Bus 311 Chapter 7 PDF

Chapter 7 Customer Value-Driven Marketing Strategy: Creating Value for Target Customers Learning Objectives Define the major steps in designing a customer value-driven marketing strategy: market segmentation, targeting, differentiation, and positioning. Discuss the major bases for segment...

Chapter 7 Customer Value-Driven Marketing Strategy: Creating Value for Target Customers Learning Objectives Define the major steps in designing a customer value-driven marketing strategy: market segmentation, targeting, differentiation, and positioning. Discuss the major bases for segmenting consumer and business markets. Explain how companies identify attractive market segments and choose a market-targeting strategy. Discuss how companies differentiate and position their products for maximum competitive advantage. Customer-Driven Marketing Strategy Market Segmentation Market segmentation requires dividing a market into smaller segments with distinct needs, characteristics, or behaviors that might require separate marketing strategies or mixes. Buyers in any market differ in their wants, resources, locations, buying attitudes, and buying practices. Through market segmentation, companies divide large, heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs. Market Segmentation Segmenting consumer markets Segmenting business markets Segmenting international markets Requirements for effective segmentation  Market Segmentation Segmenting Consumer Markets Geographic Demographic segmentation segmentation Psychographic Behavioral segmentation segmentation  Market Segmentation Segmenting Consumer Markets Geographic segmentation divides the market into different geographical units such as nations, regions, states, counties, cities, or even neighborhoods. A company may decide to operate in one or a few geographical areas or operate in all areas but pay attention to geographical differences in needs and wants. Many companies today are localizing their products, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and neighborhoods. For example, Domino’s Pizza, the nation’s largest pizza delivery chain, keeps its marketing and customer focus decidedly local. Customers anywhere in the nation can use the online platform or smartphone app to track down local coupon offers, locate the nearest store with a GPS store locator, and quickly receive a freshly-made pizza. They can even use Domino’s Pizza Tracker to follow their pies locally from store to door. Market Segmentation Segmenting Consumer Markets Demographic segmentation divides the market into segments based on variables such as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and generation. Demographic variables are easier to measure than most other types of variables. Even when marketers first define segments using other bases, such as benefits sought or behavior, they must know a segment’s demographic characteristics to assess the size of the target market and reach it efficiently. Market Segmentation Segmenting Consumer Markets Age and life-cycle stage segmentation divides a market into different age and life-cycle groups. Gender segmentation divides a market into different segments based on gender. Income segmentation divides a market into different income segments. Amazon targeted a younger tablet market for using the Kindle Fire tablet, introducing FreeTime Unlimited, a multimedia subscription service targeted toward 3- to 8-year-olds. Marketers must be careful to guard against stereotypes when using age and life-cycle segmentation. Gender segmentation: Toy company LEGO Group announced recently that it will work harder to remove gender stereotypes from its products and marketing.  Market Segmentation Segmenting Consumer Markets Psychographic segmentation divides a market into different segments based on lifestyle or personality characteristics. Dunkin’ Donuts successfully targets the “Dunkin’ tribe”—not the Starbucks coffee snob but the average Joe. Dunkin’ Donuts isn’t like Starbucks—it doesn’t want to be.” People in the same demographic group can have very different psychographic characteristics. Lifestyle segmentation: Rocky Mountain Tiny Houses caters to the “tiny house” lifestyle segment of consumers seeking “a place of pride and comfort, yet one of simplicity and affordability.” “Live Simply,” advises the company. pp a/Shutterstock  VALS (Values and Lifestyle Survey) is a proprietary research methodology used for psychographic market segmentation. https://www.strategicbusinessinsights.com/vals/ustypes.shtml Primary Motivation Resources Resources A person's tendency to consume goods Consumers who are primarily motivated and services extends beyond age, by ideals are guided by knowledge and income, and education. principles. Energy, self-confidence, intellectualism, Consumers who are primarily motivated novelty seeking, innovativeness, by achievement look for products and impulsiveness, leadership, and vanity play services that demonstrate success to their a critical role. peers. These psychological traits in conjunction Consumers who are primarily motivated with key demographics determine an by self-expression desire social or individual's resources. Various levels of physical activity, variety, and risk. resources enhance or constrain a person's expression of his or her primary motivation. Market Segmentation Segmenting Consumer Markets Behavioral segmentation divides a market into segments based on consumer knowledge, attitudes, uses of a product, or responses to a product. Many marketers believe that behavior variables are the best starting point for building market segments.  