Answer the following question stated in a paragraph. “An error they are making with market segmentation” *article is listed below Product Case Study Sam and Micaela first met while studying marketing at San Juan College. Both were ambitious and had plans to run their own businesses. Over time they decided to start a business together. Initially they spent many months discussing what sort of business they should go into. They considered various service businesses, like consulting or an internet- based training offering. However, it was eventually an opportunity in the children’s toy market that appeared to have good potential. They had observed that parents were becoming increasingly time-poor and, as a result, had less time to spend with their children. And in order to compensate for this, the parents typically spent large amounts on their children to entertain them. Obvious examples were the success of PlayStations, iPads, PC’s, and mobile phones. Sam argued, “these are big ticket items. The level of spending on children is dramatically increasing – and this trend should continue. Parents are simply looking for things to keep their children entertained for long periods of time – and the only solution is expensive electronic gadgets. If we can bring some alternative games and toys to the market, then we should fill a large market need and also hit a competitive gap.” Micaela agreed that this was the most viable opportunity that they had so far considered – and hence “S & M Toys” (named after their initials) was born. Let’s do some research Having set the direction for the business, the next step was to identify what products they could bring to the market. Not having children of their own, they called upon the expertise of their fellow student Matt, who was a father of four young children. Through a series of discussions over coffee, various possible ideas were canvassed, such as: • Talking books that teach languages. That is, touch a picture in a book and it says the word in different languages (whichever one you want to learn) • An interactive doll that can actually have conservations with the child. That is, some sort of smart logic that allows it to make sensible responses (somewhat like the ‘help’ function with software) • A board game that you can play by yourself (but not on a PC). For example, you play Monopoly against pretend opponents that are built into the ‘electronic’ circuits of a sophisticated game board. Although there were probably a few other good ideas thrown around, both Sam and Micaela felt (without doing any formal evaluation) that they really hadn’t stumbled across a really strong product concept. The break-through A few weeks after this first meeting, the S & M team met up with Julia and Thomas, also students from their college classes. “I like the S & M name”, said Thomas, “It’s really suitable for the kid’s market. It’s a sort of a play on M&M’s, which is a well-known chocolate. Therefore, you might be able to leverage some sort of connection there, to help launch the brand.” “Yeah, good idea – didn’t think of that connection. We might be able to do something with it down the track,” said Micaela. Launch plans were one thing, but what was lacking now was some strong product concepts, and that’s where they thought Julia and Thomas might be able to help. After discussing their various ideas to date, and highlighting that they just felt that their ideas were too technical (which was not their expertise), they admitted they were becoming a little concerned whether they could actually take advantage of their chosen opportunity. “Just an idea,” Julia said after a few moments silence, “But aren’t most of your ideas targeted at extremely smart kids?” Sam and Micaela nodded and told her that they believed that parents would spend more money on ‘gifted’ children, and even most of the private educational services appeared to be targeted at smarter kids. “But aren’t you guys after a gap in the market? Maybe you should look at average kids instead!” said Thomas. “Maybe something like ‘simple toys for simple kids’ is the right approach,” said Julia. It wasn’t the right words, but the idea sure seemed right! After that breakthrough, the group of four quickly went into a productive ad hoc brainstorming session. Some of the ideas generated included: • Scrabble with extra vowels and zero points for hard letters, • Table tennis tables with bigger racquets and bigger slower balls, and • Ugly dolls (to make ugly kids feel beautiful). Let’s roll the dice However, the one idea that seemed to stand out, as the one to go ahead with was a board game with an electronic dice system. This dice system would be programmable, so that selected players would always get better rolls of the dice. This would mean that the ‘selected’ child would win more often (rather than parents pretending to lose). This would, of course, be more fun for the child and they would want to play longer and more often. What was especially exciting about this concept was that it lent itself to a range of board games. So, once they had the technology developed, it should be a simple manner to modify the programming for different styles of games. “OK, Sam, let’s get some customer feedback by organizing a quick survey. We can do it ourselves and just stop parents, say outside s supermarket store, and say we are doing a survey for college,” said Micaela. One week later they were in the field with their questionnaire. They did their best to explain their concept as follows: This board game allows for children of different ages to compete on an equal basis both amongst themselves and against adults. This is possible because of a simple electronic dice system that will give better dice rolls to selected players. A total of 5 settings are available, thereby enabling children of different playing ability to have the same, or a better, chance of winning. After they managed to interview 50 respondents, they decided that they had enough information. It was a lot harder getting the interview than they had imagined. They tried to approach people with children, but most said they were too busy, or it was too awkward with the kids running around. The survey outcomes were quite encouraging though. While only 5% said that would definitely buy, 30% said that they would probably buy. The main reasons parents stated for NOT buying the game was that it would be: • “unfair”, • “cause more fights among the kids”, • “too confusing”, • “always needing batteries” • “more fun rolling your own dice”. But these negatives were disregarded, “About 1/3 of parents will buy this game – that’s a strong result,” they concluded. “Let’s move on to the next step.” Making it happen Their next step was finding a company who could manufacture a system device. Micaela knew someone who could write the software program. Apparently, a simple ‘race’ board game (where the object was to get around the board first), was a very simple program. All you would need would be to key in number of players and their individual ‘difficulty’ level. And provided no-one ‘missed-a-turn’, the ‘weaker’ players would get consistently higher numbers on the dice. After a few weeks of phone calls and emails, they finally found a factory in China that could produce the electronic dice system for $3 per unit. They had already worked out that it would be around $5 per unit to produce a simple ‘race’ game (with board, pieces, instructions, and box). With import to the United States, the total unit cost would be somewhere around $10 per unit. That seemed quite good. An ‘electronic’ style game typically retails for around $20-$40, which some of the more expensive electronic gadgets running upwards of $80, so there was plenty of margin to cover costs. What’s in a name? The S & M team now turned their attention to the product launch. They needed a good brand name – it needed to be simple and clearly communicate the game’s unique design and benefits. They considered “Cheater” (but considered it too negative), and “Bias” (too confusing). Finally, they agreed on “Head Start” – obviously, they still had to check whether they could register this name. If that was unavailable, they might just call it the S & M game instead. Once they had the name, they started looking at packaging design, board layout ideas, how to pitch the PR, a list of benefits (for the outside of the box) and so on. Cold, hard reality Things were going pretty well, although a bit slower than anticipated. Then they got an email from the factory in China. They wanted payment upfront for the electronic dice systems, with a minimum order of 5,000 units. Delivery would then be guaranteed for within two months. They also realized that the board game supplier would also have similar requirements for minimum orders and payment upfront. That means that they would have an upfront investment to make of around $50,000. Funny, but even though they had forecasted to make more than that in the first year alone, the thought of spending $50,000 (which they may lose) suddenly made them very nervous. So nervous in fact, that they have turned to you for help. What do you recommend?