Chapter 2 Framing Market Opportunity

1. Chapter 2 Framing Market Opportunity

2. Exhibit 2-1:Framework for Diagnosing Market Opportunity Seed Opportunity in Existing or New Value System Uncover Opportunity Nucleus: Identify Unmet and Underserved Needs Identify Target Segments Declare Company’s Resource-Based Opportunity for Advantage Assess Competitive, Technical and Financial Opportunity Attractiveness Make Go / No Go Assessment

3. Supporting Slide 2-A:Requirements of an Effective Segmentation In order for a customer segmentation to be effective, it must be meaningful, actionable, measurable and substantial Meaningful • 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 Actionable • 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 Substantial • 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 Measurable • 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)

4. Table 2-1:Segmentation Approaches

5. Supporting Slide 2- B:Geographic Segmentation — Description 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 Segmentation Examples • Country • Region • Urban vs Rural • Density • Climate Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 257)

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

7. Supporting Slide 2- D:Demographic Segmentation — Description Description Segmentation Examples B2C: Demographic • Market division into groups based on customer demographic variables • Most popular method for distinguishing customer groups, highly actionable • Age • Income • Occupation • Nationality B2B: Firmographic • Market division into groups based on business demographic variables • Highly actionable, since business demographic data readily available • Industry • Company size • Location Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 258)

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

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

10. Reflect.com

11. Segmentation • Does Segmentation Matter on the Web?

12. CNN Custom News

13. The Auto Industry • Build-to-Order Technology Is Changing the Auto Industry (video, 4/8/2001, On 24)

14. Exhibit 2-3: Priceline.com Segmentation Occasion Trip Purpose Personal Business Flexibility Who Last Minute All Other Trips Business Trips Students on Vacation Students Going Home Students Retirees Retirees Low – Middle Income / Not Frequent Fliers Low / Mid Income on Getaways Low / Mid Income Families on Vacation Other Low / Mid Income on Vacation Demographics and Behavior Middle – Upper Income / Frequent Fliers High Income Families on Vacation High Income Non-Family Trips Group Trips Groups

15. Exhibit 2-4:Priceline.com Number of Airline Trips Occasion Trip Purpose Personal Business Flexibility Who Last Minute All Other Trips Business Trips Students on Vacation Students Going Home Students Retirees Retirees Low – Middle Income / Not Frequent Fliers Low / Mid Income on Getaways Low / Mid Income Families on Vacation Other Low / Mid Income on Vacation Demographics and Behavior Middle – Upper Income / Frequent Fliers High Income Families on Vacation High Income Non-Family Trips Group Trips Groups = 5%±2% = 10%±2% = 40%±5%

16. Exhibit 2-5: Priceline.com Segment Prioritization Occasion Trip Purpose Personal Business Flexibility Who Last Minute All Other Trips Business Trips Students on Vacation Students Going Home Students Retirees Retirees Low – Middle Income / Not Frequent Fliers Low / Mid Income on Getaways Low / Mid Income Families on Vacation Other Low / Mid Income on Vacation Demographics and Behavior Middle – Upper Income / Frequent Fliers High Income Families on Vacation Total Number of Trips = 45%–55% of the Market High Income Non-Family Trips Group Trips Groups = Approximately 45%–55% of the Total Market = Primary Focus

17. Exhibit 2-6:Segmenting Individual CustomersAmazon.com Homepage for Two Different Customers Targeting Individual Customers

18. Exhibit 2-7: Competitor Profiling — Eastman Kodak • HP • Olympus • cameraworks.com • Snapfish Eastman Kodak • Fuji PurchaseCamera Purchase Accessories Purchase Film • Moto Photo Take Pictures Store Pictureson CD Direct Competition IndirectCompetition Digitally ManipulatePictures SharePictures • Seattle Filmworks • AdobeSystems Download and Choose Pictures to Print Print and Receive Pictures • Geocities • Shutterfly • District • Ofoto • Snapfish • HP

19. Exhibit 2-8: Competitor Mapping to Selected Segments for Priceline High performance level Medium performance level Low performance level

20. Exhibit 2-9:Priceline.com Overall Opportunity Assessment

21. Exhibit 2-10: Schwab: Defining Existing or New Value System ReleaseTrappedValue Create NewValue

22. Exhibit 2-11:Schwab: Unmet and Underserved Needs (1997 Timeframe) Process Steps Unmet and Underserved Needs Plan Savings Goal • Planning tools to simplify goal setting Determine Optimal Asset Allocation • Education on investing Receive Ideas and Recommendations Research Stocks • Aggregation of investment information Place Order • Place order and track status anytime, anywhere Track Portfolio Performance • Access real time account information Receive Dividends Sell Stock • Place order and track status anytime, anywhere Tax Reporting • Download to tax software

23. Supporting Slide 2- G:Schwab — Opportunity Attractiveness vs. Resource Availability Quality Information High Customer Service Quality Advice Opportunity Attractiveness Low Low Price Full Management Low High Resource Availability Note: Opportunity attractiveness based on competition level and opportunity financials

24. Supporting Slide 2- H: Schwab Resource Availability Capability highly addressing segment need Capability moderately addressing segment need Capability not addressing segment need Segments Partner Capabilities Company Capabilities Overall

25. Supporting Slide 2-I: Effectiveness of Different Segmentation Methods = Low = High Segmentation Methods Segmentation Criteria

26. Supporting Slide 2- J: Needs Based Segmentation: Charles Schwab “Saving For a Goal” “Financial Planning” “Traders” • Saving for retirement • Saving for college • Saving for house down payment • Estate planners • Tax planners • Trust fund managers • Hobby investors • Active traders Schwab’s market segments fall into three categories Source: Jeffrey Veen, Hot Wired Style, Monitor Analysis

27. Supporting Slide 2- K: Types of Needs and Tools to Surface Them Standard Tools New Tools ManifestedNeeds LatentNeeds Tool highly surfaces need Tool moderately surfaces need Tool does not surface need

28. Exhibit 2-12: Schwab Segmentation (1997 Timeframe) Secondary Priority High Priority Tertiary Priority De-emphasize Other White Collar Blue Collar Retiree University Student High Net Worth (<$1M) Buy and Hold Frequent Trades Current Offline Schwab Customer A < 30 C I Single > 30 L D G N No Children B O P J K Not Schwab Customer Married Children E H M Mature( > 55) F

29. Exhibit 2-13: Schwab — Competitor Map to Segments High performance level Low performance level Medium performance level

30. Exhibit 2-14: Schwab.com Overall Opportunity Assessment