6 marketing strategy

7/30/2019 6 Marketing Strategy

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Marketing Strategy

Lec 6

Targeting Attractive Mkt Segments


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3 Key Concepts of Mktg

Market Segmentation

Is the process by which market is divided into

distinct subsets of customers

With similar needs

With similar characteristics

That lead them to respond in similar ways to a

Particular pdt offering and Marketing program.


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Target Marketing

Requires evaluating the relative attractiveness of

various segments

In terms of mkt potential, growth rate, competitive

intensity

And the firms mission

And capabilities to deliver what each segment wants

In order to choose which segments it will serve


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Product positioning

Entails designing product offerings and marketing

programs that collectively establish

An enduring competitive advantage in the target

market

By creating a unique image or position in the

customers mind.


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All 3 decision processes are closely linked and

have strong interdependence

However large a firm, it has limited resources Compared with the no of alternative mkt segments

available for investment

Thus a firm must make choices

Even if the firm has unlimited resources It still must choose so as to make the most

appropriate allocation of its marketing effort acrosssegments


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Is Mkt Segmentation necessary?

Markets are not homogeneous It needs different benefits

Purchase rates are different

Price and promotion elasticities vary

Response rates to pdts and mktg programmes differ Variation among mkt segments in terms of

Pdt preferences,

Size and growth in demand

Media habits

Competiitve structures

Further affect the differences and response rates


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Mkts are complex entities that can be defined

in a variety of ways

The critical issue is

To find an appropriate segmentation scheme that

will facilitate

Target mktg,

Pdt positioning And will facilitate successful mktg strategies


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Mkt realities make segmentation

imperative

Why mkt segmentation? Population growth has slowed

More and more pdt mkts are maturing

Makes competition more intense Firms seek growth via mkt share gain

Increase in brand extensions

Social and economic forces like Increasing disposable incomes

Higher education levels

Global awareness Have made customers with more varied and sophisticated needs, tastes

and lifestyles

Has led to an outpouring of goods and services that compete with oneanother

For satisfying the same group of customers


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Increasingly important trend toward micro-segmentation Extremely small market segments are targeted

New tech has driven this trend Firms are able to mass-customize many pdts

Toyota Pdn Systems

One can make even a single car to meet the customers specs

Capability of mktg organisations to implement sharplyfocussed mktg programs Capability by much more sharp targeting

One can reach out to customers vide

Pincode Functional orientation

Geography

E.g., Intenet Banner Ads


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How to define Mkt Segments

3 step process

Identify a homogeneous segment that differs

from other segments

Homogeneous: very much similar with regard to their

Needs, wants,

Likely response to different elements of mktg mix

4Ps

Differences within the segment should be very small

compared to differences across various segments

E.g., Athletic Shoes quite different from Tennis Shoes


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Specify criteria that define the segment

Should describe the segment clearly enough sothat members can be easily identified and

accessed Mktr can know if a given customer is in the target

segment or not

Determine segment size and potential

Segmentation process should determine the sizeand mkt potential of each segment

For prioritizing which segment to pursue


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How to do such segmenting?

Demographic descriptors

Who the target customers are

Geographic descriptors

Where they are

Behavioural descriptors

How they behave with regard to their use or

purchase of a given category


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Demographic Descriptors

Demographics Not necessarily individual specific

Firm demographics too are possible Size of firm

Age of firm

Type of industry Key demographic descriptors

Age: Across various age classes

Sex: Male, Females

Income: Hi, Mid, Low,

Occupation

Some pdt sales like work shoes, uniforms, trade mags are tied to the type of occupation. Inc rease in working women has increaseddemand for different types of goods like

Convenience foods, automobiles, business wardrobes


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Age: Age is perhaps the most frequently used variable in segmentation.

Targets are usually described in terms of age categories that are used for thecensus

current understanding of how age affects consumers responses is also ofvalue in deciding whether or not segmentation is warranted.

. Children under the age of six have limited processing abilities. The absence of prior knowledge makes it diff icult for them to elaborate on

incoming information or to retrieve the information that they have previouslyprocessed.

At the same time, the absence of existing knowledge makes memory fertileground for rote learning and verbatim recall.

Young children thus show an ability to play back product information word forword.

In addition, young children acquire information that has a story grammar. Suchinformation takes the form of problem or goal, a series of episodes and anoutcome


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Elderly adults represent another age segment.

Older people comprise a substantial proportion of thepopulation, including the most aff luent people.

With the attrition in their life space because of retirement,

death of their spouses, and cohort members, older adultsrely on mass media for information to a greater extent thando their younger counterparts.

Yet, with the exception of products that are specif ically ofinterest to the elderly, little marketing attention is devoted

to attracting them. Indeed, most marketing plans only include people who are

49 years of age or younger.


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They are treated as if there is one elderly segment.

