(4) market segmentation, (5) loyalty programs, (6) product extension and new product development, (7) special customer service, (8) product “Lock-in” or “tie in,” and (9) preemptive new product announcements
Readers might recognize the nonprice variable as important tools of marketing. In a typical corporation, the management of these variables (sometimes called the marketing mix) is largely) the responsibility of the marketing function A complete discussion of each variable is well beyond the scope of this text and in fact would be found in any marketing text. But we comment briefly on some of these variables in terms of their expected impact on the non-price determinants of demand:
1. Tastes and preferences: Advertising and promotion are intended to influence and preferences. Very often, advertising and promotional campaigns are tied into the building or support of a brand. A common means of enhancing these campaigns is the use of celebrities as a representative of a brand. Brand advertising and promotion are often combined with market segmentation. In this case, rather than try to influence tastes and preferences, firms try to target different market segment in which they believe their product will have the greatest appeal. In recent years, efforts to retain customers over the long term have become as important to firms as those designed to win new customers. Thus, loyalty programs such as points given for using a credit card, for mileage traveled on an airline, or for slaying at a hotel have been an important means of influencing tastes and preferences.
2. Income: Firms cannot affect income. But market segmentation it a way for firms to focus on the income levels that they believe will be most likely to buy their product. If they are selling a "superior" product, then they would try to target higher income groups. The opposite would hold if they believed their products were "inferior." (Refer to chapter 4 for a discussion on the economic meaning of superior and inferior products.) An article in the Wall Street Journal pointed out how Volvo (owned by Ford) and Saab (owned by General Motors) have both fallen considerably behind the German and Japanese luxury car brands. In early 2002, they announced that they were going to try to catch up in this market segment by introducing their versions of upscale SUVs. Volvo’s SUV has attracted consumer interest and demand. Saab is much less successful today.
3. Prices of substitutes and complements: Efforts lock-in customer will tend to reduce the effect that changes in the prices of substitutes will have on the products that firms sell. This effort may be fairly aggressive, such as wireless phone companies offering discounts or free mobile phones for long-term contracts but levying a penalty if customers want to get out before the expiration date. In contrast, this effort may be lather subtle. In effect, Microsoft locks in the use of its PC applications such as Word or PowerPoint through the "network effect."
4. Number of buyers: Firms also can use effective market segmentation to increase the number of potential buyers of their product. For example, according to Paul Ballew, a market analyst for General Motors, in 2001, the richest 20 percent of Americans accounted for 46 percent of new car purchases as compared with only 30 percent in 1995. In the words of Paul Ballew, this represents "a phenomenal structural change in [the auto] industry." He goes on to say that “Your primary vehicle buyer is increasingly a dual-income, 40-something-year-old couple where [at least] one member has a college degree.” Firms also can increase the number of potential buyers in the market operations beyond their borders. For example, both Wal-Mart and Carrefour (a French retail chain similar to Wal-Mart) have made major investments in