Kotler 2020 (Chapter 8) - Customer Value-Driven Marketing Strategy PDF

CHAPTER 8 – Customer value-driven marketing strategy: creating value for target customers Mini contents Company case - Henkel's Persil: a glocal' marketing success Market segmentation in contemporary markets Best practice - Baby boomer marketing: not a hot topic for managers? Best practice - Targeting the affluent: your wish is their command Company case Spendrups: segmentation and customer orientation that drive the market Market targeting Think about - Fast fashion: combining logistics with differentiated marketing Company case - Stitch Fix: online niching Differentiation and positioning Chapter preview So far, you've learned what marketing is, and about the importance of understanding consumers and the marketplace environment With that as background, you're now ready to delve deeper into marketing strategy and tactics. This chapter looks further into key customer-driven marketing strategy decisions - how to divide up markets into meaningful customer groups (segmentation), choose which customer groups to serve (targeting), create market offerings that best serve targeted customers (differentiation), and position the offerings in the minds of consumers (positioning). The chapters that follow explore the tactical marketing tools - the four Ps -l by which marketers bring these strategies to life. To open our discussion of segmentation, targeting, differentiation, and positioning, let's look at Henkel, a German chemical and consumer goods company. Since the company was founded 1876, Henkel has wielded a leader's influence with its varied offering of products that address the specialized needs of global customers. Henkel's brand Persil has revolutionized the Middle Eastern market through sophisticated seg mentation and targeting, with each product line offering a unique value proposition to a distinct segment of customers Learning objectives After reading this chapter, you should be able to: Define the major steps in designing ◦ customer-driven marketing strategy: Define the major steps in designing a customer driven marketing strategy. Market segmentation, targeting, differentiation and positioning. Discuss the major bases for segmenting consumer and business markets and apply them to a real-world segmentation situation. 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 in the marketplace. Market segmentation in contemporary markets Segmentation has always been a crucial aspect of marketing theory and practice. It has even been argued that segmentation is the core idea of marketing: by dividing consumers into different subgroups, the company might create customer offers that serve individual needs and wants, thus serving each subgroup better. The benefits are obvious: the company can reach more customers, since a broader range of offers are developed; it can get more satis- fied customers, since offers are developed in accordance with the preferences and desires of a particular segment and; it can be more profitable, since customers are, in general terms, willing to pay higher prices for products that fit in with their needs and wants, Companies recognize that they cannot appeal to all buyers in the marketplace - or at least not to all buyers in the same way. Buyers are too numerous, widely scattered, and varied in their needs and buying practices. Moreover, companies themselves vary widely in their abilities to serve different market segments. Instead, like Henkel, companies must identify the parts of the market they can serve best and most profitably. They must design customer-driven marketing strategies that build the right relationships with the right customers. Thus, most companies have moved away from mass marketing and toward target marketing: identifying market segments, selecting one or more of them, and developing products and marketing programmes tailored to each Segmentation has changed over time: in conceptual terms, the focus has shifted from struc- tural variables towards behavioural and psychographic variables. And consumers' purchasing criteria have undergone a transition from a rational focus to a broader base of criteria that include emotional factors such as self-realization, social profiling, and sustainability issues. These changes are reflected in segmentation practice, and they are an unavoidable implica- tion of the changes in the marketplace discussed in earlier chapters: mass marketing is losing its effectiveness, appeal and impact. But many companies have masses of customers to deal with, and an undifferentiated product, so how may a company, under these circumstances, deal with the changes? Figure 8.1 Shows the four major steps in designing a customer-driven marketing strategy. In the first twO steps, the company selects the customers that it will serve. Market segmenta- tion involves dividing a market into smaller groups of buyers with distinct needs, character- istics or behaviours that might require separate marketing: strategies or mixes. The company identifies different ways to segment the market and develops profiles of the resulting market segments. Market targeting consists of e evaluating each market segment's attractiveness and selecting one or more market segments to enter. In the final two steps, the company decides on a value proposition - how it will create value for target customers. Differentiation involves actually differentiating the firm's market offering to create superior customer value. Positioning consists of arranging for a market offering to occupy a clear, distinctive and desirable place relative to competing products in the minds of target consumers. We discuss each of these steps in turn. Market segmentation – Dividing market into: smaller groups with distinct needs, characteristics, or behaviour that might require separate marketing strategies or mixes. Market targeting – The process of evaluating each market segment's attractive- ness and selecting one or more segments to enter. Differentiation – Actually differentiating the market offering to create superior customer value. Positioning – Arranging for a market offering too ccupy a clear, distinctive and desirable place relative to competing products in the minds of target consumers. Market Segmentation Market segmentation addresses the first, simple-sounding marketing question: what customers will we serve? The answer will be different for each company. For example, luxury hotels such as Sofitel, Sheraton and Ritz-Carlton target the top 5 per cent of corporate and leisure travellers; Elite, Scandic and Nordic Choice target middle-class business travellers; and Hotel Formule1 targets leisure travellers on a limited budget. 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. In this section, we discuss four important segmen- tation topics: segmenting consumer markets, segmenting business markets, segmenting international markets, and requirements for effective segmentation. Segmenting consumer markets There is no single way to segment a market. A marketer has to try different segmentation vari- ables, alone and in combination, to find the best way to view the market structure. Table 8.1 outlines the major variables (or bases) that might be used in segmenting consumer markets. Here we look at the major geographic, demographic, psychographic and behavioral variables. Geographic segmentation Geographic segmentation – Dividing a market into different geographical units such as nations, provinces, regions, cities or neighbourhoods. Geographic segmentation calls for dividing the market into different geographical units such as nations, regions, provinces, cities, parishes or even neighbourhoods. A company may decide to operate in one or a few geographical areas, or to 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 climates, cities and even neighbourhoods. Fashion magazines, e.g.Cosmopolitan and Vogue, appear in different versions derived from the U.S. and U.K. editions, and the Swedish, German and Italian editions are not just lang uage adap tations, but also content, emphasis and style differ. Evening newspapers appear in different editions across a country to emphasise the local content and thus boost sales. If the news headlines for Aftonbladet says Teacher from Odenburg won five million' - you are quite likely to be in the Odenburg area. Products may be adapted to local conditions and customer preferences. Volvo cars were equipped with air conditioners as standard equipment in Australia and the us in the 1970s in Europe, this did not become standard until this century (different models in different years). U.S. Volvo cars have softer suspension to suit the more relaxed driving style compared to Northern Europe. Tyres are softer and have a rubber mixture (M + S tyres, meaning mud and snow) that makes it possible to drive (carefully!) during the few days a year they have snow - however, these tyres would not work in a severe northern European winter climate so European Volvo cars come with high-performance summer tyres and the driver changes to winter tyres in the autumn. Occasionally, cars sold in Sweden have a higher-powered battery and improved rust protection to survive many Scandinavian winters. Cars sold in Scandinavia have been equipped with heated front seats since the 198os - but in some other countries buyers have to pay extra for this. Demographic segmentation Demographic segmenta- tion -Dividing the market into groups based on vari- ables such as age, gender, family size, family life cycle, income, occupation, market area, education, generation and nationality. Demographics segmentation divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, market area (metropolitan, city, rural) education, generation and nationality, Demographic factors are the most popular bases for segmenting customer groups. One reason is that consumer needs, wants and usage rates often vary closely with demographic variables. Another reason is that 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 behaviour, they must know segment demographic characteristics in order to assess the size of the target market and to reach it efficiently. Age and life-cycle stage Age and life-cycle segmentation – Dividing a market into different age and life-cycle groups. Consumer needs and wants change with age. Some companies use age and life-cycle segmentation, offering different products Or using different marketing approaches for different age and life-cycle groups. Food retailers, e.g. ICA, offer