Market Segmentation Segmenting Consumer Markets Behavioral Segmentation Occasions Benefits sought User status (nonusers, ex-users, potential users, first- time users, and regular users) Usage rate (light, medium, and heavy product users) Used with permission of Pacific Cycle Inc Loyalty status Benefit segmentation: Schwinn makes bikes for every benefit segment. “No matter what you’re looking for,” says Schwinn, “we’ve got a line of bikes for you.”  Benefit segmentation: Schwinn makes bikes for every benefit segment. For example, Schwinn’s urban bikes are “for riders who want a functional, durable, and stylish bike to commute or ride casually in urban areas.” Occasions refer to when consumers get the idea to buy, actually make their purchase, or use the purchased item. Occasion segmentation can help firms build up product usage. Campbell’s advertises its soups more heavily in the cold winter months, and Home Depot runs special springtime promotions for lawn and gardens products. Other marketers prepare special offers and ads for holiday occasions or nontraditional occasions. Benefits sought refers to finding the major benefits people look for in a product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit. Markets can be segmented by user status: nonusers, ex-users, potential users, first-time users, and regular users of a product. Marketers want to reinforce and retain regular users, attract targeted nonusers, and reinvigorate relationships with ex-users. Markets can also be segmented by usage rate: light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption. For instance, a recent study showed that heavy seafood consumers in the United States are a small but hungry bunch. Less than 5 percent of all shoppers buy nearly 64 percent of unbreaded seafood consumed in the United States. Consumers can be loyal to brands, and buyers can be divided into groups according to their degree of loyalty. Some consumers are completely loyal—they buy one brand all the time and can’t wait to tell others about it. Other consumers are somewhat loyal—they are loyal to two or three brands of a given product or favor one brand while sometimes buying others. Still other buyers show no loyalty to any brand—they either want something different each time they buy, or they buy whatever’s on sale. A company can learn a lot by analyzing loyalty patterns in its market, starting with its own loyal customers. Major Segmentation Variables for Consumer Markets Major Segmentation Variables for Consumer Markets Market Segmentation Segmenting Consumer Markets Multiple segmentation is used to identify smaller, better-defined target groups. Experian’s Mosaic USA system classifies Acxiom Corporation U.S. households into one of 71 lifestyle segments and 19 levels of affluence. Euromonitor’s Global Consumer Types in 2024 Market Segmentation Segmenting Business Markets Consumer and business marketers use many of the same variables to segment their markets. Additional variables include: Customer operating characteristics Purchasing approaches Situational factors Personal characteristics Bases for Segmenting B2B Markets  Market Segmentation Segmenting International Markets Geographic Economic location factors (nations close to one another will have (population income levels or by their many common traits and behaviors) overall level of economic development) Political and Cultural legal factors factors (type and stability of the government, government receptivity to foreign firms, (common languages, religions, values and monetary regulations, and the amount of attitudes, customs, and behavioral bureaucracy) patterns) Market Segmentation Segmenting International Markets Intermarket segmentation involves forming segments of consumers who have similar needs and buying behaviors even though they are located in different countries. As new communications technologies, such as satellite TV and the Internet, connect consumers around the world, marketers can define and reach segments of like- minded consumers no matter where in the world they are using intermarket segmentation (also called cross-market segmentation.) Intermarket segmentation: Today’s technologies let fast-fashion retailer Zara target like-minded style conscious but value-seeking consumers anywhere in the world they live. Eyal Dayan Photography  Market Segmentation Requirements for Effective Segmentation Measurable Accessible Substantial Differentiable Actionable Effective Segmentation Criteria Measurable Size, purchasing power, profiles of segments can be measured. Accessible Segments can be effectively reached and served. Substantial Segments are large and profitable enough to serve. Segments are conceptually distinguishable and Differentiable respond differently to different marketing mix elements & programs. Actionable Effective programs can be designed for attracting and serving the segments. WGSN* Future Consumer 2026 *WGSN is one of the global authorities on change, using expert trend forecasting combined with data science to help you get ahead of the right trends. Copyright © 2018 Pearson Education Ltd. All Rights Reserved. WGSN Future Consumer 2026 Copyright © 2018 Pearson Education Ltd. All Rights Reserved.  