter 2 Enhanced Lecture Slides

Framing Market Opportunity

ZOP-MKX-BookChap2-7-10-00-RM

Confidential

2

Exhibit 2-1:

Framework for Diagnosing Market Opportunity

Seed Opportunity in Existing or New Value Seed Opportunity in Existing or New Value SystemSystem

Seed Opportunity in Existing or New Value Seed Opportunity in Existing or New Value SystemSystem

Uncover Opportunity Nucleus:Uncover Opportunity Nucleus:Identify Unmet and Underserved NeedsIdentify Unmet and Underserved Needs

Uncover Opportunity Nucleus:Uncover Opportunity Nucleus:Identify Unmet and Underserved NeedsIdentify Unmet and Underserved Needs

Identify Target SegmentsIdentify Target SegmentsIdentify Target SegmentsIdentify Target Segments

Declare Company’s Resource-Based Declare Company’s Resource-Based Opportunity for AdvantageOpportunity for Advantage

Declare Company’s Resource-Based Declare Company’s Resource-Based Opportunity for AdvantageOpportunity for Advantage

Assess Competitive, Technical and Financial Assess Competitive, Technical and Financial Opportunity AttractivenessOpportunity Attractiveness

Assess Competitive, Technical and Financial Assess Competitive, Technical and Financial Opportunity AttractivenessOpportunity Attractiveness

Make Go / No Go AssessmentMake Go / No Go AssessmentMake Go / No Go AssessmentMake Go / No Go Assessment


Confidential

3

Supporting Slide 2-A:Requirements of an Effective Segmentation

MeaningfulMeaningfulMeaningfulMeaningful

ActionableActionableActionableActionable

SubstantialSubstantialSubstantialSubstantial

MeasurableMeasurableMeasurableMeasurable

Customers must demonstrate needs, aspirations or behavioral patterns that are similar within a segment and different across segments

– A distinction between a price sensitive and a quality seeking segment is meaningful, since the two segments demonstrate distinguishable sets of needs

A company must be able to reach customers within each segment through effective and targeted marketing programs

– A customer segment consisting of customers with blue eyes is not actionable, since it is very hard to identify and reach only customers with blue eyes

Segments must be large and profitable enough to make the investment in serving them worthwhile

– myCFO.com is targeted towards high net worth individuals, helping them manage their portfolios. Even though the number of those individuals is small, the $ amount managed is sizeable, thus constituting a substantial segment

Key characteristics of the segments (e.g. size and spending patterns) must be easy to measure

Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 269)

In order for a customer segmentation to be effective, it must be meaningful, actionable, measurable and substantial


Confidential

4

Table 2-1:

Segmentation Approaches

Segmentation Type Description Examples — Variables

Geographic Divides the market into differentgeographical units

Country / Region / City, City Size, Density(Urban, Suburban, Rural), ISP Domain

Demographic Divides the market on the basis ofdemographic variables

Age, Gender, Income, Occupation,Education, Nationality, Family Status,Internet Connectivity

Firmographic Divides the market on the basis ofcompany-specific variables

On-line / Off-line Business, Number ofEmployees, Company Size, Job Function,Purchasing Process

Behavioral Divides market based on how customersactually buy and use the product

On-line / Off-line Shopping Behavior, Web-page or Site Customer Arrived From,Website Loyalty, Prior Purchases

Occasion (Situational) Divides market based on the situation thatleads to a product need, purchase or use

Routine Occasion, Special Occasion, Time(Time of Day, Day of Week, Holidays),Location (from Home, on the Road), Event(when writing a business plan, whenshopping), Trigger (out of supply)

Psychographic Divides market based on lifestyle and / orpersonality

Personality (laid back, type A), Lifestyle(thrill seekers, fun lovers, recluse), Affinity(community builders, belongers, outcasts)

Benefits Divides market based on benefits orqualities sought from the product

Convenience, Economy, Quality, Ease ofUse, Speed, Information, Selection


Confidential

5

Supporting Slide 2- B:Geographic Segmentation — Description

Geographic segmentation divides the market into distinct geographical units, such as nations, states or regions

In the Internet space, geographic barriers are to a large extent lifted

However, there still are many industries where local relationships and distribution channels play a key role, maintaining the need for a local focus

– Webvan is currently operating only in San Francisco and New York. Entry into new geographical markets will require the building of the necessary home delivery infrastructure

– Many construction sites have a local or regional focus, since relationships with local or regional contractors and suppliers are of critical importance