different concepts depending on the market areas in question: ICA Nära, ICA Supermarket,ICA Kvantum, and ICA Maxi. The product mix, package sizes, offers and prices are adapted not only to cost structures (the rent is higher in a city central) but also to local demographic circumstances. This means two ICA Supermarkets may have different product mixes depending on their location, and the age, family structures and socio economic standards of people living in the local market area. Marketers must be careful to guard against stereotypes when using age and life-cycle segmentation. Although some 80-year-olds fit the doddering stereotypes, others play tennis, travel around the world and are frequently using social media. Similarly, whereas some 40-year-old couples are sending their children off to college, others are just beginning new families. Thus, age iS often a poor predictor of a person's life cycle, health, work or family status, needs and buying power. Companies' marketing to mature consumers usually employs positive images and appeals. Income and socio economic profile must also be used with prudence. Although Volvo is targeted more towards the higher end of the market, although less so in Sweden compared to international markets, and Ford is a value- for-money volume brand, it's dangerous to see the Ford customer as inherently different from the Volvo customer. A high-income urban customer may have a Volvo XC90 T8 as the family car and a Ford Fiesta as a second car – to approach this customer as an economic person looking for budget products (as the Ford Fiesta suggests) would be a great mistake. Consumer behaviour research suggests that customers want to be about 10 years younger than they are and perceive themselves accordingly.' Thus, 60+ marketing might have limited appeal to people under the age of 70, and 50+ marketing to people under the age of 60. Many companies spend hundreds of millions of SEK a year to make their brand more dynamic, challenging and appealing to the younger audience There is little doubt that clear emphasis on older consumers may reduce the brand value among the younger audience. This argument is not necessarily valid in all cultures in the Western world there is a strong focus on young people. In other cultures with stronger patriarchal structures, older people are more likely to be seen as authorities. Thus, a tendency to avoid emphasis on older people in marketing may not be appreciated. The age dimension has developed into being an inherent segmentation variable in some industries: cosmetics as well as financial services offers are designed for age cohorts: 20-30, 30-40, 40-50, 50-60 years, etc. Baby boomers spend a lot more money than previous genera- tions on cosmetics. ' Boomers are saying, "1'm ageing, but I'm going to do it in a way that's graceful and still about who I am,' says a marketer for Dutch-based Unilever's Dove Pro Age brand. Another marketer says 'I don't think boomers want to be young again-I don't think they feel old in the first place. Likewise, based on age cohorts, the financial services industry offer packages of financial instruments to provide the desired balance between risk and return based on individuals' age and life expectancy. Generation and age - the danger of mixing them up From a generational-cohorts perspective, age and generation cannot be mixed as they provide different results and are built on different logics. Age defined as chronological age (date of birth) and generational cohorts diverge over time. From a marketing perspective, a crucial question is whether individuals will stay more or less with the same consumption patterns as they get older (indicating that generational cohort explains spending) or will they drink more whisky and less beer and wine when they get older (indicating that age explains spending)? Figure 8.2 shows preferences for alcoholic beverages for different age categories in the U K. The key question here is whether consumers will stay with the same consumption patterns as they get older indicating that generational cohorts explain preferences) - or if they will drink more whisky and less beer and wine when they get older, hence suggesting that age explains spending. Gender segmentation – Dividing a market into different groups based on gender. Gender segmentation has long been used in clothing, cosmetics, toiletries and magazines. More recently, many women's cosmetics makers have begun marketing men's lines, refecting men's increasing interest in cosmetics. All leading cosmetics brands, including Anthony, the Body Shop, Garnier, L'Oréal, Nivea, and Neuotrogena, offer products designed for the active, healthy man's lifestyle'. Cosmetics chains such as Kicks and Sephora have shelves with cosmetics designed for males A neglected gender segment can offer new opportunities in markets ranging from motorcyclesto guitars. For example, in the late 1990s, 96 per cent guitars were purchased by, and for, men. Daisy Rock Guitars, the girls' guitar company that launched guitars shaped for girls in 2000, is changing that statistic one guitar at a time. Starting with a daisy-shaped guitar with a leafy headstock, Daisy Rock now offers a complete line of smaller, lighter, professional quality guitars with fun shapes and glossy finishes geared towards women. Income segmentation Income segmentation – Dividing a market into different income groups. The marketers of products and services such as cars, clothing, cosmetics, financial services and travel have long used income segmentation. Many companies target affluent consumers with luxury goods and convenience services. For example, for a price, luxury hotels provide amenities to attract specific groups of afluent travellers, such as families, expectant mothers and even pet owners.6 Compared with other countries and regions, Europe in general, and Scandinavia in particular, is less keen to use income segmentation explicitly. In the US, income segmentation is a more integrated part of marketing practice, and there would be few complaints over its use. Not all companies that use income segmentation target the affluent. For example, many Retailers – such as Lidl and Willys – successfully target low- and middle-income groups. Here, an interesting dynamic effect appears. Traditional wisdom suggests that the core market for stores like Lidl is families with low incomes – say under sEK 450,000 a household. Thus, you would expect planners and real-e estate experts to look for locations in lower-middle class neighbourhoods where people wear less- expensive shoes and drive old cars that drip a lot of oil. However, Lidl and Willys, in particular, have opened numerous retail operations in upmarket areas with great success, e.g. in Kungsholmen Vasastan and Östermalm in Stockholm. First, the perceived product and service quality have been better than expected. Secondly, the assumption that high earners wouldn't buy food in budget stores proved to be false. This experience shows many similarities to H&M's approach - to sell attractive clothing at budget prices in attractive locations, hus challenging the traditional industry wisdom (see the company case at the start of Chapter 1). Psychographic segmentation Psychographic segmentation – Dividing a market into different groups based on social grade, lifestyle or personality characteristics. Psychographic segmentation divides buyers into different groups based on social grade, lifestyle or personality characteristics. People in the same demographic group can have very different psychographic make-ups. In Chapter 6 we discussed how the products people buy reflect their lifestyles. As a result, marketers often segment their markets by consumer lifestyles and base their marketing strate- gies on lifestyle appeals. Marketers also use personality variables to segment markets. For example, TUI target different customer segments by offering a large variety of travel profiles: City Breaks appeals to couples or families wanting to take a few days off in a metropolitan area; Blue represents premier collections and targets high-income families who don't see themselves as charter travellers; while Blue Village offers the best family facilities, all-inclusive family activities (e.g. Bamse Club, Super Kids, Swimming School and Show School), and locations close to the waterfront. Royal Dutch Gazelle produces several types of bikes for different kinds of customers. City bikes are made for short trips to nearby locations, to work, or for a regular shopping trip Gazelle also produces a traditional city bike known as the Robust Classic. Trekking bikes are for people who want a sporty and lightweight bike. These bikes come with high-grade components, a sleekly shaped aluminium frame and carbon front fork. Their light weight makes for easy transport, so you could take with it you on a holiday trip. Lifestyle bikes, on the other hand, with tough, wide tyres and a robust frame, are for the rider to cruise through the town in style. Gazelle also produces e-bikes for daily use but the Gazelle Ultimate e-bike belongs to a top-flight range: made from lightweight high-end carbon or aluminium parts and frames, it is meant to combine sporty style and speed with great comfort. Marketers also use personality variables to segment markets. For example, ads for Sherwin Williams paint - headlined Make the most for your colour with the very best paint' - seem to appeal to older, more practical do-it-yourself personalities. By contrast, Benjamin Moore's ads and social media pitches appeal to younger, more outgoing fashion individualists. One Benjamin Moore print ad - consisting of a single long line of text in a crazy quilt of fonts - describes Benjamin Moore's Hot Lips paint colour this way: Tt's somewhere between the colour of your lips when you go outside in December with your hair still wet and the colour of a puddle left by a melted grape Popsicle mixed with the colour of that cough syrup that used to make me gag little. Hot lips. Perfect. Some people may dislike such a stereotype approach, but it draws attention to the products Behavioural segmentation Behavioural segmentation – Dividing a market into groups based on consumer knowledge, attitudes, uses Or responses to a product. Behavioural segmentation divides buyers into groups based on their knowledge of, atti- tudes to, uses of or responses to a product. Many marketers believe that behavioural vari- ables are the best starting point for building market segments and