Welcome to part two of the lecture for Module two of the B 88 92 course. This lecture is designed to provide you with an overview of segmentation, targeting, and positioning. The Ford Motor Company introduced the first gasoline powered automobile called the Ford Model A in 1903. By 1908, when Ford introduced the Model T, there were fewer than 200,000 cars on the road. T hough the Ford Model T was fairly expensive at first, the cheapest one initially cost $825 or about $18,000 in today's dollars. It was built for ordinary people who drive every day. It had a 22 as power for cylinder engine and was made of a new heat treated steel pioneered by French race cars makers that made it lighter yet stronger than its predecessors. It could go as fast as 40 miles per hour and could run on gasoline. Ford kept prices low by sticking to a single product. By building just one model, the company's engineers could develop a system of interchangeable parts that reduced waste, saved time, and made it easy for unskilled workers to assemble the cars. Additionally, for many years, the Ford Model T came just in one color. Black. In short, the Ford Model T catered to one single segment. However, by the 1920s, many Americans wanted more than just a sturdy affordable car. They wanted style, speed, and luxury too. As pace changed, the era of the Model T came to an end and the last one rolled off the assembly line on May 26, 1927. Since then, the automobile industry has grown to where it is today and offers a mind boggling number of choices to consumers. Given this, the only way that the automobile manufacturers can compete in today's environment or for that matter in most industries is by focusing on specific groups of customers and creating products and services tailored to meet their specific needs. This is essentially the concept of market segmentation, which involves dividing the market into smaller segments. Of buyers with distinct needs, characteristics or behaviors that might require separate marketing strategies or marketing mixes. The basic principle underlying segmentation is the identification of clusters or groups of customers with homogeneous needs or preferences that distinguish them from the rest of the market. Increasingly in today's environment, organizations have realized the importance of being able to differentiate amongst consumers and deliver to their specific needs. There are several reasons for this. First, population growth in many developed countries has slowed, and more product markets have mature. This parks more intense competition in existing markets as firms see growth via gains in market share and encourages companies to find new markets that they have not served previously. Often, as they search for faster growing markets, their attention turns to the developing world, where the enormous diversity in demographic profiles and market conditions makes careful market segmentation and targeting essential. NCA, for example, has targeted the fast growing Indian market, where a majority of the population lives in rural areas. In doing so, it has had to adapt the designs of its cell phones, adding dust proof keypads, and eliminating other features to make the phones affordable to India's low income masses. By developing products uniquely suited to the Indian market and various segments therein, NCA became the market leader in India. Second, such social and economic forces as expanding disposable incomes, higher education levels, and more awareness of the world have produced customers with more varied and sophisticated needs, tastes, and lifestyles than ever before. This has led to an outpouring of goods and services that compete with one another for the opportunity of satisfying some group of consumers. Third, there is an increasing important trend towards micro segmentation in which extremely small market segments are targeted. For example, many automobile companies are using a flexible production system that can produce different models on the same production line. This enables the companies to produce cars made to order, as does general motors in the United States, which uses its online presence to fine tune its build to order process. Finally, many marketing organizations have made it easier to implement sharply focused marketing programs by more sharply targeting their own services. For example, many new media have sprung up to appeal to narrow interest groups. These include satellite based radio stations or HD radio stations targeted at different demographic groups, such as classical music, rock, country, and jazz, and not to mention that shows of various kinds and cable television channels, such as the cooking channel and the HGTV. Also more broad based magazines such as T and the economists offer advertisers the opportunity to target specific groups of people within their subscription base. A advertiser can target specific regions, cities, or post codes, or even selected income groups. Even cable television service providers like Time Warner and Comcast are beginning to see the potential in this. Currently offer advertisers the ability to selectively target specific groups of customers with one type of advertising while showing a different advertisement to another group in the same geographic area. In terms of segmenting consumer markets, given the difficulty in understanding the homogeneous needs that exist, marketers typically use surrogate criteria to identify potentially homogeneous groups of consumers. The most commonly used criteria are geographic, demographic, psychographic, and behavioral. Some examples of demographic attributes used to segment consumer markets are shown on this slide. Age and life cycle. Since mobile phone penetration has reached almost saturation levels in the US and in other markets, mobile service providers are focusing attention towards younger consumers, that are more technologically savvy to market new database services. Gender. Holly Davidson has seen its sales of motorcycles to women rise to 8% from 2% ten years ago. Has done so by accommodating the growing interest amongst females by offering an extensive line designed to cater specifically to the needs of women. Income. Higher income households purchase a disproportionate number of cellular phones, expensive cars, and theater tickets. In 2000, NokA started a wholly owned subsidiary virtue to create an ultra exclusive mobile telephone services built around the phone, targeting the same customers who buy luxury watches and custom made cars. Generation. As life expectancy in the US steadily increases, property developers are