The Gleamers in numbers Copyright © 2018 Pearson Education Ltd. All Rights Reserved. https://mlp.wgsn.com/rs/669-IKC-742/images/WGSN_Future_Consumer_2026_EN.pdf?version=0 Market Targeting Evaluating Market Segments Segment size and growth Segment structural attractiveness Company objectives and resources  Selecting segments that have the right size and growth characteristics is a relative matter. The largest, fastest-growing segments are not always the most attractive ones for every company. Smaller companies may target segments that are smaller and less attractive, in an absolute sense, but that are potentially more profitable for them. Structural factors that affect long-run segment attractiveness include strong and aggressive competitors, new entrants, substitute products, power of buyers relative to sellers, and powerful suppliers who can control prices, quality, or quantity of ordered goods and services. Some attractive segments can be dismissed quickly because they do not mesh with the company’s long-run objectives. Or the company may lack the skills and resources needed to succeed in an attractive segment. A company should only enter segments in which it can create superior customer value and gain advantages over its competitors. Market Targeting Selecting Target Market Segments A target market is a set of buyers who share common needs or characteristics that the company decides to serve. Market Targeting Figure 7.2 Market-Targeting Strategies. Market Targeting Selecting Target Market Segments Undifferentiated marketing targets the whole market with one offer. Mass marketing Focuses on common needs rather than what’s different Most modern marketers have strong doubts about this strategy. Difficulties arise in developing a product or brand that will satisfy all consumers. Moreover, mass marketers often have trouble competing with more-focused firms that do a better job of satisfying the needs of specific segments and niches. m&m uses mass marketing strategy to appeal to anyone looking for a sweet treat. Market Targeting Selecting Target Market Segments Differentiated marketing targets several different market segments and designs separate offers for each. Goal is to achieve higher sales and stronger position More expensive than undifferentiated marketing Differentiated marketing increases the costs of doing business. The company must weigh The InterContinental Hotels Group (IHG) increased sales against increased costs when serves a wide range of customer segments deciding on a differentiated marketing through 16 differentiated hotel brands. It strategy. offers something for every travel segment, from the Holiday Inn (for customers looking for essentials) to Hotel Indigo (for those who want to be “part of the pulse and rhythm of a place”). Market Targeting Selecting Target Market Segments P&G markets six different laundry detergent brands in the United States, which compete with each other on supermarket shelves. Then, P&G further segments each brand to serve even narrower niches. Market Targeting Selecting Target Markets Concentrated marketing targets a larger share of one or a few smaller segments or niches. Limited company resources Knowledge of the market More effective and efficient Today, the low cost of setting up shop on the Internet makes it even more profitable to serve seemingly minuscule niches. Small businesses, in particular, are realizing riches from serving small niches on the Web. Concentrated marketing can be highly profitable. At the same time, it involves higher-than-normal risks. Companies that rely on one or a few segments for all of their business will suffer greatly if the segment turns sour. Or larger competitors may decide to enter the same segment with greater resources. For these reasons, many companies prefer to diversify in several market segments. In fact, many large companies develop or acquire niche brands of their own. Market Targeting Selecting Target Markets Concentrated marketing Marketing effort directed at overlooked small group of target customers. Sub-zero fridge “Super-premium segment” under the luxury segment Market Targeting Selecting Target Market Segments Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and local customer segments. Local marketing Individual marketing Market Targeting Selecting Target Market Segments Local marketing involves tailoring brands and marketing to the needs and wants of local customer segments. Cities Neighborhoods Stores Local marketing has some drawbacks. It can drive up manufacturing and marketing costs by reducing the economies of scale. It can also create logistics problems as companies try to meet the varied requirements of different regional and local markets. Still, as companies face increasingly fragmented markets, and as new supporting technologies develop, the advantages of local marketing often outweigh the drawbacks. In addition, a brand’s overall image might be diluted if the product and message vary too much in different localities. Market Targeting Selecting Target Markets Individual marketing involves tailoring products and marketing programs to the needs and preferences of individual customers. Also known as: One-to-one marketing Mass customization Individual marketing: Based on images submitted by a customer using its smartphone app, FitMyFoot 3-D prints footwear that fits that customer and no one else. FitMyFoot The most expensive car in 2024: Rolls-Royce Droptail Price: $30 million Outside of the classic car market, the most expensive new vehicle in the world is the Rolls-Royce Droptail. So far, three Droptail models have been built, one called the Arcadia Droptail, one in ruby tones called La Rose Noire Droptail and one called the Amethyst Droptail. The latest example, the Arcadia, is painted in a white shade that is infused with aluminum and glass particles for a pearl-like effect that