Creaminess. Creaminess. Creaminess. Sweetness. Sweetness. Sweetness

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1 05. TARGET MARKETING A company cannot serve all customers in a broad market. The customers are too numerous and diverse in their buying requirements. Many companies are embracing Target marketing. Here, sellers distinguish the major market segments and develop products and marketing programs tailored to each. Target Marketing requires marketers to take three major steps: 1. Market Segmentation: Identify and profile distinct groups of buyers who might require separate products or marketing mixes. 2. Market Targeting: Select one or more market segments to enter. 3. Market Positioning: Establish & communicate the products key distinctive benefits in the market. MARKET SEGMENTATION AND NEED FOR SEGMENTING MARKETS Segmentation is all about dividing the market, by grouping together customers with similar tastes and preferences into one segment, to serve it better. The market is filled up of people with different tastes and preferences. Different product ranges target different customers. Customers are becoming increasingly aware of their needs and are demanding products that meet their needs exactly. Segmentation helps marketers to understand the needs of different customers better and serve them with better value propositions. The increased preferences of customers paved the way for flooding the market with many different brands of cars catering to the needs of different segments. Segmentation also helps the marketers increase customer loyalty, as the marketers focus on these smaller markets with enhanced service and quality features. Companies, in order to stay competitive, need to develop and refine their products and services to meet the needs and preferences of various segments. Some firms adopt market segmentation because they lack the ability and competitiveness to cater to the mass market. Research has shown that for most products market share has risen for the carefully launched products. For instance, Surf, Rin and Wheel are brands in the same product line of HLL, but they are leaders in different segments. Most products have high sales after segmentation. PATTERNS OF MARKET SEGMENTATION There are many ways in which market segments can be built up. One such way is to identify preference segments. Supposing, ice cream buyers were asked how much they value two of the product attributes namely sweetness and creaminess, the following patterns can emerge from their responses: Creaminess Creaminess Creaminess Sweetness Homogeneous preferences Sweetness Diffused preferences Sweetness Clustered preferences Homogeneous preferences indicate that all consumers have roughly the same preference. Existing brands would be similar and gather around the middle of the scale with respect to both sweetness and creaminess. Diffused preferences, on the other hand, indicate that consumers vary greatly in their preferences. The first brand to enter the market is most likely to position in the centre to appeal to most of the people. This would minimise the sum of total customer dissatisfaction. Subsequent entries could position themselves in the corners to attract customer groups that were dissatisfied with the centre brand. When several brands enter the market, they are likely to position throughout the space and show real differences to match consumer-preference differences. Clustered preferences reveal distinct preference clusters called natural market segments. The first firm entering the market might position itself in the centre, hoping to appeal to all groups. It may concentrate on the largest market segment. It might develop several brands, each positioned in a different segment. Subsequent entries in the markets would also have the option of choosing from the segments that are yet catered to.

2 MB208 Marketing Management 05. Target Marketing Page of 6 MARKET SEGMENTATION LEVELS A market comprises of different consumers possessing innumerable tastes and preferences. Depending upon their marketing approach and the nature of their products, marketers can adopt different levels of segmentation. The different levels of market segmentation are: Segment marketing, Local marketing, Niche marketing Individual marketing In segment marketing, marketers divide the target market into different segments on the basis of homogeneous needs. Customers are segmented on the basis of a broad similarity with regard to some attributes such as tastes, preferences etc. The marketer then has to provide flexible solutions to the segment or may choose to serve more than one segment. Most marketers who have a global presence tend to offer customised products to suit the local market. Think global act local has long been a buzzword. In order to suite the local needs of the Indian customers, Pizza Hut has come up with pizzas with Indian style toppings. Niche marketing can be defined as the marketers effort to position their product or service in smaller markets that have similar attributes and have been neglected by other marketers. Saint Gobain, a French glass company, has effectively carved out a niche for itself by entering the fragmented glass market. Individual marketing is the extreme level of segmentation in which marketers focus on individual customers. In fact, almost all business to business marketing is individual marketing. BASES FOR MARKET SEGMENTATION Consumer Market Marketers identify and profile distinct groups of buyers who might require separate products or marketing mixes. Two broad groups of variables are used to segment consumer markets. Some researchers try to form segments by looking at consumer characteristics: Geographic, Demographic and Psychographic. Others try to form segments by looking at consumer responses to benefits sought, use occasions or brands. If marketers segment potential markets, the segmentation needs to be such that they can target their customers effectively and develop communication programs to convert potential customers into real customers. For effective segmentation, segmentation variables need to exhibit certain characteristics. The variable used for the segmentation of the markets should be measurable. Each segment should be substantial, that is should consist of an adequate number of customers to cater to. The segment or segments should be accessible to the marketer. The segments should be differentiable, that is each segment should be different from the other. A segmentation variable should be actionable, that is a segmentation variable should help marketers develop effective marketing programs to attract and serve potential customers effectively. Bases of Consumer Market Segmentation On the basis of Consumer Characteristics On the basis of Consumer Response Geographic Demographic Psychographic Behavioural Nations Regions States Cities Age Family Size Family Life Cycle Gender Income, Occupation Education Religion Race Generation, Nationality Social Class Lifestyle Personality Values Occasions Benefits User Status Usage Rate Loyalty Status Buyer Readiness Stage Attitude The major segmentation variables are Geographic, Demographic, Psychographic and Behavioural.

