Business in-class 1/15/15Attractiveness Scores: Costumer Survey Score (CSS)7 criteria:1. Product position (performance and size)2. MTBF (mean time between failure)3. Price4. Age (years since initial introduction)5. Awareness (how aware your costumers are about your products)6. Accessibility (how easily your costumers are able to find/purchase your product7. Accounts Receivable policy (your costumers’ ability to purchase your producton credit)Attractiveness Scores:Attractiveness scores represent market research that has been done for you and provided for your useProfit Maximization:Setting prices so that total revenue is as large as possible relative to total costWho are my costumers?Segmenting Markets: Target Markets- What are the market segments in Foundation- In terms of units sold, what is the largest (smallest) market segment in Foundation- How fast is demand growing in the low tech segment? High tehc segment?Marketing:-Who are your potential costumers?-How big is the market?-How fast is it growing?-Can you usefully group your customers?-What do they want from you?The four Ps+Service:- Product: What are the product characteristics- Price: How much will they pay?- Place: Where do they buy my product?- Promotion: How do they learn about my product?- Service: What level of service will I experienceThe Impact of Service:The service element can be particularly influential for “commodity” products—thoseproducts that are similar to each other without meaningful differentiationProduct Questions:What do they want?1. What are the characteristics of the product that are important to costumers?2. What is the most important product characteristic in the low tech segment? In the high tech segment?3. What is “perceived age” of a product?4. How is reliability measured?5. What will increase material costs?What are the characteristics of the product that are important to customers?Electronic sensors-Size-Performance (Processing speed)-Reliability (MTBF)-Age: how recently has it been updatedSegment Criteria Ranking:What is the most important product characteristic in the low tech segment? In the high tech segment?Low tech1. Price2. Age3. Reliability4. PositioningHigh Tech1. Positioning2. Age3. Price4. ReliabilityAge: Low techGeneral Questions:-How do you manage age?-What is the ideal age?Management questions:-What is the ideal age range?-When do you revise a low tech product to manage age?Perceived Age:What is the perceived age of a product? You introduce a product on July 1, 2010-On July 1, 2010, it is 0 years old-On December 31, 2010, it will be .5 years old-On Decemeber 231, 2011, it will be 1.5 years oldYour reposition (change the size and/or performance) and the revision date is July 1,2010-On June 30, 2010, it is almost 2 years old-On July 1,2010 its perceived age is cut in half (2*.5=1)*Foundation rule- A change in size/or performance to an existing product creates a revision date that appears on the spreadsheet. When that date occurs, the age of the product is divided by two to reflect the new and improved status of the changed product Pricing:What is the trade-off?Revenue= price per unit x number of units-Higher price= more revenue per unitHigher= fewer units-Lower price- less revenue per unitLower price= more unitsStrategy:Create a company that will allow you to compete on price (lower your prices) and still meet your performance targets-Lower your material costs-Lower your labor costsMarketing StrategiesPricing strategy-Impact: Volume-Impact: Marginal revenueWhat is the difference between your price and unit cost? Contribution margin per unitPromotion and Sales-Impact: Increased period costs and salesPromotion and Awareness:Promotion= your messageAwareness= percent of market that received the message. Lose 33% awareness/yearpromo budget replaces (diminishing returns)*Foundation rule- One-third of the costumers that have seen a promotional tactic in the past year, are unable to remember the purpose of that promotionMean Time Between Failure (MTBF)How is reliability measured? MTBFHow long can I expect your product to reliably function?1. Take 200 sensors—plug them in and run them—count the hours before they fail2. Calculate the average (arithmetic mean) time between failuresManaging Low Tech MTBFRange: 14,000-20,000 hoursTradeoff:- Higher the MTBF, the greater the demand (limit: until the top of the range)- Higher the MTBF, the greater the cost of materialsLow Tech position:- To manage the age, you revise your product every 2 years- Every year, the Ideal spot is .5 units smaller and .5 units faster- Your position your product on the ideal spot with an age of 2- Every 2 years you revise to manage the age- How much smaller and how much faster would you make it?Product Strategy: Low tech products- Price: As much as you can and still meet your goals with the consideration that price competition requires efficient - Revise Product: Only manage the age (ideal= 3) range over the year: 2-3 or 3-4- MTBF: Never above 20,000Managing High Tech Products:- The ideal high tech product is a new product- The almost ideal High tech product is:-On (or near) the ideal spot every year-As young as possible- How much does the center of the high tech segment drift on the perceptual map?-.7 units faster: .7 units smaller- How much does the ideal spot of the High Tech segment drift-.7 units faster; .7 units smaller- Ideal spot is most important- revise every year to keep it on or near the ideal: .7 units faster, .7 units smaller- Age is 2nd most important- revise every year to keep it as young as possible- Price is 3rd important- charge as much as you can and still meet your sales goal- MTBF set it at 23,000 hours and leave it aloneTrade-offs- Higher price-Fewer people buy- make more $ on each- Lower price-More people buy- make less $ on each- New product-Expense of development- new costumers- Old products-Loss of appeal- no