they have become more important over time, while the predictive power of demographic variables has been ques tioned, since people may share a demographic profile but be very different in terms of values, lifestyle, preferences and spending patterns. OCCASIONS Buyers can be grouped according to occasions when they get the idea to buy, actually make their purchase, or use the purchased item. Occasion segmentation can help firms build up product usage, For example, most consumers drink orange juice in the morning but orange growers have promoted drinking orange juice as a cool, healthy refresher at other times of the day. By contrast, Coca-Cola's Good Morning' campaign run in the U.S. attempted to increase Diet Coke consumption by promoting the soft rink as an early-morning pick-me-up. There is little doubt that such a campaign would be criticized in Europe. Some holidays, such as Mother's Day and Father's Day, were originally promoted partly to increase the sales of sweets, flowers, cards and other gifts, and many marketers prepare special offers and adverts for occasions like these. BENEFITS SOUGHT Benefit segmentation – Dividing the market into segments according to the different benefits that consumers seek from the product. A powerful form of segmentation is to group buyers according to the different benefits that they seek from the product. Benefit segmentation requires finding the major benefits people look for in the product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit. For instance, people buying upmarket furniture or audio equipment may do it for different reasons. If they buy the item to show off, one set of arguments and marketing approaches might be applied, but if they buy the item because they are interested in the inherent product qualities, another set of arguments apply. Think of people who say they are interested in fashion clothing or interior design. Some of them buy all the available magazines, watch television programmes on the subject and visit fairs, just to make sure they are up to date. But they are followers, not the people who set the tone for others to follow. Others will socialize with designers, visit fairs, come up with their own ideas, and may even be written about by journalists. The people in this latter category may be called innovators. In the former case, the benefit sought is acceptance and strengthening of one's image as a person in the know`. Marketers may use a broad set of arguments that appeal to this person's vanity. In the latter case, the person is one - or a few- steps ahead of the market and may even be ahead of a company's marketing department; thus, the company may use a person like this in marketing campaigns and to create a buzz around a new product. That being said, the benefit-sought approach applies more to dividing the mass market into different behavioural profiles than to understanding the person leading the changes. The fashion or interior design innovator isn't really seeking a benefit - leading the field is an inherent and defining charac- teristic of that person. USER STATUS Markets can be segmented into non-users, x-users, potential users, first time users and regular users of a product. Marketers want to reinforce and retain regular users, attract targeted non-users and reinvigorate relationships with ex-users. Included in the potential user group are consumers facing life-stage changes such as newly-weds and new parents who can be turned into heavy users, e.g.cookware retailer e targeting newly engaged couples, Inserts in bridal magazines showing a young couple strolling through a park or talking intimately in the kitchen over a glass of wine are likely to appeal to this target group. USAGE RATE Markets can also be segmented into 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 example, Burger King targets what it calls Super Fans', young aged 18-34) burger-eating males who make up 18 percent of the chain's customers but account for almost half of all customer visits. They eat at Burger King an average of 16 times a month. Burger King targets these Super Fans openly with adverts that exalt huge burgers containing meat, cheese, and more meat and cheese. LOYALTY STATUS A market can also be segmented by consumer loyalty. Consumers can be loyal to brands (Cacharel), stores (K) and companies (L'Oréal). Buyers can be divided into groups according to their degree of loyalty. Some consumers are completely loyal they buy one brand all the time. Other consumers are only partially loyal - they are loyal to two or three brands of a given product or favour one brand while sometimes buying others. Still other buyers show no loyalty to any brand at all. They either want something different each time they buy or they buy whatever is on sale. A company can learn a lot by analysing loyalty patterns in its market. It should start by studying its own loyal customers. By studying its less loyal buyers, the company can detect which brands are most competitive with its own. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses. Segmentation has many advantages and is often a very good way of addressing customers effectively. However, it might be dangerous to rely too much on data in addressing customers, as the real customer's profile and purchase situation may differ from how they appear from the data. Skobes, a Swedish Volvo, Renault and Ford dealership, has experience of segmentation in a multi-franchise environment. Renault and Ford, for example, provide models which are almost exactly the same, taking into account size, price, safety, fuel economy and so on. But despite this, the two brands are different in terms of design and customer profile - and there is another aspect that a segmentation system based on data may not identify. Niklas Johansson, manager at Skobes, explains: A Ford customer in most cases has one car while the Renault customer normally has the Renault as a second or even third car in the household. It's a huge difference. The latter is a more demanding and informed customer, with perhaps a Volvo suv as their first car, and may be very interested in the car. The Ford customer, on the other hand, has a more practical view on cars and is not really interested in cars.' Assuming a particular age of a customer may also be dangerous, for similar reasons. 'The person paying for the car is not necessarily the main driver,' Johansson continues. A 58. -year- old father or mother may buy the car for 23 year-old daughter or son. What you need is relationships with your customers rather than systems. If We only rely on information in the system, we run the risk of approaching many customers in the wrong way. What is the point of inviting the wrong people to an event? If we know a person's individual characteristics, we'll manage this,' he says. Using multiple segmentation bases Marketers rarely limit their segmentation analysis to only one or a few variables. Rather, they often use multiple segmentation bases in an effort to identify smaller, better-defined target groups. Thus, a bank may not only identify a group of wealthy retired adults but also, within that group, disting uish several segments based on their current income, assets, savings and risk preferences, housing and lifestyles. Such segmentation provides a powerful tool for marketers of all kinds. It can help companies to identify and better understand key customer segments, target them more efficiently, and tailor market offerings and messages to their specific needs. Segmenting business markets Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically (industry, company size) or by benefits sought, user status, usage rate and loyalty status. Yet business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors and personal characteristics. By going after segments instead of the whole market, companies can deliver just the right value proposition to each segment served and capture more value in return. Almost every company serves at least some business markets, and many companies estab- lish separate systems for dealing with B2B customers. For example, the credit card company American Express targets businesses in three segments- merchants, corporations and small businesses. It has developed distinct marketing programmes for each segment. In the merchants segment, American Express focuses on convincing new merchants to accept the card and on managing relationships with those that already do - without undermining the margins. For larger corporate customers, the company offers a corporate card programme, which includes extensive employee expense and travel management services. It also offers this segment a wide range of asset management, retirement planning and financial educa- tion services. For small business customers, American Express offers a system of small busi- cards and financial services. It includes credit cards and lines of credit, special usage ness rewards, financial monitoring and spending report features, and 24/7 customized financial support services. EN is how we serve small business,' says American Express.1o The SAS American Express Corporate Card is a great example of co-branding: the cardholder collects frequent flyer points with any purchase transaction, and the co-operation with SAS makes it easy to target SAS travellers and offer the card. The cardholder has the opportunity to pay SEK 4,800 a year and get an Elite Card - which gives more frequent flyer points for purchase transactions and the opportunity to reach a higher frequent flyer status among other benefits. Important to note,many industrial companies don't serve consumers atall-ifa consumer calls Atlas Copco and wants to buy one of their products, it will not work. To sell to consumers, a company must have a sales organization, channels to deal with questions, legal issues and complaints, and spokespeople who answer questions from various stakeholders, including authorities. Within a given target industry and customer size, the company can segment by purchase approaches and criteria. As in consumer segmentation, many marketers believe that buying behaviour and benefits provide the best basis for segmenting business markets. Segmenting international markets Few companies have either the resources or the will to operate in all, or even most, of the countries that dot the globe. Although some large companies, such as Coca- Cola or Sony, sell products in more than 200 countries, most international firms focus on smaller set. Operating in many