Case Study

Niche Marketing

Wikipedia describes the 1940s history of Pepsi Cola’s strategy to target the otherwise ignored African American market:

Walter Mack [Pepsi President from 1938 to 1951] realized that blacks were an untapped niche market and that Pepsi stood to gain market share by targeting its advertising directly towards them. To this end, he hired Hennan Smith, an advertising executive “from the Negro newspaper field” to lead an all-black sales team…

As a result, Pepsi’s market share as compared to Coca-Cola’s shot up dramatically in the 1950s with African American soft-drink consumers three times more likely to purchase Pepsi over Coke.

This Case Study provides a high-level overview of the workflow without detailed explanation. It assumes you are already somewhat familiar with KNIME and Market Simulation. If not, start by reviewing the Building Blocks and Community Nodes.

Competitive Story

This Market Simulation incorporates USA Demographic data from the 1940s, as well as Market Share data for both Coke and Pepsi from 1940 to 1950. The simulation was first tuned so that the Market Shares of both Products matched the real-world observations. Then targeted advertisting by Pepsi was applied to the Black Customers in the model. But the model does not spread Pepsi’s advertising evenly across all Black Customers. Instead, it assumes that the advertising made a greater impact on some Black Customers than others, and that the consequential increase in the WTP of Black Customers was somewhat random.

The breakdown of Demographics in the USA in 1940 were as follows:

  • White = 89.8%
  • Black = 9.8%
  • American Indian = 0.3%
  • Asian = 0.2%

1940 Market

The Virtual Customers in this Market Simulation are built around the USA Demographics of the 1940s. As the white majority had been targeted by Coke up through that time, the Willingness To Pay (WTP) of White Customers for Coke is assumed to be 25% higher than for the ignored minority groups. Note that Prices and WTP are based upon a 6-Pack of Cola (valued in cents).

The WTP for Pepsi is then calculated as a difference from Coke. Again, because White Customers had been targeted with advertising, they had built a much stronger Brand preference for either Coke or Pepsi, with minority consumers more indifferent towards the two Brands.

1940 Demographics

Virtual Customers are allocated to a Demographic group.

Coke WTP

The WTP of White Customers is 25% higher than minorities.

1940 Results

Coke originally has 40% more Black Customers than Pepsi.

1950 Market

Pepsi had a fixed advertising budget spread across the targeted Black Customers. But the effectiveness of Pepsi’s advertising campaign was not even, with the increase in the WTP of Black Customers varying by about 50%.

By 1950, Pepsi’s market share as compared to Coca-Cola’s shot up dramatically with Black Customers three times more likely to purchase Pepsi over Coke. But Pepsi’s Niche Marketing Campaign had no impact on any other Demographics in this model – the purchase behavior of American Indians, Asians, and Whites remained unchanged.

Scale Demographic

The advertising of 20,000 was spread unevenly across Black Customers.

1950 Results

Black Customers are now almost 3-times more likely to buy Pepsi.

Contained Impact

The Niche Marketing campaign had no impact on other Demographics.