Exam Question and Answer on Market Segmentation

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QUESTION AND ANSWER ON MARKET SEGMENTATION
Salim Brommer is the Marketing Director of Ashkol Furniture Supplies, a medium-sized company which specializes in manufacturing office furniture. The company makes its products in India, so benefiting from relatively low labour costs. However, it has recently experienced intense competition from suppliers who have even lower cost bases. Salim has decided that his company will benefit if he focuses on those customers who can provide higher profit margins. He has decided to target domestic customers in Europe. Increasingly, private households, particularly those with computers, are converting spare rooms into office-style areas. Additionally there has been a noticeable trend towards working from home. This saves employers incurring the costs of office provision, and also employees save on travel and can also work at times convenient to themselves. However, Ashkol has no experience of dealing with these types of customers. The company now needs to develop a suitable marketing strategy to succeed in this new area and maintain a sustainable competitive advantage. Required:

a. Using a suitable model of your choice, develop a marketing approach which Salim might use to enter this new market. b. Explain how Salim could select appropriate target markets and position his products so as to create and sustain competitive advantage. Suggested Answer

Salim needs to develop a marketing strategy for entry into the domestic market in Europe. This can be achieved by looking at the factors that make up the marketing mix: product, price, place and promotion. Choosing a marketing mix

The design of the marketing mix should be decided on the basis of management intuition and judgment, together with information provided by market research. Elements in the marketing mix partly act as substitutes for each other and they must be integrated. The product needs to be positioned to appeal to the target customer. For example, Ashkol would struggle to develop a luxury brand image if they set price at a low, penetration level. Product

The physical product needs to be appropriate for the private household market. Office furniture may have a very different style to household furniture, so a different approach may need to be taken to the design of the product in order to make it appealing for the domestic buyer. A customer will only buy one of Salim’s products if they get a better deal from buying it than from buying any of the alternatives. This highlights that the nature of the products in the new range will need to meet the demands of the new target market. Areas to consider here are design (size, shape) and features. For example, it may need to be smaller and made of better quality material. The space available in domestic accommodation is likely to be quite restricted, so some standard items may not sell well simply because they are too large. Multi-purpose items, such as desks that incorporate filing drawers and PC monitor stands may be required. Place

Place deals with how the product is distributed, and how it reaches its customers. Establishing a suitable distribution system is going to be one of Salim’s largest tasks. His products are bulky and will therefore have to be transported by ship from India to Europe, probably in freight containers, which will impose a minimum economic scale of shipment. Distribution Channels

Serious consideration will have to be given to how customers will be able to view, order and receive delivery of the products. Furniture showrooms are necessarily large areas and need to be in areas where customers will be attracted. Even if selling is by direct mail or over the Internet, there will be probably have to be a warehouse to receive bulk shipments from India, break them down and dispatch individual orders. All this has major cost implications perhaps offsetting the cost savings from cheaper labour. These considerations alone may push Salim towards a co-operative...
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