Country

Region

Urban vs Rural

Density

Climate

DescriptionDescriptionDescriptionDescription

Segmentation Segmentation ExamplesExamples




Confidential

6

Supporting Slide 2-C: Geographic Segmentation — Citysearch.com

Citysearch.com“Where to go, what to do, how to get

things done…in your city”

Citysearch.com is a leading local portal and transactions company, providing content and services in select popular cities in the US, and slowly expanding to international cities

Citysearch provides complete city guides for 40 cities and arts and entertainment guides for 33 cities

Citysearch’s offering includes:

– Movie listings

– Job listings

– Restaurant reservations

– Ticket purchases

– City exploration

Citysearch.com“Where to go, what to do, how to get

things done…in your city”

Citysearch.com is a leading local portal and transactions company, providing content and services in select popular cities in the US, and slowly expanding to international cities

Citysearch provides complete city guides for 40 cities and arts and entertainment guides for 33 cities

Citysearch’s offering includes:

– Movie listings

– Job listings

– Restaurant reservations

– Ticket purchases

– City exploration


Confidential

7

Supporting Slide 2- D:Demographic Segmentation — Description

Market division into groups based on customer demographic variables

Most popular method for distinguishing customer groups, highly actionable

Age

Income

Occupation

Nationality

Market division into groups based on business demographic variables

Highly actionable, since business demographic data readily available

Industry

Company size

Location

B2C: B2C: DemographicDemographic

B2C: B2C: DemographicDemographic

B2B: B2B: FirmographicFirmographic

B2B: B2B: FirmographicFirmographic

DescriptionDescriptionDescriptionDescription Segmentation Segmentation ExamplesExamples




Confidential

8

Supporting Slide 2- E: Firmographic Segmentation Example — Onvia.com

Onvia.com“The premier emarketplace for small

businesses”

Onvia.com is a site targeting small businesses, aiming to offer them everything they may need to run their business

At the same time, Onvia.com provides sellers with a better and faster way to acquire new customers, through the sales leads that it generates

Onvia.com’s offering includes:

– Products: over 25,000 business products, ranging from computer hardware to paper clips

– Services: critical services that small businesses need to run their business, including internet access, payroll services and long-distance plans

– News and advice: Hourly updated news relevant to entrepreneurs in the new economy

A large number of companies are focusing on small businesses, trying to provide them with products and services, including: AllBusiness.com, bCentral.com, Business.com, BuyerZone.com, KillerBiz.com, Bizbuyer.com, Works.com

Onvia.com“The premier emarketplace for small

businesses”

Onvia.com is a site targeting small businesses, aiming to offer them everything they may need to run their business

At the same time, Onvia.com provides sellers with a better and faster way to acquire new customers, through the sales leads that it generates

Onvia.com’s offering includes:

– Products: over 25,000 business products, ranging from computer hardware to paper clips

– Services: critical services that small businesses need to run their business, including internet access, payroll services and long-distance plans

– News and advice: Hourly updated news relevant to entrepreneurs in the new economy

A large number of companies are focusing on small businesses, trying to provide them with products and services, including: AllBusiness.com, bCentral.com, Business.com, BuyerZone.com, KillerBiz.com, Bizbuyer.com, Works.com

Source: Onvia.com site, Industry Standard, February 7, 2000


Confidential

9

Supporting Slide 2- F:

Needs Based Segmentation

Consumers and businesses purchase goods and services because they satisfy their needs

– The same product may satisfy many different needs; a person may purchase chewing gum in order to freshen her breath, to promote dental health, to help them quit smoking, or because she enjoys the taste

Needs based segmentation seeks to understand why a purchase is made (i.e., what needs are being satisfied) and to divide the market up into groups of buyers whose needs are homogenous

Needs based segmentations are particularly compelling for technology companies because they can prevent companies from developing new technology features because they are “cool” or just because they are possible


Confidential

10

Schedulable inAdvance (e.g.,

Family Vacation)

Flexible Event(e.g., Going

Home)

Last Minute(e.g., SurpriseBirthday Party)

All Other

Families withChildren

All Other Families


All Other Families

Exhibit 2-3:

Priceline.com Segmentation

Personal

Business

Groups

Low – Middle

Income / Not Frequent

Fliers

Middle – Upper

Income / Frequent

Fliers

Students

Retirees

Trip Purpose

FlexibilityWho

Retirees

Business Trips

Students on Vacation

Group Trips

All Other Trips

Low / Mid Income Families

on Vacation

Students Going Home

Other Low / Mid Income on Vacation

High Income Families on

Vacation

Low / Mid Income on Getaways

Last Minute

De

mo

gra

ph

ics

an

d B

eh

av

ior

Occasion

High Income Non-Family Trips


Confidential

11


Family Vacation)