adds depth. Past that, the overall design of all three Droptails remains largely unchanged with an upright grille, thin rear lights, and a rounded back end. La Rose Noire Droptail  More detailed databases, robotic production and flexible manufacturing, and interactive media such as mobile phones and the Internet have combined to foster mass customization. Mass customization is the process by which firms interact one- to-one with masses of customers to design products and services tailor-made to individual needs. Individual marketing has made relationships with customers more important than ever. https://www.nike.com/nike-by-you Market Targeting Selecting Target Market Segments Choosing a targeting strategy depends on Company resources Product variability Product life-cycle stage Cagkan Sayin/Shutterstock Market variability Competitor’s marketing strategies Socially responsible targeting: In this era of increased social responsibility, marketers must consider not just whether targeted consumers buy and like their products but also whether they use them wisely.  When the firm’s resources are limited, concentrated marketing makes the most sense. Undifferentiated marketing is more suited for uniform products, such as grapefruit or steel. When a firm introduces a new product, it may be practical to launch one version only, as undifferentiated marketing or concentrated marketing may make the most sense. In the mature stage of the product life cycle, however, differentiated marketing often makes more sense. Undifferentiated marketing is appropriate where there is little market variability - most buyers have the same tastes, buy the same amounts, and react the same way to marketing efforts. When competitors use differentiated or concentrated marketing, undifferentiated marketing can be risky. When competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated or concentrated marketing, focusing on the needs of buyers in specific segments.  Differentiation and Positioning Product position is the way the product is defined by consumers on important attributes. Positioning: IKEA does more than just sell affordable home furnishings; it’s the “Life improvement store.” The company must decide on a value proposition- how it will create differentiated value for targeted segments and what positions it wants to occupy in those segments. The place the product occupies in consumers’ minds relative to competing products is the position. Products are made in factories, but brands happen in the minds of consumers. Positioning: Spotify does more than just stream music. It gives you “Music for every mood.” Differentiation and Positioning Positioning maps show consumer perceptions of marketer’s brands versus competing products on important buying dimensions. Positioning Map: Large Luxury SUVs The size of each circle indicates the brand’s relative market share. rafapress/Shutterstock Differentiation and Positioning Positioning maps Differentiation and Positioning Choosing a Differentiation and Positioning Strategy Identifying a set of possible competitive advantages to build a position Choosing the right competitive advantages Selecting an overall positioning strategy Communicating and delivering the chosen position to the market  Differentiation and Positioning Choosing a Differentiation and Positioning Strategy Competitive advantage is an advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices. But solid positions cannot be built on empty promises. If a company positions its product as offering the best quality and service, it must actually differentiate the product so that it delivers the promised quality and service. Companies must do much more than simply shout out their positions with slogans and taglines. They must first live the slogan. Differentiation and Positioning Choosing a Differentiation and Positioning Strategy Identifying a set of possible competitive advantages to differentiate along the lines of: Product Services Channels People Image Differentiation and Positioning Choosing a Differentiation and Positioning Strategy A competitive advantage should be: Important Distinctive Superior Communicable Preemptive Affordable Profitable  Differentiation and Positioning Choosing a Differentiation and Positioning Strategy Value proposition is the full mix of benefits upon which a brand is positioned. Differentiation and Positioning Choosing a Differentiation and Positioning Strategy Positioning statement summarizes company or brand positioning using this form: To (target segment and need) our (brand) is (concept) that (point of difference) The case for the brand’s superiority is made on its points of difference. For example, the U.S. Postal Service ships packages just like UPS and FedEx, but it differentiates its priority mail from competitors with convenient, low- price, flat-rate shipping boxes and envelopes. “If it fits, it ships,” promises USPS Differentiation and Positioning Choosing a Differentiation and Positioning Strategy Positioning Statement Example for Evernote: “To busy multitaskers who need help remembering things, Evernote is a digital content management application that makes it easy to capture and remember moments and ideas from your everyday life using your computer, phone, tablet, and the Web.” Differentiation and Positioning Communicating and Delivering the Chosen Position Choosing the positioning is often easier than implementing the position. Establishing a position or changing one usually takes a long time. Maintaining the position requires consistent performance and communication.