MDPX42/321:

Innovation
and
Entrepreneur
ship
Dr. Ahmed Hesham
Abdelaziz
Ahesham@eng.asu.edu.eg
Effective
Segmentat
ion
 Effective Segmentation
• 1. Measurable
This means that the size, purchasing power, and characteristics of the
market segments should be quantifiable. Companies need to gather
data that allows them to estimate how many potential customers exist
within each segment and understand their buying behaviors.
• 2. Accessible
Ability of a business to reach its target segments effectively and
affordably. It involves determining the best channels through which
marketing messages can be delivered to these segments.
• 3. Substantial
It indicates that the market segment must be large enough to justify the
resources spent on targeting it.
 Effective Segmentation
4. Differentiable
Differentiability means that different segments must respond differently to
various marketing strategies or offerings. This component ensures that each
segment has distinct characteristics or needs that warrant tailored marketing
approaches. For instance, college students may have different preferences
compared to working professionals; thus, they require unique messaging and
product offerings.
5. Actionable
Finally, actionable refers to the ability of a company to implement marketing
strategies based on the identified segments effectively. Each segment should
produce measurable outcomes when targeted with specific marketing
initiatives. Businesses need to ensure they have the resources and
capabilities necessary to execute these strategies successfully.
Pricing
Strategi
es
Pricing Strategies
• 1. Cost-Plus Pricing This strategy involves calculating the total cost of producing
a product or service and then adding a markup percentage to determine the
selling price. The formula can be expressed as: Selling Price = Cost + (Cost ×
Markup Percentage) This method is straightforward but does not consider
customer demand or perceived value.
• 2. Competitive Pricing Also known as market-oriented pricing, this strategy sets
prices based on what competitors are charging for similar products or services.
Businesses may choose to price their offerings at, above, or below the market
average depending on their positioning and marketing strategy.
• 3. Value-Based Pricing In this approach, prices are determined by the perceived
value of a product or service to the customer rather than solely on production
costs. Companies using value-based pricing invest in understanding customer
needs and preferences to set prices that reflect the benefits provided.
• 4. Dynamic Pricing Dynamic pricing involves adjusting prices in real-time based
on various factors such as demand fluctuations, supply levels, competitor pricing,
and other market conditions. This strategy is commonly used in industries like
travel and e-commerce where prices can change frequently.
Pricing Strategies
• 5. Penetration Pricing Penetration pricing is used when a company sets a low
initial price for a new product to attract customers quickly and gain market share.
Once established, the company may gradually increase the price.
• 6. Price Skimming This strategy involves setting high initial prices for innovative
products with little competition and then lowering them over time as competition
increases or as the target market shifts from early adopters to more price-
sensitive consumers.
• 7. Psychological Pricing Psychological pricing leverages consumer psychology
by setting prices slightly below round numbers (e.g., $9.99 instead of $10) to
make products appear cheaper and encourage purchases.
• 8. Bundle Pricing Bundle pricing offers multiple products or services together at
a single discounted price, providing additional value to customers while
increasing overall sales volume.
• Each of these strategies has its advantages and disadvantages depending on
factors such as industry dynamics, target market characteristics, cost structures,
and business objectives.
Types of Costs
• 1. Direct Costs Direct costs are expenses that can be directly traced to a
specific product, service, or project. These include costs such as raw materials,
direct labor, and any other expenses that are directly attributable to the
production of goods or services.
• 2. Indirect Costs Indirect costs cannot be directly traced to a specific product or
service. Instead, these costs benefit multiple projects or departments within an
organization. Examples include utilities, rent, and administrative salaries.
• 3. Fixed Costs Fixed costs remain constant regardless of the level of production
or sales activity within a certain range. They do not fluctuate with changes in
output volume. Common examples include rent, salaries of permanent staff, and
insurance premiums.
• 4. Variable Costs Variable costs change in direct proportion to changes in
production volume. As production increases, variable costs increase; conversely,
they decrease when production levels drop. Examples include raw materials and
direct labor associated with manufacturing.
• 5. Operating Costs Operating costs refer to the expenses incurred during
normal business operations. These can be either fixed or variable and typically
include rent, utilities, wages, and other day-to-day operational expenses.
Types of Costs
6. Opportunity Costs Opportunity cost refers to the potential benefits lost
when one alternative is chosen over another. It represents the value of the
next best alternative that is forgone when making a decision.
7. Sunk Costs Sunk costs are historical costs that have already been
incurred and cannot be recovered. These should not influence current
decision-making since they will not change regardless of future outcomes.
8. Controllable Costs Controllable costs are those that can be influenced
by management decisions within a certain period. Managers have control
over these expenses and can adjust them based on operational needs.
9. Semi-Variable Costs Semi-variable costs contain both fixed and variable
components; they remain constant up to a certain level of activity but
increase once that threshold is exceeded.
Product Mix
• Product mix, also known as product assortment or product
portfolio, refers to the complete set of products and/or services
offered by a firm. It encompasses all the different product lines
that a company markets, which are groups of related products
that share similar characteristics or functions.
Components of Product Mix
1.Width (or Breadth): This dimension indicates the number of
different product lines a company offers. For example, if a company
sells both electronics and clothing, it has a wider product mix
compared to a company that only sells electronics.
2.Length: This refers to the total number of products within all the
product lines. For instance, if a car manufacturer has multiple
models under each series, the total count of those models
contributes to the length of its product mix.
3.Depth: Depth measures the number of variations within each
product line. For example, if a smartphone brand offers several
versions with different features (like storage capacity or color), this
variety adds depth to its product line.
4.Consistency: Consistency assesses how closely related the various
product lines are in terms of their end-use, production processes,
and distribution channels. A high level of consistency means that
products share similar attributes or purposes.
Importance of Product Mix
• Understanding and managing a company’s product mix is crucial for
several reasons:
• It helps businesses cater to diverse consumer needs by offering
various options.
• A well-defined product mix can enhance brand image and market
positioning.
• It allows companies to reduce risk by diversifying their offerings
instead of relying on a single product line.
• An optimized product mix can lead to increased profitability by
meeting changing consumer preferences effectively.
• In summary, the concept of product mix plays an integral role in
defining how companies position themselves in the market and how
they meet customer demands through their range of products and
services.
 • A business model is a strategic
framework that outlines how a company
creates, delivers, and captures value. It
Business serves as a blueprint for how the
Models organization operates, detailing the
products or services it offers, the target
market it aims to serve, and the revenue
streams it expects to generate.
 1. Retailer Model
In this model, retailers purchase goods from
manufacturers or wholesalers and sell them directly
to consumers at a markup. This is one of the most
straightforward business models and includes
physical stores as well as e-commerce platforms.
Types of 2. Manufacturer Model
Business Manufacturers create products from raw materials
or components. They may sell these products
Models directly to consumers, through distributors, or to
retailers. This model requires significant investment
in production capabilities.
3. Fee-for-Service Model
This model focuses on providing services rather
than physical products. Businesses charge clients
based on the services rendered, which can be
billed hourly or at a fixed rate for specific tasks.
Types of Business Models
4. Subscription Model
Businesses using this model offer products or services on a recurring basis
for a set fee, often monthly or annually. This model is popular among digital
companies (like streaming services) but is also used for physical goods.