countries presents new challenges. Different countries, even those that are close together, can vary greatly in their economic, cultural and political make-up. Thus, just as they do within their domestic markets, international firms need to group their world markets into segments with distinct buying needs and behaviours. Companies can segment international markets using one or a combination of several variables. They can segment by geographic location, grouping countries by regions such as Western Europe, the Pacific Rim, the Middle East or Africa. Geographic segmentation assumes that nations close to one another will have many common traits and behaviours. Although this is often the case, there are many exceptions. For example, although the United Kingdom and Scotland have much in common, both differ culturally and economi- cally from neighbouring Ireland. Even within a small country like Sweden at least in population numbers), consumers can differ widely. Northern Sweden, the Stockholm area, the Gothenburg area, the Oresund Region and other city, rural and remote areas manifest vast differences in values and consumption style. Some marketers lump all northern Sweden consumers together. Substantial differences may be identified but, based on the idea of being effective and efficient in segmentation, it is in most cases not possible to consider all individual variations and differences in designing marketing strategies. World markets can also be segmented on the basis of economic factors. For example, countries might be grouped by population income levels or by their overall level of economic develop- ment. A country's economic structure shapes its population's product and service needs and, therefore, the marketing opportunities it offers. Countries can be segmented by political and legal factors such as the type and stability of government, receptivity to foreign firms, monetary regulations and amount of bureaucracy Cultural factors can also be used, grouping markets according to common languages, religions. values and attitudes, customs and behavioural patterns. Inter-market segmentation – Forming segments of consumers who have similar needs buying behaviours though they are located in different countries. Segmenting international markets based on geographic, economic, political, cultural and other factors assumes that segments should consist of clusters of countries. However, as consumers in many cases are now connected around the world, marketers can define and reach segments of like-minded consumers no matter where in the world they are. Using and inter-market segmentation (also called cross-market segmentation), they form segments of consumers who have similar needs and buying behaviours even though they are located in different countries. Requirements for effective segmentation Clearly, there are many ways to segment a market, but not all segmentations are effective. For example, buyers of table salt could be divided into blond and brunette customers. But hair colour obviously does not affect the purchase of salt. And even if some data sets would support such an idea, it's unlikely to make sense to.disting uish between buyers on this basis. To be useful, market segments must be: Measurable: the size, purchasing power and profiles of the segments can be measured. Certain segmentation variables are difficult to measure. For example, there are many left-handed people in the world. Yet few products are targeted toward this left-handed segment. The major problem maybe that the segment is hard to identify and measure. There is little data on the demographics of left-handers. Private data companies keep reams of statistics on other demographic segments but not on left-handers. For particular products, there might be a market for left-handers, the product offer should then fulfil the following criteria too. Accessible: the market segments can be effectively reached and served. Suppose a fragrance company finds that heavy users of its brand are single men and women who stay out late and socialize a lot. Unless this group lives or shops at certain places and is exposed to certain media, its members Will be difficult to reach. Substantial: the market segments are large or profitable enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing programme. It would not pay, for example, for a car manufacturer to develop cars especially for people who are taller than two metres. Differentiable: the segments are conceptually distinguishable and respond differently to different marketing mix elements and programmes. If married and unmarried women respond similarly to a sale on perfume, they do not constitute separate segments. Actionable: effective programmes can be designed for attracting and serving the segments. For example, although one small airline identified seven market segments, its staff was too small to develop separate marketing programmes for each segment. Market targeting Now that we' ve divided the market into segments, it's time to answer that first seemingly simple marketing strategy question we raised in Figure 8.1: which customers will the company serve? The firm now has to evaluate the various segments and decide how many and which segments it can serve best. Evaluating market segments In evaluating different market segments, a firm must look at three factors: segment size and growth, segment structural attractiveness, and company objectives and resources. The company must first collect and analyse data on current segment sales, growth rates and expected profitability for various segments. 'Right size and growth is a relative matter. The largest, fastest-growing segments are not always the most attractive ones for every company. Smaller companies may lack the skills and resources needed to serve the larger segments. Or they may find these segments too competitive. Such companies may target segments that are smaller and generally seen as less attractive, but that are potentially more profitable for them. However, customers with low purchase volumes may be more demanding, as they are less professional. So it's a balancing act. Car finance is a very competitive market in many countries. In Sweden, the large urban areas represent the overwhelming market for expensive company cars and thus the market for car finance is huge but very competitive. As a manager of one of the leading car finance companies says: 'Competition is fierce. There are several international banks that lose money in the short run to buy market share. We can't really compete on price. So small, rural dealers appear to be a viable option. It's possible to create long-term relationships with them and there are no competing international players. But turnover is small, as is the marginal contri- bution from each customer, and many customers are demanding. They have few administra- tive resources, they ask about everything and they are very sociable. I'Il never lose them, but the question is whether we should keep them. It costs a lot and generates little money. The company also needs to examine major structural factors that affect long run segment attractiveness.12 As discussed in the last paragraph, a segment is less attractive if it already contains many strong and aggressive competitors. The existence of many actual or potential substitute products makes competition intensive, hence profit oppor- tunities are smaller. The relative power of buyers also affects segment attractiveness. Buyers with strong bargaining power relative to sellers Wil] try to force prices down, demand more services and set competitors against one another -all at the expense of seller profitability. Finally, a segment may be less attractive if it contains powerful suppliers who can control prices or reduce the quality or quantity of ordered goods and services. Even if a segment has the right size and growth and is structurally attractive, the company must consider its own objectives and resources. Some attractive segments can be dismissed quickly because they do not fit in with the company's long-term objectives. If the company has strategy of not owning property, or has a sustainability profile, that must be reflected in their practices. 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 gain advantages over competitors. Selecting target market segments After evaluating different segments, the company must decide which and how many segments it will target. A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. Market targeting can be carried out at several different levels. Figure 8.3 shows that companies can target very broadly (undifferenti- ated marketing), very narrowly (micromarketing), or somewhere in between (differentiated marketing). Target market – A set of buyers sharing common needs or characteristics that the company decides to serve. Undifferentiated marketing Using an undifferentiated marketing (or mass marketing) strategy, a firm might decide to ignore market segment differences and target the whole market with one offer. This mass- marketing strategy focuses on what is common in the needs of consumers rather than on what is different. The company designs product and a marketing programme that will appeal to the largest number of buyers. Undifferentiated (mass) marketing – A market- coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer. Marketers thus decide on the degree of segmentation. Figure 8.3 shows four typical segmentation strategies, from a pure undifferentiated mass-market approach (targeting broadly) to a narrow one-to-one approach, with every customer treated on an individual basis. Most contemporary marketers have strong doubts about a pure mass market approach. Diffi- culties 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 satis- fying the needs of specific segments and niches. But it still applies to some generic products: public transport, salt and cucumbers. Differentiated marketing Differentiated (segmented) marketing – A market-coverage strategy in which a firm decides to target several market segments and designs separate offers foreach. Using a differentiated marketing (or segmented marketing) strategy, a firm decides to target several market segments and designs separate offers for each. By offering product and marketing variations to segments, companies hope for higher sa les and a stronger position within each market segment. Developing a stronger position within several segments creates more total sales than undifferentiated marketing across all segments. The