Chapter 8 Customer-Driven Marketing Strategy. Creating Value for Target Customers

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1 Chapter 8 Custmer-Driven Marketing Strategy. Creating Value fr Target Custmers Designing custmer-driven marketing strategies that build the right relatinships with the right custmers: Market Segmentatin Market segmentatin dividing a market int smaller grups with distinct needs, characteristics, r behaviurs that might require separate marketing strategies r mixes. Althugh there are benefits t mass marketing (ecnmies f scale), everyne is different! Different cnsumers wants different things are able t pay different prices respnd differently t infrmatin In mst markets, a firm cannt appeal t all custmers in the same way And mst firms cannt serve all ptential custmers prfitably Mst firms have abandned mass marketing in favur f segmentatin and targeting Segmenting Cnsumer Markets Gegraphic segmentatin dividing a market int different gegraphical units such as natins, regins, prvinces, cuntries, cities, r neighbrhds. Many cmpanies tday are lcalizing their prducts, advertising, prmtin, and sales effrts t fit the needs f individual regins, cities, and even neighbrhds. Other cmpanies are seeking t cultivate as-yet-untapped gegraphic territry. Demgraphic segmentatin dividing the market int grups based n variables such as age, gender, gamily size, family life cycle, incme, ccupatin, educatin, religin, race, generatin, and natinality. Psychgraphic Segmentatin dividing a market int different grups based n scial class, lifestyle, r persnality characteristics. Aspiratinal persnality - Hpes fr the future - e.g., my first apartment, be a grwn up, crner ffice, play pr sprts Behaviural Segmentatin dividing a market int grups based n cnsumer knwledge, attitudes, usage, r respnses t a prduct. Relatinship Frequency f Cntact: D they visit ften? Lyalty: D they nly visit yu? 1

2 Occasins dividing the market int grups accrding t ccasins when buyers get the idea t buy, actually make their purchase, r use the purchased item. Can help firms build up prduct usage. Benefit segmentatin dividing the market int grups accrding t the different benefits that cnsumers seek frm the prduct. Requires finding the majr benefits peple lk fr in the prduct class, the kinds f peple wh lk fr each benefits, and the majr brands that deliver each benefit Sensries: Cmfrtable fabric Sciables: Stylish lk Wrriers: Hyp-allergenic Price sensitive: Lwest price Usage rate markets are segmented int light, medium, and heavy prduct users. Hw much and hw ften? Using Multiple Segmentatin Bases Marketers rarely limit their segmentatin analysis t nly ne r a few variables. Rather, they ften use multiple segmentatin bases in an effrt t identify smaller, better-defined target grups. Segmenting Business Markets Business can be segmented gegraphically, demgraphically (industry, cmpany size), r by benefits sught, user status, usage rate, and lyalty status. Yet business marketers als use sme additinal variables, such as custmer perating characteristics, purchasing appraches, situatinal factrs, and persnal characteristics. Within a given target industry and custmer size, the cmpany can segment by purchase appraches and criteria. Many marketers believe that buying behavir and benefits prvide the best bases fr segmenting business markets. Segmenting Internatinal Markets Cmpanies can segment internatinal markets using ne r a cmbinatin f several variables. They can segment by gegraphic lcatin, gruping cuntries by regins. Gegraphic segmentatin assumes that natins clse t ne anther will have many cmmn traits and behaviurs. Wrld markets can als be segmented n the basis f ecnmic factrs. A cuntry s ecnmic structure shapes its ppulatin s prduct and service needs and, therefre, the marketing pprtunities it ffers. Cuntries can be segmented by plitical and legal factrs such as the type and stability f gvernment, receptivity t freign firms, mnetary regulatins, and amunt f bureaucracy. Cultural factrs can als be used, gruping markets accrding t cmmn languages, religins, values and attitudes, custms, and behaviural patterns. Intermarket segmentatin frming segments f cnsumers wh have similar needs and buying behavir even thugh they are lcated in different cuntries. Requirements fr Effective Segmentatins Measurable: the size, purchasing pwer, and prfiles f the segments. Accessible: the market segments can be effectively reached and served. Substantial: the market segments are large r prfitable enugh t serve. Differentiable: the segments are cnceptually distinguishable and respnd differently t different marketing mix element and prgrams. Actinable: effective prgrams can be designed fr attracting and serving the segments. 2