starting to build specialized full service facilities for the aging individuals that are seeking assisted living accommodation. The role that an individual plays in the purchase process is one of the dimensions that could be considered in behavioral segmentation. For example, an 18-year-old buying a first car may depend heavily on her parents or someone of the experience purchasing a car to help them out in the process. While the decision on the style, model, et cetera may reside with the 18-year-old, the monitory decision may actually rest with her parent. Behavioral variables are those forces that affect the consumer and their buying behavior. Behavioral variables could be occasions, benefits, loyalty status, usage rate, user status, and consumer attitudes amongst other things. Occasions can be defined in several ways. For example, consumers behave very differently when purchasing during the holidays. Consumption patterns can be changed by occasion targeting. For example, considered a product such as milk that is traditionally consumed in the morning during breakfast. However, the Got Milk campaign was extremely successful in converting it into a product that could be consumed any time of the day. Consumers can be segmented based on the benefits sought. For example, target has successfully targeted consumers who are looking for better shopping experience along with better value for their money. Airlines, since the day American airlines introduced a frequent flyer program, have used loyalty status to offer differentiated services to their most loyal consumers. Behavioral segmentation involves understanding the consumer's behaviors. When a company markets a product or service, they need to put themselves in the shoes and minds of the consumer. Segmentation can also be executed on the basis of lifestyle or psychographics. In other words, what they do or believe in rather than who they are in a demographic sense. From such information, it is possible to infer what types of products and services appeal to a particular group, as well as how best to communicate with individuals in that group. Even among demographic groups that might at first glance seem homogeneous, behavioral segmentation based on lifestyle is identifying new target markets for savvy marketing. Stanford Research Institute has created a US segmentation service called Valves two, which builds on the concept of self orientation and resources for the individual. Self orientation is based on how consumers pursue and acquire products and services that provide satisfaction and shape their identities. In doing so, they're motivated by the orientations of principle, status, and action. Principle oriented consumers are motivated by abstract and idealized criteria, while status oriented consumers shop for products that demonstrate the consumer success. Action oriented consumers are guided by the need for social or physical activity, variety, and risk taking. Resources include all the psychological, physical, demographic and material means consumers have to draw on. They include education, income, self confidence, health, eagerness to buy intelligence, and energy level on a continuum from minimum to abundant. Based on these two dimensions, Val st defines eight segments that exhibit distinctive behavior and decision making, actualizers, fulfillers, achievers, experiences, believers, strivers, makers, and strugglers. Those interested in the Valve segmentation scheme can complete a short survey on the valves website. Log on to the website at WWR hyphenb.com forward slash valves, forward slash, pre survey, forward slash, SH TML, and discover the valve segment to which you belong. Purchasing structure and buying situation segmentation attributes are unique to organizational markets. Purchasing structure is the degree to which the purchasing activity is centralized. In such a structure, the buyer is likely to consider all transactions with a given supplier on a global basis to emphasize cost savings and to minimize risk. In a decentralized situation, the buyer is apt to be more sensitive to the user's needs. To emphasize product quality and fast delivery and to be less cost conscious. Some marketers segment their markets accordingly and target customers whose purchasing structure is similar. Companies who buy centrally from one location to meet their global needs, for example. The buying situation attribute includes three distinct types of situations. Straight rebuy, a recurring situation handled on a routine basis, modified rebuy, which occurs when some elements such as price or delivery schedules has changed in a client supplier relationship, and a new buying situation which may require the gathering of considerable information and an evaluation of alternative suppliers. Business to business marketers seeking new customers often find the buying situation to be a useful way to decide which new consumers or customers to target. The objective of the segmentation process as discussed earlier is to identify a homogeneous segment that differs from other segments. This requires the identification of one or more groups of prospective buyers that exhibit homogeneous leads and preferences. For a brand like horizon melt, this means identifying a group of consumers who are looking to lead a healthy lifestyle by using only organic products. Most importantly, differences within one segment should be small competed differences across various segments. The first step of this process requires us to identify or specify the criteria that define the segment. The identified criteria should measure or describe the segments clearly enough so that members can readily be identified and accessed in order for the marketer to know whether a given prospective customer is or is not in the target market. In order to reach the prospective customer with advertising or other marketing communication messages. This should lead us to identify potential segments that exist in the overall market. We then need to determine the segment size and potential. This has done so primarily to determine which of the identified segments are most attractive and are likely to be the most profitable segment or segments for the marketer to pursue. This also helps the marketer prioritize the segments that should be pursued. The marketer should then develop a unique positioning for the product and or service with the target segment or segments in mind. Then it is a question of developing and implementing a marketing strategy that is designed to leverage the maximum potential of the identified target segment or segments. An