Accor Hotel Group's broad range of brands gives it a much greater, more stable market share than any single brand could. But differentiated marketing also increases the costs of doing business. Developing separate marketing plans for the separate segments requires extra marketing research, forecasting, sales analysis, promotion planning and channel management. And trying to reach different market segments with different advertising campaigns increases marketing communications costs. Thus, the company must weigh increased sales against increased costs when deciding on a differentiated marketing strategy. Concentrated marketing Concentrated (niche) marketing – A market coverage strategy in which a firm goes aftera large share of one or a few segments or niches. Using a concentrated marketing (or niche marketing) strategy, instead of going after a small share of a large market, the company goes after a large share of one or a feW smaller segments O niches. Through concentrated marketing, the company achieves strong market position because of its greater knowledge of consumer needs in the niches it serves and the special reputation it acquires It can market more effectively by fine- tuning its products prices and programmes to the needs of carefully defined segments. It can also market more efficiently, targeting its products or services, channels and communications programmes towards consumers that it can serve best and most profitably. Concentrated marketing may be applied by small companies as well. For instance, a smal law firm in Swedish Dalsland cannot perhaps compete with one in Gothenburg or Karlstad in terms of knowledge and competence, but through providing a unique flexibility, presence and customer orientation. Whereas segments are fairly large and normally attract several competitors, niches are smaller and may attract only one or a few competitors. Niche marketing lets smaller companies focus their limited resources on serving niches that maybe unimportant to, or overlooked by, larger competitors. Many companies start as niche marketers to get a foothold against larger, more resourceful competitors and then grow into broader competitors. In contrast, some big corporations develop niche markets to create sales growth, which makes it difficult for small players to get a foothold in the market Zara and H& M are a few among many companies that do this to defend and develop market share with their growing retailer and brand portfolios (cf. H&M case at the start of Chapter 1). Concentrated marketing can be highly profitable. At the same time, it involves higher- than-normal risks. Companies that rely on a single segment 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 into several market segments But smaller companies may have non other choice than to focus their limited resources on serving niches that may be unimportant to or overlooked by larger competitors. Many companies start as niche marketers to get a foothold against larger, more resourcef ul competitors and then grow into broader competitors For example, Southwest Airlines began by serving intrastate, no- frills commuters in Texas but is now the world's third largest airline, and the most profitable in the US. Today, the low cost of setting up shop on the Internet makes it even more profitable to serve seemingly small niches. Small businesses, in particular, are realizing riches from serving niches on the web. Consider online women's fashion retailer Stitch Fix: Micromarketing (one-to-one marketing) Differentiated and concentrated marketers tailor their offers and marketing programmes to meet the needs of various market segments and niches. At the same time, however, they do not customize their offers to each individual customer. Micromarketing or one-to-one marketing is the practice of tailoring products and marketing programmes to suit the tastes of specific individuals and locations, Rather than seeing a customer in every individual, micro- marketers see the individual in every customer. It's an excellent way of creating customer relationships, but it's difficult to apply for cheap, low involvement products. Micromarketing includes local marketing and individual marketing. Micromarketing- Tailoring products and marketing programs to the needs and wants of specific individuals and local customer segments; it includes local marketing and individual marketing. LOCAL MARKETING Local marketing – Tailoring products and marketing to the needs and wants of local customer segments-cities, neighbourhoods, and even specific stores. Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups cities, neighbourhoods and even specific stores. For example, store chains such as ICA customize their merchandise store by store to meet the needs of local shoppers. IC A's store designers create each new store's format according to a neighbourhood's characteristics and use the knowledge from earlier openings and the customer relationship management system to tailor individual store merchandise. Planograms (shelf plans) are used to match store assortments to each store's demand patterns.16 Local marketing has some drawbacks. It can drive up manufacturing and marketing costs by reducing economies of scale. It can also create logistics problems as companies try to meet the varied requirements of different regional and local markets. Further, a brand's overall image might be diluted if the product and message vary too much in different localities. One example is insurance provider Länsförsäkringar Alliance with its unique position in the Swedish bank and insurance market. The 23 customer-owned regional insurance companies co-operate, thereby combining the ability of a small company to accommodate its customers with the strength of a large company. All of the companies have a strong local base in their individual home markets and have no ownership interests other than those of their own customers. The very idea and competitive advantage of Länsforsäkringar is to be better than its competitors in adapting to local circumstances. However, standardization has many advantages which Länsförsäkringar can't fully enjoy, and from an image point of view, a company that presents itself as very local maybe inherently unattractive for young people applying for a job. INDIVIDUAL MARKETING Individual marketing – Tailoring products and marketing programs to the needs and preferences of individual customers. In the extreme, micromarketing becomes individual marketing-tailoring products and marketing programmes to the needs and preferences of individual customers. Individual marketing has also been labelled one-to-one marketing, mass customization and markets-of-one marketing. The widespread use of mass marketing has obscured the fact that for centuries consumers were served as individuals: the bespoke suit, the cobbler-designed shoes for the individual, the cabinetmaker's furniture made to order. Today, however, new technologies are permit- ting many companies to return to customized marketing. More powerful computers, detailed databases, robotic production and flexible manufacturing, and interactive communication media -all have combined to foster 'mass customization'. Mass customization is the process through which firms interact one-to-one with masses of customers to design products and services tailor-made to individual needs. Companies these days are hyper-customizing everything from food, artwork, earphones, and sneakers to high-end luxury products. At one end of the spectrum, candy lovers can and buy candies with personalized messages or pictures embossed on each little candy. At the other extreme are "bespoke luxury goods (a fancy word for "custom-made' or 'made to order). For the right price, well-heeled customers can buy custom-designed goods ranging from bespoke fashions and accessories by Hermes and Gucci to bespoke cars. The move towards individual marketing mirrors the trend in consumer self-marketing. Increasingly, individual customers are taking more responsibility for shaping both the products they buy and the buying experience, and it all takes place in the context of compa- nies with a high interest in making buyers happy. Consider two business buyers with two different purchasing styles. The first sees several salespeople, each trying to persuade him to buy their product. The second sees no salespeople but instead logs on to the web,. Heor she searches for information on available products; interacts online with various suppliers, users and product analysts; and then decides which offer is best. The second purchasing agent has taken more responsibility for the buying process, and the marketer has had less influence over the buying decision. As the trend towards more interactive dialog ue and les marketing monologue continues, marketers will need to influence the buying process in new ways. Choosing a targeting strategy Companies need to consider many factors when choosing a market-targeting strategy. Which strategy is best depends on company resources When the firm's resources are scarce, concen- trated marketing makes the most sense. The best strategy also depends on the degree of product variability. Undifferentiated marketing is more suitable for uniform products such as grapefruit or cucumbers. Products that can vary in design, Such as cameras and clothing items, are more suited to differentiation or concentration. The product's life-cycle stage must also be considered. When a firm introduces a new product, it may be practical to launch only one version. In the mature stage of the product life cycle, differentiated marketing begins to make more sense. Another factor is market variability. If most buyers have the same tastes, buy the same amounts and react in the same way to marketing efforts, undifferentiated marketing is appropriate Finally, competitors marketing strategies are important. When competitors use differentiated or concentrated marketing, undifferentiated marketing might not work. Conversely, when competitors use undiferentiated marketing. a firm can gain an advantage by using differentiated or concentrated marketing, focusing on the needs of buyers in specific segments. Socially responsible target marketing Smart targeting helps companies become more efficient and effective by focusing on the segments that they can satisfy best and most profitably. Targeting also benefits consumers companies can thus match the wants and needs of s specific groups of consumers with carefully tailored