This practice is not consistent with the data suggesting thatthe knowledge and lifestyles of those under 75 years of ageare quite different from their older counterparts.

The elderly people under 75 typically view themselves asbeing healthier and younger than younger people viewthem.

The typical elderlys self-perception is that they are 10 to15 years younger than their chronological age.

One implication of this observation is that in developingadvertising targeted to say a 70-year-old, it is moreeffective to show a 55-year-old rather than a 70-year-oldperson


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Social Class.

The availability of demographic information, and

particularlythe educational attainment of the

target, can be used to infer social class.

This factor may be important to consider in

segmenting because

There is evidence that social classes differ in the typesof marketing strategies to which they are likely to be

responsive.


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Aff luent or upscale people value uniqueness andindividuality. Information that emphasizes how a brand may reinforce ones

feeling of individuality is particularly appealing to the aff luent.

Thus, they are more willing than other social class groups to try

unknown brands.

Middle-class people value neatness and organization. Showing convincingly that a product can help achieve these

goals is typically well-received.

Less aff luent people value functionality and believe thatluck is critical to success. They exhibit greater reliance on major brands than do other

social classes, perhaps because they lack confidence in theirability to make appropriate brand choices.


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Notions of social class can be applied not only toconsumers, but also to products.

Products that are plentiful or used in large quantitiesand lack potency are considered more downscale than

ones that are consumed in small quantities and arepotent. In the context of beverages, for example, liqueurs and

champagne are perceived to be more upscale,

whereas beer is perceived to be downscale.

Advertising needs to consider the social class of theuser as well as the social class of the product categoryin developing persuasive messages.


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Gender. There is substantial evidence that men and women differ in howthey respond to persuasive

messages.

Women tend to be slower to make decisions, but are found to be firm once decision is made.

These findings are thought to ref lect differences in how men and women process informationand make decisions.

Women are encouraged to be communal, which involves a consideration of self

and others in decision making. In contrast, men tend to be agentic, which entails a self-expressiveness and goal-

directedness

The observation of gender differences in information processing implies that theinformation to which men are likely to respond favorably differs from the type thatwill have a positive impact on women.

For men, messages that focus on a single benef it are suggested. If multiple benef its are to be communicated, using separate communications is

recommended.

For women, the presentation of disparate types of benef its is appropriate


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As is the case for social class, brands often are perceived aseither masculine or feminine.

For example, Burger King is perceived to be more masculinethan McDonalds and

Nike is seen as more masculine than Reebok. These perceptions ref lect the heritage of the brand.

Burger King was initially positioned to appeal to the bigappetites of men,

whereas McDonalds was positioned as the all-family restaurant.

Reebok was introduced as a womans fitness shoe, whereas

Nike was marketed as a mans running shoe


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Education A positive cor relation between the level of education and purchase of travel, books,

mags, insurance etc

Race & ethnic origin:

Segmentation in Industrial Markets Macro segmentation

Divides the mkt according to the characteristics of the buying organisation such as Age of firm, firm size, industry affiliation

Microsegmentation Groups firms by the characteristics of the individuals who influence the purchasing

decision E.g., age, sex, position within the org.

International markets are segmented in a hierarchical fashion Countries Buying orgs

Groups of individuals


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Geographic Descriptors

Diff locations vary in their Sales potential

Growth rates

Customer needs

Cultures

Climates etc

Advertisers want to target specific geographies for various reasons Disc

Geo segmentation used both in consumer and organisational markets Very imp for retailing and service businesses

Customers are unwilling to travel to obtain goods or services

One way to segment retail markets is By distance or driving time from a particular location

The area included within such a geographically defined region is called atrading area


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Geodemographic Descriptors

What is Geodemographics? Segmentation scheme which involve both demographic

and geographic factors

Diff retailers might target different demographics within

the same geographical area. These descriptors are useful in assessing the size and

market potential of a market segment defined by aparticular trade area

Geodemographics also attempts to predict consumer

behaviour by making Demographic, psychographic and consumer info available

at the Zip Code level.


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How they behave: Behavioural

Descriptors Only imagination can stop insightful segmentation using

this descriptor

Segmentation done not on Who the tgt consumers are

Where they live But on what they do.