3 MB208 Marketing Management 05. Target Marketing Page of 6 Geographic Segmentation: It calls for dividing the market into different geographical units such as nations, states, regions, cities or neighbourhoods. The company can operate in one or few geographic areas or operate in all but pay attention to local variations. Demographic Segmentation: The market is divided into groups on the basis of variables such as age, family size, family life cycle, gender income, occupation, education, religion, race, generation, nationality and social class. Demographic variables are the most popular bases for distinguishing customer groups. Psychographic Segmentation: Buyers are divided into different groups on the basis of lifestyle or personality and Values. People within the same demographic group can exhibit very different psychographic profiles. Behavioural Segmentation: Buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. Many marketers believe that behavioural variables Occasions, Benefits, User Status, Usage Rate, Loyalty Status, Buyer Readiness Stage, and Attitude are the best starting points for constructing market segments. Industrial Market Industrial markets or business markets can be segmented using some of the bases of consumer market segmentation like geography, benefits sought and usage rate. But then business markets use several other variables as well. Bonoma and Shapiro proposed in 1983, the following variables for segmenting the business market: Major Segmentation Variables for Business Markets Demographic Industry: Company size: Location: Operating Variables Technology: User or nonuser status: Customer capabilities: Purchasing Approaches Purchasing-function organisation: Power structure: Nature of existing relationships: General purchase policies: Purchasing criteria: Situational Factors Urgency: Specific Application: Size of order: Personal Characteristics Buyer-seller similarity: Attitudes towards risk: Loyalty: Which industries should the firm serve? What size companies should the firm serve? What geographical areas should the firm cater to? What customer technologies should the firm focus on? Should the firm serve heavy users, medium users, light users, or nonusers? Should the firm serve customers needing many or few services? Should the firm serve companies with highly centralised or decentralised purchasing organisations? Should the firm serve companies that are engineering dominated, financially dominated and so on? Should the firm serve companies with which strong relationships exist or should the firm go after the most desirable companies? Should the firm serve companies that prefer leasing, service contracts, system purchases, sealed bidding and so on? Should the firm serve companies that are seeking quality, service, price? Should the firm serve companies that need quick and sudden delivery or service? Should the firm focus on certain applications of their product rather than all applications? Should the firm focus on large or small orders? Should the firm serve companies whose people and values are similar to theirs? Should the firm serve risk-taking or risk-avoiding customers? Should the firm serve companies that show high loyalty to their suppliers?