Home)


All Other


All Other


All Other

Exhibit 2-4:

Priceline.com Number of Airline Trips

Personal

Business

Groups

Low – Middle


Fliers

Middle – Upper

Income / Frequent

Fliers

Students

Retirees

Trip Purpose

FlexibilityWho

Retirees

Business TripsBusiness Trips

Students on Students on VacationVacation

Group TripsGroup Trips

All Other TripsAll Other Trips

Low / Mid Income Families

on Vacation

Students Going Students Going HomeHome

Other Low / Mid Other Low / Mid Income on Income on VacationVacation

High Income High Income Families on Families on

VacationVacation

Low / Mid Low / Mid Income on Income on GetawaysGetaways

Last MinuteLast Minute

De

mo

gra

ph

ics

an

d B

eh

av

ior

Occasion

= 5%±2% = 10%±2% = 40%±5%



Confidential

12


Family Vacation)


Home)


All Other


All Other


All Other

Exhibit 2-5:

Priceline.com Segment Prioritization

Personal

Business

Groups

Low – Middle


Fliers

Middle – Upper

Income / Frequent

Fliers

Students

Retirees

Trip Purpose

FlexibilityWho

RetireesRetirees

Business Trips

Students on Students on VacationVacation

Group Trips

All Other Trips

Low / Mid Low / Mid Income Families Income Families

on Vacationon Vacation

Students Going Students Going HomeHome

Other Low / Mid Other Low / Mid Income on Income on VacationVacation

High Income Families on

Vacation

Low / Mid Low / Mid Income on Income on GetawaysGetaways

Last MinuteLast Minute

De

mo

gra

ph

ics

an

d B

eh

av

ior

Occasion

= Primary Focus = Approximately 45%–55% of the Total Market

Total Number of Trips = 45%–55% of the Market

Total Number of Trips = 45%–55% of the Market



Confidential

13

Exhibit 2-6:Segmenting Individual Customers

Amazon.com Homepage for Two Different Customers

Targeting Targeting Individual Individual

CustomersCustomers

Targeting Targeting Individual Individual

CustomersCustomers


Confidential

14

Exhibit 2-7:

Competitor Profiling — Eastman Kodak

Eastman Kodak

PurchaseCamera

Purchase Film

Take Pictures

Digitally ManipulatePictures

Print and Receive Pictures

SharePictures

Store Pictureson CD

Purchase Accessories

Download and Choose Pictures to

Print

HP

Olympus

Snapfish

Moto Photo

Geocities

Seattle Filmworks

District

Ofoto

HP

AdobeSystems

Fuji

cameraworks.com

Snapfish

Shutterfly

Direct Competition

IndirectCompetition


Confidential

15

Exhibit 2-8:

Competitor Mapping to Selected Segments for Priceline

High performance level Medium performance level Low performance level


Confidential

16

Exhibit 2-9:

Priceline.com Overall Opportunity Assessment

PositiveFactor

NeutralFactor

NegativeFactor

CompetitiveVulnerability

TechnicalVulnerability

Magnitude ofUnmet Need

InteractionBetween

Segments

Likely Rate ofGrowth

TechnologyVulnerability

Market Size Level ofProfitability


Confidential

17

Exhibit 2-10:

Schwab: Defining Existing or New Value System

How?

Making markets more efficient

Compress or eliminate steps in current value systems

Enabling ease of access

Disrupting current pricing power

Customizing offerings

Extend reach / access

Building community

Collaborating across multiple people, locations and time

Introducing new-to-the-world functionality or experience

ReleaseTrapped

Value

Create NewValue


Confidential

18

Exhibit 2-11:

Schwab: Unmet and Underserved Needs (1997 Timeframe)

Plan Savings GoalPlan Savings GoalPlan Savings GoalPlan Savings Goal

Determine Optimal Asset AllocationDetermine Optimal Asset AllocationDetermine Optimal Asset AllocationDetermine Optimal Asset Allocation

Receive Ideas and RecommendationsReceive Ideas and RecommendationsReceive Ideas and RecommendationsReceive Ideas and Recommendations

Place OrderPlace OrderPlace OrderPlace Order

Sell StockSell StockSell StockSell Stock

Research StocksResearch StocksResearch StocksResearch Stocks

Track Portfolio PerformanceTrack Portfolio PerformanceTrack Portfolio PerformanceTrack Portfolio Performance