Behavioural descriptors are based on Consumer needs

Lifestyle

Social class In organizational markets

Structure of firms

Type of buying situations they encounter


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Consumer needs

Expressed in benefits sought from a particular product

or service

Diff customers have diff needs Seek different degrees of benefits from the same product

Hence attach different degrees of importance

In the end, the product that provides the best bundle

of benefits Given the customers particular needs

Is most likely to be purchased


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Purchasing is a problem solving process

( Disc: Disruptive Innovation)

Consumers evaluate pdt or brand alternatives based on Desired characteristics

How valuable each characteristic is to the consumer (choice criteria)

Marketers can define segments according to these different choicecriteria in terms of

Presence or absence of certain characteristics and

Importance attached to each

Firms typically single out a limited no of benefit segments to target

E.g, Volvo: Safety Jaguar: Styling, quickness,

Ferrari: _________, ________


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In organizational markets customers consider

relevant benefits that include

Pdt performance in diff use situations

On time delivery

Total cost of ownership

Credit terms

Spare parts availability

training


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Product related behavioral descriptors

Some of these are Pdt usage:

In most markets a small proportion of potential customers make ahigh percentage of all purchases

80: 20 rule: Disc

In org markets such customers are called key accounts

Loyalty Retaining 1 customer is equal to getting 10 new customers

Purchase Influence Who influences the purchase

And target them

Many mens pdts are purchased based on womens decision

Children power to influence decision

In org markets, user groups decide and not the purchasing teams


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Lifestyle

Segmentation by lifestyle or psychographics

Segments mkts on the basis of

Consumers activities

Interest

Opinions

i.e., in terms of what they do or believe rather than

Who they are in a demographic sense.

From such info it is possible to infer what type ofpdts and services appeal to a particular group


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Classification of global lifestyle segments

Prestige buyer

Comfortable conservative

Value shopper

The pretender

The trusting person

Bargain hunter


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VALS 2 segmentation approach

Based on the concept of self orientation and

Resources for the individual

Self orientation is based on how How consumers pursue and acquire pdts and services

that provide satisfaction and shape their identities

In doing so, they are motivated by the orientations of

Principle, Status

Action


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Principle orientation

Motivated by abstract and idealized criteria

Status orientation

Shop for pdts that demonstrate the customers

success

Action orientation

Guided by the need for social or physical activity,

variety and risk taking


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Resources

Include all of the psychological, physical, demographicand material means that consumers have to draw on

Include education, income, self confidence, health,eagerness to buy, intelligence and energy level

Classified as Minimum to Abundance range

Based on these two segments VALS 2 defines

eight segments that exhibit Distinctive behaviour

Decision making


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Actualizers

Fulfillers

Achievers

Experiences

Believers

Strivers

Makers

strugglers


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Organizational behavioral descriptors

2 methods

Purchasing structure

Is the degree to which the purchasing activity is centralised

Buyer is likely to consider all transactions with a given

supplier on a global basis Emphasize cost savings

Minimise risk

Decentralised situation buyer is apt to be more

Sensitive to the users need

Emphasize pdt quality

Fast delivery

Less cost consicious


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Buying situation

3 distinct types of situations

Straight rebuy

A recurring situation handled on a routine basis

Modified rebuy

Occurs when some element such as

Price

Delivery schedule has changed

New buy Requires information gethering

Evaluation of alternative suppliers


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3 objectives of mkt segmentation

Identify a homogeneous segment that differs from others

Specify criteria that define the segment

Determine the segment size and potential

Meeting these objectives sharply lead to mkt success

Combinations of different descriptors are needed toprecisely target an attractive segment

May be a behavioral dimension together with a carefullydefined demographic profile within a geographic region


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Choosing attractive mkt segments

Most firms have Multiple products

Multiple mktg programs

Address various segments

Not all segments represent equally attractiveopps for the firm

Firms must evaluate the attractiveness of thetarget segments by Potential

& match the firms strengths and capabilities relativeto the segments needs and competitive situations


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In an established firm,

Instead of allowing each SBU to evaluate the

potential of alternative mkt segments

It is better to apply a common analytical frameworkacross segments

With this approach managers can compare the future

potential of different segments

Using the same criteria and Then prioritize

And then decide on resource allocaiton.


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Mkt Attractiveness / Comp Position

Matrix

5 step process Decision to target a particular segment is a strategic

choice That the firm has to live with for some time

( Disc) Step 1

Select Mkt Attractiveness and Comp Position factors

Mkt attractiveness factors Determining the mkts size and growth rate

Assessing various trends Demographic, sociocultural, economic, political,natural

Which influence demand


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An even more crucial factor in determining whether to enter a new mkt or mktsegment is The degree to which unmet customer needs are present.

In the absence of unmet customer needs, it is difficult to win customer loyalty

Metoo pdts face such difficulty

Competitive position factors Entering a segment that would place the firm in an unattractive industry is not wise

Disc: Warren Buffetts saying

How will the firms proposed entry will be sufficiently differentiated from competitors

Will the firm be able to acquire the resources needed Human, financial, technological etc

to effectively compete in the new segment.

If one needs to enter a new segment, then the goods and services Must either be better than the existing ones

Or cheaper Entering a new segment without a source of competitive adv is a trap


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Step 2 Weight each factor

A numerical weight is assigned to each factor to indicate itsrelative importance in the overall assessment.

