Market Research

Principles of Marketing – MKTG 3010-004 Spring 2019 Homework 4: STP and New Products Due by the start of class on Wednesday 20 March.

Overview: For this assignment, assume that you have been hired to do market research for Harley-Davidson, Inc.

The company is a publically traded manufacturer of motorcycles that also licenses various branded accessories.

Your job is to (Part 1) analyze some customer segments in the US market, (Part 2) recommend a target segment to

Harley-Davidson management, and (Part 3) come up with some product ideas for the target segment.

Instructions for “deliverables” and point values. Please combine your written answers for Parts 1-3 into one pdf

document. Submit your document and your spreadsheet on Canvas.

Part 1: Analyze the 3 segments

(6 points) Calculate the CLV for each segment using the CLV spreadsheet, save the results, and submit via

Canvas. Short descriptions of the segments follow these instructions.

(6 points) Describe the pros and cons of each of the 3 segments for Harley-Davidson Inc., referring to your

CLV results and any other information you think is important to consider.

Part 2: Recommend a target segment

(2 points) Recommend one of the segments to H-D management as a target segment. What are the two

biggest reasons for your choice of this segment?

(2 points) Invent a Customer Persona for your target segment. Recall from class that a Persona (also

sometimes called an Avatar) is a summary of a target segment. A Persona uses is an invented individual

person’s identity as an overview of an entire consumer segment. We looked at some examples of

Persona descriptions in previous classes.

Invent a brief Persona for your target segment with the following elements: a pretend name and picture,

one or two characteristics of the segment (you can make something up if needed), and a fictional quote

from your Persona that expresses the Persona’s core need to be fulfilled. Although a Persona is fictitious,

it should seem as realistic as possible in matching the information you have.

Part 3: Suggest some new products.

(2 points) For your target segment, come up with an idea for a viable new product that is heavily in the

“physical good” side of the goods-services continuum. Describe the product and explain why it is a good

fit for the target.

(2 points) Come up with a second product idea that is heavily in the “service” end of the continuum.

Describe the product and explain why it is a good fit for the target.

Overview of the Three Segments

The first segment are consumers who are fans of in the brand, but don’t show extreme immersion in the brand or

associated lifestyle. These consumers may or may not own a motorcycle, and if they do, they don’t use it as a

primary means of transport. Instead, they may take a “cruising” vacation for a week or less with a spouse or close

friends. Those who don’t own motorcycles mostly purchase licensed H-D clothing such as shirts, hats, and leather

jackets. Those who do own a motorcycle also buy riding-specific clothing and helmets, as well as occasional parts

and services at H-D dealerships. You estimate that the addressable size of this segment (that is, the number of

customers in this segment H-D could capture in the immediate future) is about 200,000. These customers are

65% male, tend to be between 45 and 70 years old, and have income in the upper two quintiles of the population.

Annual margins for this group are estimated at $40.00 per year, and retention rate at 65%.

The second segment are consumers who aren’t interested in motorcycles outside of a current fashion trend

involving US motorcycle brands (i.e., H-D and Indian). These customers are interested in buying H-D clothing,

jewelry, and other accessories. Most of them will not visit a dealership or ride a motorcycle, even as a passenger.

This group is 85% female, generally in the age range of 25-45, and has income in the top 2/3 of the population.

Addressable market size is approximately 400,000. These customers are unlikely to convert to motorcycle riders.

Annual margins are thought to be $80.00, with a retention rate of 20%.

Consumers in the final segment might be described as “hard core” aficionados of H-D. If they buy a motorcycle, it

is unlikely to be a foreign brand, and they are likely to use the motorcycle as much as weather permits, including

to commute. Addressable market size is around 100,000. These customers are middle-aged in general, 80% male,

and have income that spans a wide range. Their purchases are likely to come from dealerships, and focus on

clothing and parts that enhance their ability to ride and enjoy riding. Yearly margins are $25, with a retention rate

of 95%.

CLV Spreadsheet

In the spreadsheet named “Homework Basic CLV,” you’ll see an incomplete area corresponding to each of the

three segments. Begin by filling in the blue cells on the left with information about margins, retention rates, and

discount rates for each segment. Use 10% as the discount rate in all cases, and remember that retention and

discount rates are converted to decimal equivalents. On the left, some cells will automatically complete based on

the information you entered.

Next, for the first segment, autofill1 each row in the table by doing the following:

- Select the cell with the Year 1 margin for the first segment, cell H3. Autofill the row to complete

entries for all 10 years in the table (that is, through cell Q3).

- Select cell I4, with Year 2 Cumulative Retention Rate, and autofill to Year 10.

- Select cell I5, with Year 2 Cumulative Discount Rate, and autofill to complete the row.

- Select cell H6, with Year 1 Present Value, and autofill the row.

1 Autofill is sort of a speedy version of copying and pasting in Excel. To use this function, select a cell (this will work for a group of cells as well, but you won’t want to do it for this homework assignment) and rest the cursor on the lower right corner of the selected cell. The cursor will change from a fat white + symbol to a slim black one. While the cursor is a black + symbol, left click and hold your mouse, and drag the cell across the area you want to fill by autocompletion. Let go of the mouse button when you’ve reached the end of your target range. In this case, you will separately use autocomplete for each row of the table for each segment, so you will have numbers in each cell from Year 1 to Year 10.

- Finally, select Year 2 Cumulative NPV, cell I7, and autofill.

Repeat these steps for the rows corresponding to the remaining two segments.

You may notice that the Year 10 Cumulative NPV doesn’t always exactly match the CLV given by the formula built

into the cells at the far right of the sheet (e.g., cell S7 for the first segment). The reason is that the basic formula

outlined above assumes that the customer’s lifetime is an infinite number of periods. For some segments, profits

will continue to accrue beyond the 10th year. For the analyses in this homework, the differences should be small

enough to ignore.

Save your completed spreadsheet and submit it to Canvas.