5. Franchise Model
Franchising allows individuals to operate a business under an established
brand by following a proven business plan. Franchisees pay fees to the
franchisor in exchange for support and brand recognition.

6. Affiliate Model
In this model, businesses partner with affiliates who promote their products
or services in exchange for a commission on sales generated through their
marketing efforts.
Types of Business
Models
7. Freelance Model
Freelancers provide specialized services to clients
on a contract basis without being tied to long-term
employment agreements. This model offers
flexibility and low overhead costs.
8. Product-as-a-Service (PaaS) Model
This innovative model combines product sales
with ongoing service offerings, ensuring
continuous income while enhancing customer
experience through maintenance and support.
9. Marketplace Model
Marketplaces connect buyers and sellers,
facilitating transactions without holding inventory
themselves. They earn revenue through
transaction fees or commissions on sales made
through their platform.
10. Razor Blade Model
This model involves selling a primary product at a
low price while charging high margins on
complementary consumables needed for that
product’s use (e.g., printers and ink cartridges).
 Value Proposition: This defines
what makes the product or service
attractive to customers and why
they would choose it over
competitors.
Target Market: Identifying who the
customers are and understanding
Busines their needs is crucial for
tailoring offerings effectively.

s Model Revenue Streams: This includes

various ways through which the
business generates income, such as
sales, subscriptions, or
advertising.
Cost Structure: Understanding the
costs associated with running the
business helps in pricing
strategies and profitability
analysis.
 Key Activities and Resources: These
are essential operations and assets
required to deliver value to
customers.
Channels: This refers to how a company
communicates with and reaches its
customer segments to deliver its value
Busines proposition.

s Model Customer Relationships: Establishing

how a company interacts with its
customers can influence customer
loyalty and retention.
Partnerships: Collaborations with
other businesses can enhance
capabilities and expand market reach.