Step 3 Rate segments on each factor, plot results on matrices

Step requires that evidence qualitative and quantitative

Objectively assess ech of the criteria identified

Data are obtained by

PEST 5 forces model

7 Domains structure

Portfolio analyses


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Step 4

Project future position for each segment

Forecasting is a very crucial but difficult task

Consider possible shifts in customer needs and behavior Entry and exit of competitors

Changes in competitors strategies

Changes in pdt technology

Changes in production technology Based on the above, how will the business

competitive position change


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Step 5

Choose segments to target, allocate resources

Mkt entry should be finalised only if it is strongly positive onatleast

One of the two dimensions of mkt attractiveness and competitiveposition

Atleast moderately positive on the other

If it is not so, then entry should be decided based on

Mkts attractiveness or competitive strength likely to improve in

the immediate future Such steps are stepping stones to larger and more attractive

markets

Shared costs or synergies present now benefiting existing markets


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Narrowly defining market segments have twoadvantages Puts the firm to achieve early success in a segment

that it understands very well

Conserves precious resources For established firms, this cannot continue on a

long term basis 3 targeting strategies

Niche Market Mass market

Growth market


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Niche Market Strategy Involves serving one or more segments

Segments might not be the largest

But consist of substantial numbers of customers seeking Somewhat specialised benefits from the products / services.

Such strategy avoids direct competition with larget firms that arepursuing bigger segments

Mass Market Strategy A firm can pursue this in 2 ways

It can ignore any segment differences and design a single product

mktg program that will appeal to The largest no of customers

Primary object of this strategy: capture sufficient volume and gianscale economies

Requires substantial resources and mktg capabilities


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Second approach is to design separate pdts and mktg programs for thedifferent segments

Called differentiated marketing Tata Hotels

Taj, Ginger

Such a strategy can generate more sales than an undifferentiated strategy

Incrases cost in pdt design, mfg, mktg and promotion

Growth Market Strategy Firms target one or more fast growth segments

Even though they may not be very large currently

Strategy favoured by smaller competitors to avoid direct confrontation withlarger firms

Disc: Why larger firms might not be in this mkt segment?

Strategy requires strong R&D and Mktg capabilities

To identify and develop products appealing to customer segments

Goal is to develop an enduring competitive position via its pdts, service anddistribution and costs before competition enters.


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Global Mkt Segmentation

Disc

Segmenting and Targeting to


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Segmenting and Targeting toLeverage Competencies in a

New Market To this point, our focus has centered on situations in which a f irmhas an established customer base. However, in an effort to grow, a f irm may also seek to leverage its

competencies or resources by entering new markets.

To address segmentation and targeting in this situation, it is

necessary to begin by considering the different types ofcompetencies that f irms might develop.

Successful f irms are said to exhibit discipline in how they organize

their competencies to create value.

Three approaches or disciplines each produce a different kind ofcustomer value: operational excellence,

Product leadership, and

customer intimacy

Di i li B d S t ti d


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Discipline-Based Segmentation and

Targeting

When a f irm has committed to a discipline it is reflected in its leadership style, structure, processes, andculture.

Thus, firms cannot readily shift disciplines or adopt

different disciplines for different markets. When entering an existing category in which the firm

has not previously competed, the f irst goal is tosegment in a way that identif ies a potential target that

will prefer the value that can be created by the firmsdiscipline over current market offerings

Disc: BIC

S ti d T ti Wh


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Segmenting and Targeting When

Launching a New Company When a new company is created, there is neither a

customer base nor an established discipline to leverage.

While this freedom from any constraints may be attractive,it also creates challenges in tackling segmentation andtargeting issues.

One approach in this situation is to start with anexamination

of consumer motivations and goals in using a productcategory as a

basis for identifying gaps in marketplace offerings. This consumer insight is the basis for developing a product

or service that addresses unmet goals

Disc: Starbucks, Body Shop


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Targeting Dynamics

What segmentation and targeting strategies that arelikely to be most effective as the market evolves?

Your customer base is becoming old.

What to do?

Should the firm focus on its loyal but decliningcustomer base or should it shift its attention to highergrowth segments?

The answer depends on both the reason for stagnantor declining growth and the relationship betweencurrent customers and higher growth segments of thepopulation

Disc: Black and Decker, DeWalt Power Tools Mkt


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Brand Users Increase usage

Level of usage

Focus on heavy users Competitors users

The success of this strategy depends on the firms ability to convince consumers of the

superiority of its brand in relation to theincumbent

Be wary of competitors reactions


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Category non users Point of entry

The idea underlying a point-of-entry strategy is (1) to identify who will enter the category;

(2) to determine when entry is likely; and

(3) to direct their consumption to your brand.

Category build.

Another approach to attracting nonusers involves category

build. Unlike point-of-entry targets, where consumers arelikely to enter the category at some point, category buildfocuses on individuals who have no intention of using thecategory in which a brand holds membership

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