offers. However, target marketing sometimes generates controversy and concern The biggest issues usually involve the targeting of vulnerable or disadvantaged consumers with controversial or potentially harmful products. Companies with sustainability claims avoid such approaches. In the US, for instance, there has been widespread criticism that fast-food chains attempt to target inner- city minority consumers. They" 've been accused of pitching their high-fat, salt-laden fare to low- income, urban residents who are much more likely than suburbanites to be heavy consumers. Similarly, big banks and mortgage lenders have been criticized for targeting consumers in poor urban areas with attractive adjustable- rate home mortgages that they can't really afford, In Scandinavia, company practices have been less harmful, partly thanks to solid regulation and partly thanks to a culture in most industries that doesn't allow for socially irresponsible marketing. However, one may ask whether the practices of, for example, online casinos are socially responsible. Children are seen as an especially vulnerable audience. Marketers in a wide range of indus tries-from cereals, soft drinks, and fast food to toys and fashion- have been criticized for their marketing efforts directed toward children. Critics worry that enticing premium offers and high powered advertising appeals will overwhelm children's defences. In recent years, for instance, McDonald's has been criticized by various health advocates and parent groups concerned that its popular Happy Meals offers - featuring trinkets and other iterns tied in with popular children's movies and Ty shows create a too powerful connection between children and less-healthy eating. McDonald's has responded by putting the Happy Meal on a diet, cutting the overall calorie count by 20 per cent, adding fruit to every meal, and promoting Happy Meals only with milk, water, and juice. And in many countries, including Scandinavia, McDonald's replaces the plastic toys in its Happy Meals with children's books. Digitization may make children even more vulnerable to targeted marketing messages. Tradi- tional child-directed rv (not allowed if directed towards children under 12 in Scandinavia) and print ads usually contain fairly obvious pitches that are easily detected and controlled by parents. However, marketing in digital media may be subtly embedded within the content and viewed by children on personal, small screen devices that are beyond even the most watchful parent's eye. In digital platforms, the lines bet ween educational, entertainment, and commercial content are often blurred. More broadly, digitization and the growth of social media have raised concerns about potential targeting abuses. Digitized marketing allow for more precise targeting, letting the makers of questionable products or deceptive advertisers zero in on the most vulner- able audiences. Unscrupulous marketers can now send tailor-made, deceptive messages by e-mail directly to millions of unsuspecting consumers. How well does your smartphone know you? In truth,your digital devices probably know more about you than you know about yourself. Smartphones and other digital equipment have become fundamental exten- sions of our lives. Whatever you do- at work, at play, socializing, shopping - your phone, tablet, laptop, or desktop is almost always a part of the action. These devices go where you go, entertain you, connect you with friends, take you browsing and shopping, feed you news and information, and listen in on even your most intimate voice, text, and email conversations. And more and more, these devices are sharing all that personal information with marketers. Companies have now developed sophisticated new ways that border on wizardry to extract intimate insights about consumers. For brands and marketers, such information is pure gold. Marketers argue that using all of this up-close-and-personal information better serves both customers and a company. Customers receive tailored, relevant information and offers from companies that really understand and interest them. However, many consumers and privacy advocates are concerned that such intimate information in the hands of unscrupu- lous marketers could result in more harm than benefit to consumers. They often view big data and hyper-targeting less as 'getting to know consumers better to serve them better' and more as 'stalking' consumers and 'profiling' them. Although most consumers are willing to share some personal information if it means getting better service or deals, many consumers worry that marketers might go too far. Thus, in target marketing, the issue is not really who is targeted but rather how and for what. Controversies arise when marketers attempt to profit at the expense of targeted segments-when they unfairly target vulnerable segments or target them with questionable products or tactics. Socially responsible marketing calls for segmentation and targeting that serve not just the interests of the company but also the interests of those targeted. Differentiation and positioning Product position – The way the product is defined by consumers on important attributes – the place the product occupies in consumers' minds relative to competing products. At the same time that it's answering the first simple-sounding question (which customers will we serve?), the company must be asking the second question (how will we serve them?). Beyond deciding which segments of the market it will target, the company must decide on a value proposition - on how it will create differentiated value for targeted segments and what positions it wants to occupy in those segments. A product's position is the way the product is defined by consumers on important attributes the place the product occupies in consumers' minds relative to competing products. 'Products are created in the factory, but brands are created in the mind,' says a positioning expert. Cillit Bang is positioned as a powerful, all-purpose family detergent; The Body Shop is positioned as the natural way to beauty. In the automobile market, Dacia, Kia and Škoda are positioned on value for money, Mercedes and Jaguar on luxury, and Porsche and BMw on performance. Volvo is powerfully positioned on safety. Consumers position products with or without the help of marketers. Consumers are over- loaded with information about products and services. They cannot re-evaluate products every time they make a buying decision. To: simplify the buying process, consumers organize prod- ucts, services and companies into categories and position' them in their minds. A product's position is the complex set of perceptions, impressions and feelings that consumers have for the product compared with competing products However, marketers do not want to leave their products' positions to chance. They must plan positions that will give their products the greatest advantage in selected target markets, and they must design marketing mixes to create these planned positions. Positioning maps In planning their differentiation and positioning strategies, marketers often prepare percep tual positioning maps, which show consumer perceptions of their brands versus competing products on important buying dimensions. Figure 8.4 shows a positioning map for the us large luxury sport utility vehicle market.22 The position of each circle on the map indicates the brand's perceived positioning on two dimensions - price and orientation (luxury versus performance). The size of each circle indicates the brand's relative market share. Choosing a differentiation and positioning strategy Some firms find it easy to choose a differentiation and positioning strategy. For example, a firm well known for quality in certain segments will go for this position in a new segment if there are enough buyers seeking quality. But in many cases, two or more firms will go after the same position. Then, each will have to find other ways to set itself apart. Each firm must differentiate its offer by building a unique bundle of benefits that appeals to a substantial group within the segment. Above all else, a brand's positioning must serve the needs and preferences of well-defined target markets. And brands may appear similar at a first glance, but have different roots and images. For example, both Audi and BMw are dynamic, prestigious premium brands, they are both from Southern Germany and manufacture cars more or less in the same segments Yet each succeeds because the competition between the two of them puts pressure on both to improve, thus setting them apart from the mass market, and the design is different - design is a defining factor for cars, and may thus be used for positioning. The differentiation and positioning task consists of three steps: identifying a set of differentiating competitive advantages upon which to build a position, choosing the right competitive advantages, and selecting an overall positioning strategy. The company must then effectively communicate and deliver the chosen position to the market. Identifying possible value differences and competitive advantages To build profitable relationships with target customers, marketers must understand customer needs better than competitors do and deliver more customer value. To the extent that a company can differentiate and position itself as providing superior customer value, it gains competitive advantage. Competitive advantage – An advantage over competitors gained by offering greater customer 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 live up to their slogans. To find points of differentiation, marketers must think through the customer's entire experi ence with the company's product or service. There is an almost indefinite number of oppor- tunities for a company to differentiate its offer along the lines of product, services, channels, people or image. Through product differentiation, brands can be differentiated on features, performance, or style and design. Bang & Olufsen positions its home entertainment equipment on its striking design and sound characteristics. BoConcept differentiates its furniture on design competing with IKEA is not easy, and design is one of a few options. Beyond differentiating its physical product, a firm can also differentiate the services that accompany the product. Some companies gain services differentiation through speedy, convenient or careful delivery. This is not as easy to create as it may seem. In many city and metropolitan