Receive DividendsReceive DividendsReceive DividendsReceive Dividends

Unmet and Underserved Needs

Planning tools to simplify goal setting

Tax ReportingTax ReportingTax ReportingTax Reporting

Aggregation of investment information

Place order and track status anytime, anywhere

Access real time account information

Place order and track status anytime, anywhere

Download to tax software

Education on investing

Process Steps


Confidential

19

Supporting Slide 2- G:

Schwab — Opportunity Attractiveness vs. Resource Availability

High

Low High

Low

Opportunity Attractiveness

Resource Availability

Note: Opportunity attractiveness based on competition level and opportunity financials

Full Management

Low Price

Quality Advice

Customer Service

Quality Information


Confidential

20

Supporting Slide 2- H:

Schwab Resource Availability

Company Capabilities Partner Capabilities Overall

Segments

Capability highly addressing segment need

Capability moderately addressing segment need

Capability not addressing segment need


Confidential

21

Demographic Geographic Needs-basedClickthrough-

based

Meaningful

Actionable —Online

Actionable —Offline

Substantial

Measurable

Supporting Slide 2-I: Effectiveness of Different Segmentation Methods

= Low = High

Segmentation MethodsSegmentation

Criteria


Confidential

22

Supporting Slide 2- J:

Needs Based Segmentation: Charles Schwab

Source: Jeffrey Veen, Hot Wired Style, Monitor Analysis

“Saving For a Goal”“Saving For a Goal”

Saving for retirement

Saving for college

Saving for house down payment

Saving for retirement

Saving for college

Saving for house down payment

“Traders”“Traders”

Hobby investors

Active traders

Hobby investors

Active traders

“Financial Planning”“Financial Planning”

Estate planners

Tax planners

Trust fund managers

Estate planners

Tax planners

Trust fund managers

Schwab’s market segments fall into three categories


Confidential

23

Supporting Slide 2- K:

Types of Needs and Tools to Surface Them

Survey Focus Group Interview Observation ZMET

Standard Tools New Tools

ManifestedNeeds

LatentNeeds

Tool highly surfaces need

Tool moderately surfaces need

Tool does not surface need


Confidential

24

Professional<$150k

Professional>$150k

Professional<$150k

Professional>$150k

Exhibit 2-12:

Schwab Segmentation (1997 Timeframe)

Buy and Hold

Current Offline Schwab

Customer

High Net Worth (<$1M)

Mar

ried

No

t S

ch

wa

b C

us

tom

er

Other White Collar

Frequent Trades

Sin

gle

Blue Collar

RetireeUniversity Student

Ch

ild

ren

> 3

0N

o

Ch

ild

ren

< 3

0

Mature( > 55)

High Priority Secondary Priority Tertiary Priority De-emphasize

C I

J K

D

E

A

G

H

F

M

L

N

O PB


Confidential

25

Segments Schwab Merrill Lynch Ameritrade DLJ Direct

B. High Net Worth

Independentfinancial advisors

Advice forplatinummembers

High qualityinformationservice

Advice andaccess toanalysis

Portfoliomanagement

No advice Limited research Bare bones

service

Comprehensiveresearch

High qualityservice

Serviceprofessionalassigned toclients with atleast $1M inassets

G. Buy and Hold(>$150K)


High level ofservice

Moderate price

High price Access to

analysis

Lowest price ($8 /trade)

Limited researchtools (companyprofiles andearningsestimates)


IPO centerallowing investorsto participate inIPOs

Moderate price

J. Frequent Traders(<$150K)

High quality ofinformation

Reduced pricesfor frequenttraders

Multiple channelsfor trading(phone, on-line,branch)

Eventually:

Velocity software(introducedAugust 1999)

Very high price

Lowest price($8 / trade)

Limited research

Eventually:

Multiple channelsfor trading(including online,telephone, weband wireless)

Free real-timequotes andcurrent financialnews

No pricereduction forfrequent traders

Eventually:

Marketspeed 3.0providing fastertrade execution

Wireless alertsand trading

Real-time quotes,streaming news

High performance level Medium performance level Low performance level

Exhibit 2-13:

Schwab — Competitor Map to Segments


Confidential

26

Exhibit 2-14:

Schwab.com Overall Opportunity Assessment

PositiveFactor

NeutralFactor

NegativeFactor

CompetitiveVulnerability

TechnicalVulnerability

Magnitude ofUnmet Need

InteractionBetween

Segments

Likely Rate ofGrowth

TechnologyVulnerability

Market Size Level ofProfitability

Documents

Chapter 2 Enhanced Lecture Slides Framing Market Opportunity