3 Market Targeting Marketing targeting (targeting) the prcess f evaluating each market segment s attractiveness and selecting ne r mre segments t enter. Evaluating Marketing Segments In evaluating different market segments, a firm must lk at three factrs: Right size and grwth The largest, fastest-grwing segments are nt always the mst attractive nes fr every cmpany. Smaller cmpanies may lack the skills and resurces needed t serve the larger segments. Segment structural attractiveness A segment is less attractive is it already cntains many strng and aggressive cmpetitrs. The existence f many actual r ptential substitute prducts may limit prices and the prfits that can be earned in a segment. Buyer with strng bargaining pwer relative t sellers will try t frce prices dwn, demand mre services, and set cmpetitrs against ne all at the expense f seller prfitability. If a segment cntains pwerful suppliers wh can cntrl prices r reduce the quality r quantity f rdered gds and services. Cmpany s bjectives and resurces Target segments shuld be cmpatible with the rganizatin s gals and image (e.g., BMW). The market pprtunity represented by the segment must match the cmpany s resurces. The segment must represent an pprtunity t generate enugh sales t generate a prfit. The cmpany shuld select target segments where it can enjy a cmpetitive advantage. Selecting Target Market Segments Undifferentiated (mass) marketing market cverage strategy that ignres market segment differences and targets the whle market with ne ffer. Uncmmn tday Examples: Pepsi and Cke, decades ag Differentiated (segmented) marketing market cverage strategy that targets several market segments and designs separate ffers fr each. Cmpanies hpe fr higher sales and s a strnger psitin within each market segment. But differentiated marketing als increases the csts f ding business. Example: Gap (Banana Repulbic, Gap, Gap Kids, Old Navy); Tyta (Tyta, Lexus). Cncentrated (niche) marketing market cverage strategy in which a cmpany pursues a large share f ne r a few submarkets. Thrugh cncentrated marketing, the firm achieves a strng market psitin because f its greater knwledge f cnsumer needs in the niches it serves and the special reputatin it acquires. Cncentrated marketing can be highly prfitable. At the same time, it invlves higher-than-nrmal risks. Example: WestJet; Abercrmbie & Fitch. Micrmarketing the practice f tailring prducts and marketing prgrams t the needs/wants f specific individuals and lcal custmer grups Lcal marketing tailring brands and prmtins t the needs and wants f lcal custmer grups cities, neighbrhds, and even specific stres. Individual marketing tailring prducts and marketing prgrams t the needs and preferences f individual custmers als labeled ne-t-ne marketing, mass custmizatin, and markets-f-ne marketing. Examples f individual marketing: Dell custm-cnfigured cmputers; Frd build a vehicle ; custmized M&Ms. 3

4 Chsing a Targeting Strategy Cmpany resurces. When the firm s resurces are limited, cncentrated marketing makes the mst sense. Degree f prduct variability. Undifferentiated marketing is mre suited fr unifrm prducts such as grapefruit r steel. Prducts that can vary in design, such as cameras and autmbiles, are mre suited t differentiatin r cncentratin. Prduct s life-cycle stage. When a firm intrduces a new prduct, it may be practical t launch nly n versin, and undifferentiated marketing r cncentrated marketing may make the mst sense. In the mature stage f the prduct life cycle, hwever, differentiated marketing begins t make mre sense. Market variability. If mst buyers have the same tastes, buy the same amunts, and react the same way t marketing effrts, undifferentiated marketing is apprpriate. Cmpetitrs marketing strategies. When cmpetitrs use differentiated r cncentrated marketing, undifferentiated marketing can be suicidal. Cnversely, when cmpetitrs use undifferentiated marketing, a firm can gain an advantage by using differentiated r cncentrated marketing, fcusing n the needs f buyers in specific segments. Differentiatin and Psitining Differentiatin actually differentiating the market ffering t create superir custmer value, it gains cmpetitive advantage. Psitining arranging fr a market ffering t ccupy a clear, distinctive, and desirable place relative t cmpeting prducts in the minds f target cnsumers. Psitining Maps Perceptual psitining maps shw cnsumer perceptins f their brands versus cmpeting prducts n imprtant buying dimensins. The psitin f each circle n the map indicates the brand s perceived psitining n tw dimensins price and rientatin (luxury vs perfrmance). Chsing a Differentiatin and Psitining Strategy 1. Identifying Pssible Value Differences and Cmpetitive Advantages Cmpetitive advantage an advantage ver cmpetitrs gained by ffering greater custmer value, either thrugh lwer prices r by prviding mre benefits that justify higher prices. If a cmpany psitins its prduct as ffering the best quality and service, it must actually differentiate the prduct s that it delivers the prmised quality and service. 4

5 T find pints f differentiatin, marketers must think thrugh the custmer s entire experience with the cmpany s prduct r service. It can differentiate alng the lines f prduct, services, channels, peple r image: Prduct: features, perfrmance, r style and design. Service: speedy, cnvenient, r careful delivery. Channel: channel s cverage, expertise, and perfrmance. Peple: hiring and training better peple than their cmpetitrs d. Image: creativity and hard wrk. 2. Chsing the Right Cmpetitive Advantage Hw many differences t prmte? Many marketers think that cmpanies shuld aggressively prmte nly 1 benefit t the target market. Buyers tent t remember number ne better, especially in this vercmmunicated sciety. Other marketers think that cmpanies shuld psitin themselves n mre than ne differentiatr. Many buyers want multiple benefits. The challenge is t cnvince them that ne brand can d it all. Which Differences t Prmte? Imprtant: the difference delivers a highly valued benefit t target buyers. Distinctive: cmpetitrs d nt ffer the difference, r the cmpany can ffer it in a mre distinctive way. Superir: the difference is superir t ther ways that custmers might btain the same benefit. Cmmunicable: the difference is cmmunicable and visible t buyers. Preemptive: cmpetitrs cannt easily cpy the difference. Affrdable: buyers can affrd t pay fr the difference. Prfitable: the cmpany can intrduce the difference prfitably. 3. Selecting an Overall Psitining Strategy Value prpsitin the full psitining f a brand the full mix f benefits upn which it is psitined. Against Cmpetitin: Cla Wars Set Brand Apart: 7-Up, the Uncla. Leadership: Be the ne thers fllw. Used by Apple with ipd. 5