4 MB208 Marketing Management 05. Target Marketing Page of 6 MARKET TARGETING Once the firm has identified its market-segment opportunities, it has to decide how many and which segments to target. In Market Targeting, marketers must focus their attention on targeting the market segments that are relevant to their products and likely to respond positively to their marketing strategies. Evaluating the Market Segments In evaluating different market segments, the firm must look at two factors: the segment s overall attractiveness and the company s objectives and resources. The firm must evaluate the potential of the segment as well as its own ability to tap that particular segment. First, the firm must ask whether a potential segment has the characteristics that make it generally attractive such as size, growth, profitability, scale economies and low risk. Second, the firm must consider whether investing in the segment makes sense given the firm s objectives and resources. Some attractive segments could be dismissed because they do not mesh with the company s long-run objectives, or the segment could be dismissed if the company lacks one or more necessary competences to offer superior values. Selecting the Market Segments After evaluating different market segments, the marketer has to decide on which segment or segments to target. A company can consider five patterns of target market selection: Single Segment Concentration Selective Specialisation Product Specialisation Market Specialisation Full Market Coverage Single Segment Concentration Selective Specialisation Product Specialisation Market Specialisation Full Market Coverage M1 M2 M3 M1 M2 M3 M1 M2 M3 M1 M2 M3 M1 M2 M3 P1 P1 P1 P1 P1 P2 P2 P2 P2 P2 P3 P3 P3 P3 P3 Patterns of Target Market Selection P= Product, M= Market. Single Segment Concentration: The strategy of targeting a single segment has worked well for some marketers, like Mercedes only concentrates on the upper income group customers. Focusing on a single segment gives the marketer an advantage, as he can put all his marketing efforts and direct all his resources on that segment and on improving the product to exactly match the tastes and preferences of the customers in the segment. However, concentrated marketing involves higher than normal risks. If the single segment stops patronising the product for some reason, the marketer will face severe losses as he had been concentrating on only this segment. Or a competitor may invade the segment. For these reasons, many companies prefer to operate in more than one segment. Selective Specialisation: Automobile manufacturer Hyundai manufactures different models of cars like the Santro, Accent and Sonata to cater to different segments with different levels of income. In this case, the company specialises in cars and targets a few segments of the market. Product Specialisation: Some companies specialise in a particular product, like Gillette is famous world wide for its series of shaving products. A specialist microscope manufacturer may manufacture microscopes only and not any other equipments or instruments that laboratories may use. It can sell the microscopes to University laboratories, Government laboratories and Commercial laboratories. Thus the company specialises in making a certain product that it sells to several segments. The firm builds a strong reputation in the specific product area. But, if a competitor develops a breakthrough technology, the firm s product may be totally replaced in the market. Wilkinson s sword specialised in shaving blades and twin blade razors and enjoyed a market leader position till Gillette came up with Sensor technology and completely captured the market.

5 MB208 Marketing Management 05. Target Marketing Page of 6 Market Specialisation: Companies like the Ordinance factory caters to the needs of the Indian defence services by manufacturing different types of arms and ammunitions for them. A firm may sell an assortment of products only to university laboratories, including microscopes, chemical flasks, Bunsen burners etc. The firm concentrates on serving many needs of a particular customer group and gains a strong reputation in serving this customer group and becomes a channel for further products that the customer group could use. However, there is an inherent risk in focusing on the needs of a specific market only. The customer group may have its budgets cut. If there is any turn in the market due to an external environmental factor, it adversely affects the performance of the company. Full Market Coverage: Companies like Hewlett-Packard targets the full market for its printers. Its printer range starts from entry level printers for home and small office segments to high end heavy duty printers for commercial segments. The firm tries to serve all customer groups with all the products they might need. No segment is left untargeted by it. Only large firms can undertake a full market coverage strategy. Other Considerations Four other considerations must be taken into account in evaluating and selecting segments: Ethical Choice of Market Targets Segment Interrelationships and Supersegments Segment-by-Segment Invasion Plans Intersegment Cooperation Ethical Choice of Market Targets: Marketers should take adequate care not to promote harmful products and try not to take undue advantage of vulnerable groups, like children. Segment Interrelationships and Supersegments: A company that is targeting more than one segment needs to examine the relationship between the segments so that it can optimise its costs and performances. A supersegment is a set of segments that are similar. Companies should try to operate in supersegments rather than in isolated segments. For example: Big Bazaar targets the supersegment rather than individual segments. It targets people who want to buy apparels, kitchenware, vegetables, groceries, toys etc. Segment-by-Segment Invasion Plans: A company would be wise to enter one segment at a time without revealing its total expansion plans. Competitors should not get a clear picture of the direction in which the company is moving. Intersegment Cooperation: The best way to manage segments is to appoint segment managers for each segment. The marketer needs to develop mutual cooperation and information sharing procedures amongst the different segment managers and other company personnel. MARKET POSITIONING The word positioning was coined by Al Ries and Jack Trout way back in According to them, positioning is not what you do to the product; rather it is what you do to the mind of the customer. Creating a position for its products in the market helps a company develop a competitive advantage. It is the creative exercise applied on an existing product so that the successful products occupy a distinctive position in consumers minds. Positioning is the act of communicating the company s offer so that it occupies a distinct and valued place in the customers mind. After a company has divided the market into segments and targeted one or more segments, it now needs to establish and communicate the products key distinctive benefits to the target group or groups in the market. Product positioning refers to all the activities undertaken by a marketer to create and maintain the concept of value regarding its brand in the minds of the customers as against competitors brands. It is the image projected by the product against the competitors products and other products of the same firm. Marketers try to position their products in such a manner, that it seems to possess all desired characteristics.