areas, in particular, there are numerous companies offering a similar product just think about the 15 or so IC A stores in Vasastan, Stockholm, the numerous 7-Eleven stores in central Gothenburg or the 15 Ford dealerships in Madrid, a city known for demanding buyers when it comes to price.23 Here. service differentiation may make the difference High- quality service that creates outstanding ownership experiences iS a competitive advantage that is very difficult to copy. Firms that practise channel differentiation gain competitive advantage through the way they design their channel's coverage expertise and performance. Dell sets itself apart with its smoothly-functioning direct channels for computers. Companies can also gain a strong competitive advantage through people differentiation - hiring and training better people than their competitors do. Emirates and Qatar Airways - both enjoy an excellent reputation largely because of the grace of its flight attendants - but one should keep in mind that their co-workers have far fewer rights compared to flight crew employed by European carriers. People differentiation requires that a company select its customer-contact people carefully and train them well. Even when competing offers look the same, buyers may perceive a difference based or company or brand image differentiation. Again, a person who'll get a new official car anc compares the offers from Audi and BM w will find that technical specifications, fuel economy and safety don't really differentiate, say, an Audi A4 40 TDI from a BMW 320d. But design and image are different! A company or brand image should convey the product's distinctive benefits and positioning. Developing a strong and distinctive image calls for creativity and hard work. Symbols - such as McDonald's golden arches, Swedish television channel 4s red circled 4 or Google's colourful logo-can provide strong company or brand recognition and image differ- entiation. Some companies even become associated with colours, such as ABB and Coca-Cola (both red). The chosen symbols, characters and other image elements must be communicated through advertising that conveys the company's or the brand's personality. Choosing the right competitive advantages Suppose a company is fortunate enough to discover several potential differentiations that provide competitive advantages. It now must choose the ones on which it will build its posi- tioning strategy. It must decide how many differences to promote and which ones. HOW MANY DIFFERENCES TO PROMOTE Many marketers think that companies should aggressively promote only one benefit to the target market. Ad man Rosser Reeves said that a company should develop a unique selling proposition (UsP) for each brand and stick to it. Each brand should pick an attribute and tout itself as 'number one' on that attribute. Buyers tend to remember number one better, especially in this over-communicated society. Other marketers think that companies should position themselves on more than one differen- tiator. This may be necessary if two or more firms are claiming to be best on the same attribute, Today, at a time when the mass market is fragmenting into many small segments, companies are trying to broaden their positioning strategies to appeal to more segments. For more complex products, there are more aspects to differentiate and buyers are likely to require a lot in many respects. Most car manufacturers have a few differentiating aspects that are promoted. WHICH DIFFERENCES TO PROMOTE Not all brand differences are meaningful or worth- while; not every difference makes a good differentiator. Each difference has the potential to create company costs as well as customer benefits. A difference is worth establishing to the extent that it satisfies the following criteria: ◦ Important: the difference delivers a highly valued benefit to target buyers. Distinctive: competitors do not offer the difference, or the company can offer it in a more distinctive way. Superior: the difference is superior to other ways that customers might obtain the same benefit. Communicable: the difference is communicable and visible to buyers. Pre-emptive: competitors cannot easily copy the difference. Affordable: buyers can afford to pay for the difference. Profitable: the company can introduce the difference profitably. Many companies have introduced differentiations that failed one or more of these tests. When the Westin Stamford Hotel in Singapore once advertised that it was the world's tallest hotel, it was a distinction that was not important to most tourists in fact, it turned many off, Polaroid's Polavision, which produced instantly developed home movies, bombed too. Although Polavision was distinctive and even pre-emptive, it was inferior to another way of capturing motion, namely camcorders. Thus, choosing competitive advantages upon which to position a product or service can be difficult, yet such choices may be crucial to success. When companies fail on this point, it's an indication that they are subject to myopic behaviour, i.e. focusing too much on their own product and its benefit while underestimating the power of competitors. Selecting an overall positioning strategy The full positioning of a brand is called the brand's value proposition - the full mix of bene- fits upon which the brand is differentiated and positioned. It is the answer to the customer's question, 'Why should 1 buy your brand?’ Figure 8.5 shows possible value propositions upon which a company might position its products. In the figure, the five green cells represent winning value propositions - differentia- tion and positioning that give the company competitive advantage. The blue cells, however, represent losing value propositions. The centre yellow cell represents at best a marginal proposition. In the following sections, we discuss the five winning value propositions upon which companies can position their products: more for more, more for the same,the same for less, less for much less, and more for less. Value proposition – The full positioning of a brand the full mix of benefits upon which it is positioned. MORE FOR MORE More-for-more positioning involves providing the most upmarket product or service and charging a higher price to cover the higher costs. Ritz-Carlton Hotels and Mont Blanc writing instruments - each claims superior quality, craftsmanship, durability, perfor- mance or style and charges a price to match. Not only is the market offering of a high quality, it also gives prestige to the buyer. It symbolizes status and a loftier lifestyle. Often, the price difference exceeds the actual increment in quality, which results in high profitability - but customers are still happy, they get the best product in the market, and they are often proud of their excellent products. Sellers offering only the best* can be found in every product and service category, from lunch restaurants and household appliances to fashion and leisure travel. Consumers are some- times surprised, even delighted, when a new competitor enters a category with an unusually high-priced brand. Starbucks coffee entered as a very expensive brand in a largely commodity category (but later lost some of its premium advantage). When Apple premiered its iPhone, it offered higher-quality features than a traditional mobile phone with a hefty price tag to match and the iPhone is still price-setter in its industry. In general, companies should be on the lookout for opportunities to introduce a 'more- for-more' brand in any underdeveloped product or service category. Yet 'more-for-more' brands can be vulnerable. They often invite imitators who claim the same quality but at a lower price. Luxury goods that sell well during good times may be at risk during economic downturns when buyers become more cautious in their spending. MORE FOR THE SAME Companies can attack a competitor's more-for-more positioning by introducing a brand offering comparable quality but at a lower price. In the us, Toyota introduced its Lexus line in 1989 (a few years before it was launched in Sweden) with a 'more- for-the-same* value proposition versus Mercedes and BMw. Its first advert headline read: 'Perhaps the first time in history that trading a $72,000 car for a $36,000 car could be consid ered trading up.' It communicated the high quality of its new Lexus through rave reviews in car magazines and through a widely-distributed videotape showing side-by-side comparisons of Lexus and Mercedes cars. It published surveys showing that Lexus dealers were providing customers with better sales and service experiences than were Mercedes dealerships. As a new actor in the market Lexus hand-picked their dealers and were fortunate to obtain commitment from very good ones. Many Mercedes owners switched to Lexus, and the Lexus repurchase rate has been 60 per cent, twice the industry average. THE SAME FOR LESS Offering the same for less' can be a powerful value proposition – everyone likes a good deal. Lidl, Norwegian and ÖoB use this positioning. They don't claim to offer different or better products. Instead, they offer many of the same brands as department stores and speciality stores but at considerable discounts based on superior purchasing power and lower-cost operations. In the case of the air carrier Norwegian, a similar product is offered compared with national airlines but at a lower price. Other companies develop imitative but lower-priced brands in an effort to lure customers away from the market leader. For example, AMD makes less expensive versions of Intel's market- leading microprocessor chips. LESS FOR MUCH LESS There is almost always a market for products that offer less and therefore cost less. Few people need, want or can afford *the very best in everything they buy. Over time, spending patterns have become more flexible, and modern customers like the opportunity of buying less for much less in some categories.24 For example, many travellers seeking lodgings prefer not to pay for what they consider unnecessary extras, such as a pool, a restaurant on the premises or mints on the pillow. Hotel chains such as Ibis do not offer some of these amenities and charge less accordingly. 