important part of the segmentation process is to ensure that the identified segments rate favorably on five key criteria. One, measurable. One must be able to quantify segment characteristics. T, substantial. The identified segments must be large and profitable enough to serve. Three, accessible. The identified segments must be reachable in an effective manner. Four, differential, each identified segment must have different needs and respond to marketing efforts differently. Lastly, five actionable. It must be possible to formulate effective marketing programs to leverage the potential of each identified target segment. Market targeting consists of evaluating each segment's attractiveness and selecting one or more market segments to serve. There are several targeting approaches that can be adopted. On one end of the spectrum, a company like Virtu, for example, may choose to focus on an exclusive segment of luxury buyers as a target for the high end handmade mobile handsets marketed by them. On the other extreme, you could have an automobile manufacturer like Toyota that attempts to serve every segment within the automobile industry from subcompact cars to high end luxury SUVs, using a multiple target market approach. It is important to note that effective targeting requires a marketer to identify and profile distinctive groups of buyers who differ in their alleged preferences, select one or more market segments to enter, and last but not least, establish and communicate the distinctive benefits of the market offering. As mentioned in the previous slide, companies can choose to adopt any one or a combination of many target segment identification strategies. When a firm concentrates on only one market for its one product, then it's set to be pursuing a single segment concentration strategy. There are significant risks in such a strategy as the company can face a huge drop in revenues if the market suddenly changes or a better product is introduced in the market by a competitor. For example, Tesla Motors currently targets the affluent luxury seeking yet environmentally conscious customer with a single automobile model called a Model S. Selective specialization occurs when a firm selects a number of attractive and appropriate segments and develops products that appeal to each segment. However, little or no synergy may exist across segments. This type of a strategy helps minimize risks by spreading the risk across multiple segments. For example, Ford has completely different models of cars offered in the US, UK, and in India. Product specialization occurs when a firm produces and promotes one product in all market segments or concentrates in one product category that it sells to several market segments. There is high risk in the strategy as the total revenues depend on only one product. A slight drop in brand value can severely impact the firm's profitability. An example of the strategy would be Mort and sort, which the company markets in all the market segments. Market specialization occurs when a firm concentrates only in one market segment through different products. All the products are designed to cater to one particular customer group. An example of this would be a range of kids toys manufactured by a company like Kids too. In a full market specialization strategy, a firm targets the whole market with all of their products. This is mainly done by large companies with superior distribution systems, which give them the capability to reach all the customers in the market. An example of the strategy would be the Coca Cola company which sells all of its products in the cold drinks and snacks category to the market. Product differentiation is the incorporation of attributes such as quality or price into a product to encourage the intended customers to perceive it as different and desirable. For example, if your company supplies a high resolution miniature camera to Apple for the use in the iPhone, perhaps your unique value is never fail on time delivery with no rejected cameras. If other camera manufacturers are not meeting those desired goals, you have a unique advantage against your competition and will have differentiated your camera from those of your competitors. Positioning is how you provide your product or service brand identification as you go to the market. It is the next step after you've determined how to differentiate a product or service. In the camera example, the camera manufacturer can market itself on the premise that it does not miss delivery times and that its products are free of flaws. The product is positioned against those of competitors on the basis of timely delivery and excellence in manufacturing. All of the camera manufacturers major marketing efforts should emphasize this positioning in the marketplace. Choosing a differentiation and positioning strategy involves one, identifying a set of differentiating competitive advantages on which to build a position. Two, choosing the right competitive advantages, and three, selecting an overall positioning strategy. Choosing the right competitive advantage requires selecting how many and which differences to promote. As far as possible, it is important to be able to highlight a unique selling proposition. However, it is possible to promote multiple differences. The challenge though is being able to convince consumers that one brand can do it all. Differentiation and positioning are key strategies to winning target customers. They reflect a firm's ability to better understand their customers needs, as well as delivering more value, these are the competitors. However, it is important to remember that finding points of differentiation that can create value for the customers requires that marketers examine the entire customer experience. Companies can choose to differentiate themselves on several dimensions. They can choose to differentiate themselves in terms of the product and or services. In terms of the product, companies can differentiate themselves on the basis of features and benefits offered product reliability, product durability, styling, design, et cetera. For example, Nest Labs offers a state of the art learning thermostat that learns the schedule, programs itself, and allows the customer to control their home heating and cooling system from their phone. They could also choose to differentiate themselves in terms of the services offered. For example, companies can focus on making it easy for customers to order their products, improvements and delivery speed, offering customized installation services, et cetera. For example, Despi differentiates