6 MB208 Marketing Management 05. Target Marketing Page of 6 DIFFERENTIATION AND POSITIONING STRATEGIES A major decision in the commercialization of a product is how to differentiate it in the midst of an already over crowded market. Product differentiation, an important part of product positioning, is the act of designing a set of meaningful differences to distinguish the company s offering from competitors offerings. The strategy to differentiate the product is to place it in the minds of the target group of customers. The idea is to project the product in such a way from designing its package to designing its advertising campaigns that it has high recall in the minds of the target audience. Horizontal differentiation is a positioning strategy that makes use of the fact that consumers differ in their tastes. Some consumers prefer small cars, some like sedans while others like sports cars. Each of these groups consists of a relatively homogeneous set of people with similar needs. The idea of horizontal differentiation is to identify the groups whose needs are not yet served by a competitor. Vertical differentiation is a positioning strategy that makes use of the fact that consumers differ in their willingness to pay for quality. Quality may be the combination of many complementary attributes. In the case of passenger cars, for example, it can be a combination of speed, comfort and reliability. All consumers agree that these are relevant dimensions contributing to quality and they all unanimously prefer more quality to less. They only differ in their valuation of quality. Most consumers prefer a BMW to a Ford, but few can or are willing to pay the price for the BMW. Vertical differentiation amounts to positioning products to consumers with specific willingness to pay for quality un-served by a competitor. In most product categories, marketers have the option to differentiate their products both along quality as well as in terms of customer tastes. Creativity plays an important role in this task. The primary time to think of differentiation for existing products is in the phase of product concept development. The firms strive to develop products that are differentiated from competitors. Packaging can also be an important tool for differentiation. However, other elements of the marketing mix also have an important role in differentiation. Advertising is an obvious tool to communicate to consumers to what extent and along what dimensions the product is different from other alternatives. Price can be an important signal of quality and therefore an effective tool for vertical differentiation. Customer service is also one of the most important tools of differentiation. Various Differentiation Variables Product Service Personnel Channel Image Features Ordering ease Competence Coverage Symbols Performance quality Delivery Courtesy Expertise Media Conformance quality Installation Credibility Performance Atmosphere Durability Customer training Reliability Events Reliability Customer consulting Responsiveness Reparability Maintenance & repair Communication Style Miscellaneous services Design Form Price According to Rooser Reeves, a company should develop a unique selling proposition (USP) for each of its brands. A USP can be any special attributes about a brand like quality, price, service, value, safety provisions, technology etc. Marketers often try to promote the product on the basis of its USP. Number one positionings include best quality, lowest price, best value, best service, safest, and most advanced technology etc. If a company constantly communicates with the consumer hammering away one of these positionings and also delivers on the promise, it has a fair chance to be best known and recalled for that particular strength which it has been harping about. Different positioning strategies that are available are: Attribute positioning: The firm positions itself on an attribute like size or number of years in existence. Benefit positioning: The product is positioned as the leader in a certain benefit. Use or application positioning: The product is positioned as best for some use and application. User positioning: The product is positioned as best for some user group. Competition positioning: The product claims to be better in some way than a competitor. Product category positioning: The product is positioned as the leader in a certain product category. Quality positioning: The product claims to be of best quality. Price positioning: The product offers best price to the consumers.