'Less-for-much-less' positioning involves meeting consumers' lower performance or quality requirements at a much lower price. Ryanair offers much lower levels of service; as a result, they charge rock-bottom prices, easyJet and Southwest Airlines also practise less-for-much- less positioning. DollarStore offers very low prices but limited service, a scattered assortment, and store locations less convenient for most consumers a typical less-for-much-less position. MORE FOR LES Of course, the winning value proposition would be to offer 'more for less'. Many companies claim to do this. And, in the short term, some companies can actually achieve such lofty positions. When it first opened in Sweden, the Vapiano restaurants became very popular: a unique combination of good taste, low prices, great locations and transparent cooking. For about SEK 100 the customer gets a tasty pizza or plate of pasta, and can see the chef cooking it. They were all located in popular destinations for high-end dining and clubbing, and all of the Vapiano restaurants had a bar. However, Vapiano is not really what it seems to be. Without doubt, the concept has many advantages: it's informal, the food tastes great and there are a great variety of dishes and drinks served. But it's not Italian as most people think; it's German, where it is profiled and perceived as a fast-food chain with meal prices ranging from €6 to €10. Prices have increased several times and Vapiano has intro- duced an opportunity to pay tips. The bottom line it is still attractive, but it could hardly be claimed to convincingly apply more for less in the restaurants, which might be overcrowded and noisy - waiting in line for the food for 20 or 30 minutes is not a premium experience. In 2020, the parent company of Vapiano restaurants in Sweden filed for bankruptcy. Yet in the long run, companies will find it very difficult to sustain such best-of-both posi- tioning. Offering more usually costs more, making it difficult to deliver on the for less' promise. Companies that try to deliver both may lose out to more focused competitors. For example, facing determined competition from Lowe's stores, Home Depot must now decide whether it wants to compete primarily on superior service or on lower prices. All said, each brand must adopt a positioning strategy designed to serve the needs and wants of its target markets. More for more' will draw one target market, 'less for much less' will draw another, and so on. Thus, in any market, there is usually room for many different companies, each successfully occupying different positions. Positioning statement – A statement that summarises company or brand positioning – it takes this form: To (target segment and need) our (brand) is (concept) that (point of difference). Developing a positioning statement Company and brand positioning should be summed up in a positioning statement. The statement should follow the form: To (target segment and need) our (brand) is (concept) that (point of difference).25 For example. Amazon's positioning statement has been described as: For consumers who want to purchase a wide range of products online with quick delivery, Amazon provides a one-stop online shopping site Amazon sets itself apart from other online retailers with its customer obsession, passion for innovation, and commitment to opera- tional excellence,' based on the principles: customer obsession, passion for innovation, and commitment to operational excellence. Note that a positioning statement should first state the product's membership in a category (wireless connectivity solution) and then shows its point of difference from other members of the category (easier, more reliable connections to data, people and resources). Placing a brand in a specific category suggests similarities that it might share with other products in the category. But the case for the brand's superiority is made on its points of difference. Communicating and delivering the chosen position Positioning the company calls for concrete action, not just talk. Once it has chosen a posi- tion, the company must take major steps to deliver and communicate the desired position to target consumers. All the company's marketing mix efforts must support the positioning strategy. If the company decides to build a position on better quality and service, it must first deliver on that position. Designing the marketing mix – product, price, marketing channels, and marketing communications – involves working out the tactical details of the positioning strategy. Thus, a firm that seizes on a more-for-more position knows that it must produce high quality products, charge a high price, distribute through high-quality dealers, and advertise in high-quality media. It must hire and train more service people, find retailers that have a good reputation for service, and develop sales and advertising content that supports its superior offer. This is the only way to build a consistent and believable more- for-more position. Companies often find it easier to come up with a good positioning strategy than to implement it. Establishing a position or changing one usually takes a long time. In contrast, positions that have taken years to build can quickly be lost. Once a company has built the desired position, it must take care to maintain the position through consistent performance and communication. It must closely monitor and adapt the position over time to match changes in consumer needs and competitors' strategies. However, the company should avoid abrupt changes that might confuse consumers. Instead, a product's position should evolve gradually as it adapts to the ever-changing marketing environment. SUMMARY Marketers know that they cannot appeal to all buyers in their markets, or at least not to all buyers in the same way. Buyers are too numerous, too widely scattered and too varied in their needs and buying practices. There- fore, most companies today practise target marketing- identifying market segments, selecting one or more of them, and developing products and marketing mixes tailored to each. Customer-driven marketing strategy consists of four steps. Market segmentation is the act of dividing a market into distinct groups of buyers with different needs, characteristics or behaviours who might require separate products or marketing mixes. Once the groups have been identified, market targeting evaluates each market segment's attractiveness and selects one or more segments to serve. Market targeting consists of designing strategies to build the right relationships with the right customers. Differentiation involves actually differentiating the market offering to create superior customer value. Positioning consists of positioning the market offering in the minds of target customers. For consumer marketing, the major segmentation vari- ables are geographic, demographic, psychographic and behavioural. In geographic segmentation, the market is divided into different geographical units such as nations, regions, provinces, cities, parishes, or neigh- bourhoods. In demographic segmentation, the market is divided into groups based on demographic vari- ables, including age, generation, gender, family size, family life cycle, income, occupation, education and nationality. In psychographic segmentation, the market is divided into different groups based on social grade, lifestyle or personality characteristics. In behavioural segmentation, the market is divided into groups based on consumers' knowledge, attitudes, uses or responses to a product. Business marketers use many of the same variables to segment their markets. But business markets also can be segmented by business consumer demographics (industry, company size), operating characteristics. purchasing approaches, situational factors and personal characteristics. The effectiveness of segmentation anal- ysis depends on finding segments that are measurable. accessible, substantial, differentiable and actionable. To target the best market segments, the company first evaluates each segment's size and growth character- istics, structural attractiveness and compatibility with company objectives and resources. Ilt then chooses one of four market-targeting strategies-ranging from very broad to very narrow targeting. The seller can ignore segment differences and target broadly using undifferen tiated (or mass) marketing. This involves mass producing, mass distributing and mass promoting the same product in about the same way to all consumers. Or the seller can adopt differentiated marketing developing different market offers for several segments. Concentrated marketing (or niche marketing) involves focusing on only one or a few market segments. Finally, micromar- keting is the practice of tailoring products and marketing programmes to suit the tastes of specific individuals and locations. Micromarketing includes local marketing and individual marketing. Which targeting strategy is best depends on company resources, product variability, product life-cycle stage, market variability and competi- tive marketing strategies. Targeting involves a fine line between 'serving' customners and 'stalking" them. Once a company has decided which segments to enter, it must decide on its differentiation and positioning strategy. This task consists of three steps: identifying a set of possible differentiations that create competitive advan- tage, choosing advantages upon which to build a position, and selecting an overall positioning strategy. The brand's full positioning is called its value proposition - the full mix of benefits upon which the brand is positioned. In general, companies can choose from one of five winning value prop- ositions upon which to position their products: more for more, more for the same, the same for less, less for much less, or more for less. Company and brand positioning are summarized in positioning statements that state the target segment and need, positioning concept and specific points of difference. The company must then effectively communi- cate and deliver the chosen position to the market. KEY TERMS Age and life-cycle segmentation Behavioural segmentation Benefit segmentation Competitive advantage Concentrated (niche) marketing Demographic segmentation Differentiated (segmented) marketing Differentiation Gender segmentation Geographic segmentation Income segmentation Individual marketing Inter-market segmentation Local marketing Market segmentation Market targeting (targeting) Micromarketing Occasion segmentation Positioning Positioning statement Product position Psychographic segmentation Target market Undifferentiated (mass) marketing Value proposition

Kotler 2020 (Chapter 8) - Customer Value-Driven Marketing Strategy PDF

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