themselves from other home entertaining retailers by offering customized home theater installation services through Magnolia, or by offering technology support services through the Geek Squad. Companies may choose to differentiate themselves in terms of their personnel by having better trained employees who can provide better customer service, are more credible due to their knowledge and or skill set or are more reliable. For example, a local plumbing service may provide guarantees that their employees will show up on time and will complete the work in one visit, failing which they will reimburse all or a percentage of the fees charged. Differentiating in terms of the channel is another possibility with a view of optimizing the value chain to maximize value delivered to the customer. This can be achieved by varying the level of market coverage, the choice of exclusive, selective, or extensive distribution coverage based on an understanding of customer needs or the expertise available in the channel. Lastly, companies could choose to differentiate themselves by appealing to the consumer's social and psychological needs. In other words, by leveraging the customer's understanding and view of the market about the company. For example, an automobile manufacturer like Lamborghini differentiates themselves by leveraging the exclusivity that the brand image offers their customers in addition to the product quality features, et cetera. When selecting a differentiation platform or platforms, some of the worthwhile differences that could be promoted are ones that are important, are distinctive, are superior relative to other market offerings are easily communicated or preemptive. In the sense that they are the first time movers or are affordable from the customers as well as the company's perspective, and last but not least are profitable. One last point to note about differentiation is that companies can choose to differentiate on multiple dimensions. But as mentioned earlier, it is important to ensure that the number of points of differentiation chosen are not so high that consumers start to question the credibility of the claims. A value proposition is a short statement that clearly communicates the benefits that your potential client gets by using your product, service, or idea. It boils down all the complexity of your sales pitch into something that your client can easily grasp and remember. It needs to be very specific. Simply describing the features or the capabilities of your offer is not enough. Your value proposition must focus closely on what your customer really wants and values. Your customer wants to solve problems, to improve on existing solutions, to have a better life, build a better business, or do more better, faster, and so on. Creating a value proposition is a useful marketing technique that has wider application than product marketing. Whatever you're selling and to whom a value proposition is useful, if not an essential tool. Whether your customers are external customers, employees, co workers, or even your family. The idea is to help them see the specific value your offer brings to them. By doing so, you will grab their attention in such a way that they know, yes, that's right for me. Why should I buy the specific product or idea, ask your customer? Your value proposition must answer this in a compelling way. In creating a good value proposition, the trick is to know your product or idea well, know how it compares with those of your competitors, and most importantly, put yourself in your customer's shoes to find the answers. A more for more positioning involves providing the most upscale product or service and charging a higher price to cover the higher costs. An example of this positioning would be the hearts on fire diamonds that have created more for more niche for themselves as the most perfectly cut diamond. A more for same positioning involves introducing a brand offering comparable quality, but at a lower price. For example, the introduction of the Lexus brand by Toda as a more for the same value proposition relative to the Mercedes or the BMW. The same for less positioning can be a powerful value proposition. Everyone likes a good deal. Large box retailers like Walmart, best buy, DSW shoes, et cetera typically use this positioning. Less for much less positioning is offering products that offer less and therefore costs less. This positioning involves meeting customers lower performance or quality requirements at a much lower price. Stores like Family Dollar and Dollar General are good examples of this type of position. A more for less positioning is the winning value proposition. In the short run, some companies can actually achieve this lofty position. However, in the long run, companies will find it very difficult to sustain such a best of both words a positioning. Offering more usually costs more, making it difficult for companies to deliver on the far less promise. For example, Home Depot when it first opened for business, had arguably the best product selection, the best service, and the lowest prices compared to local hardware stores and other home improvement chains. However, facing determined competition from lows, Home Depot is increasingly finding it difficult to sustain their original position. Company and grand positioning should be summed up in a positioning statement. Note that the positioning statement needs to clearly define the target audience and or the need that is being addressed. Then focus on conveying the most important claim or benefit. In addition, the positioning statement should also state the product's membership in a category and then show its points of differentiation from other members in the category. The two examples on the slide do exactly that. For example, in the Blackberry example, the target market is busy mobile professionals. The category is a wireless connectivity solution. While the most important claim or benefit is that, it gives you an easier, more reliable way to stay connected to data, people and resources while on the go. With the more implying the relative improvements, visa vi the other members in the category, the ZIPCR example can also be analyzed in exactly the same way. This concludes the lectures for Module two. Please ensure that you read all the assigned readings from Module two and complete the required quizzes and activities as for the core schedule provided in the syllabus.
BUAD892 - Module 2 - Segmentation, Targeting, and Positioning (FCP Encode)
From Suresh Sundaram June 16, 2024
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