Chapter 4: Market Segmentation, Target Marketing, and Positioning
I. Market Segmentation
A. Marketing strategy has the primary role of placing the firm in an optimal position with respect to customer needs, we first consider decisions related to target markets and market segmentation.
1. The information used to make these decisions should come from the situation analysis, particularly the analysis of the customer environment.
2. The marketing manager must decide whether to target the entire market for a product or one or more segments of the total market.
3. All firms have two basic alternatives in determining the scope of the markets they will serve or attempt to attract—mass marketing and market segmentation.
B. Traditional Approaches to Market Segmentation
1. Mass marketing is aimed at the total (whole) market for a particular product.
a. Companies that adopt mass marketing take an undifferentiated approach that assumes that all customers in the market have similar needs and wants that can be reasonably satisfied with a single marketing mix.
b. This marketing mix typically consists of a single product or brand, one price, one promotional program, and one distribution system.
2. Mass marketing works best when the needs of an entire market are relatively homogeneous.
3. Mass marketing is advantageous in terms of production efficiency and lower marketing costs, however it is inherently risky.
4. Mass marketing is very risky in global markets where global brands must be adapted to match local tastes and customs.
C. Differentiated Marketing
1. Most firms use some form of market segmentation by dividing the total market into groups of customers having relatively common or homogeneous needs and attempting to develop a marketing mix that appeals to one or more of these groups.
2. This approach may be necessary when customer needs are similar within a single group but their needs differ across groups.
3. Within this differentiated approach, there are two options:
a. The multisegment approach seeks to attract buyers in more than one market segment by offering multiples of marketing mixes that will appeal to more parts of the total market.
1) The firm can increase its share of the market by responding to the heterogeneous wants and desires of different segments or submarkets.
2) If the segments have enough buying potential, and the product is successful, the resulting sales increases can more than offset the increased costs of offering multiple marketing mixes.
3) The multisegment approach is the most widely used alternative in medium- to large-size firms.
b. The market concentration approach focuses on a single market segment.
1) These firms often find it most efficient to seek a maximum share in one segment of the market.
2) The main advantage of market concentration is specialization because it allows the firm to focus all its resources on understanding and serving a single segment.
3) However, by putting all its “eggs in one basket,” the firm can be vulnerable to changes in its market segment.
D. Niche Marketing
1. Some companies narrow the market concentration approach even more and focus their marketing efforts on one small, well-defined market segment or niche that has a unique, specific set of needs.
2. The key with niche marketing is to understand and meet the needs of target customers so completely that, despite the small size of the niche, the firm’s substantial share makes the segment highly profitable.
E. Individualized Approaches to Market Segmentation
1. Individualized segmentation approaches are beginning to emerge due to advances in technology, particularly communication technology and the Internet.
2. These segmentation approaches are possible because organizations now have the ability to track customers with a high degree of specificity.
3. By combining demographic data with information on past and current purchasing behavior, many organizations are able to tweak their marketing mixes in ways that allow them to precisely match customer’s needs, wants, and preferences.
F. One-to-One Marketing
1. When a company creates an entirely unique marketing mix for each customer in the target segment, it is employing one-to-one marketing.
2. One-to-one marketing has been used less often in consumer marketing.
3. One-to-one marketing is quite common in luxury and custom-made products.
4. One-to-one marketing is growing rapidly in electronic commerce, where customers can be targeted very precisely.
G. Mass Customization
1. Mass customization, an extension of one-to-one marketing, refers to providing unique products and solutions to individual customers on a mass scale.
2. Mass customization also occurs in business-to-business markets.
a. Via a buying firm’s local area network (LAN), employees can order products ranging from office supplies to travel services through an electronic procurement system.
b. The system allows employees to requisition goods and services via a customized catalog.
H. Permission Marketing
1. Permission marketing is a one-to-one technique whereby customers give companies permission to specifically target them in their marketing efforts.
2. The most common form of permission marketing is the opt-in e-mail list, where customers permit a firm to send periodic e-mail about goods and services that they are interested in purchasing.
3. Permission marketing has one huge benefit: Customers who opt-in are already interested in the goods and services offered by the firm.
II. Identifying the Characteristics and Needs of the Target Market
A. Once the marketing manager has selected the target market he or she must next identify the characteristics and needs of customers within that target market.
1. Select the most relevant variables to identify.
2. Define the target market.
3. These variables are derived from the situation analysis section of the marketing plan.
B. It is at this stage of market planning where the target market variables are revised or carried over from previous planning periods.
1. Anew or revised marketing strategy often requires changes in target market definition.
2. Changes here might include reducing price, increasing price, updating the advertising message, adding a new product feature, and selling through retail stores instead of direct distribution.
3. Sometimes it takes major changes to deliver fairly minor improvements in mix performance, while at other points a relatively minor modification can deliver significant improvements.
C. The goal in segmenting consumer markets is to isolate personal characteristics that distinguish one or more segments from the total market.
1. To get a better idea of how to approach these market segments, marketers must first understand the differences between customers’ needs and wants.
2. They can then focus on identifying characteristics that uniquely identify segments of customers in ways that make them more appealing than other segments.
D. Needs vs. Wants
1. A need occurs when an individual’s current level of satisfaction does not equal the desired level of satisfaction.
2. A want is a consumer’s desire for a specific product that will satisfy the need.
3. In any marketing effort, the firm must always understand the basic needs fulfilled by their products.
4. The idea is to build on the basic need and convince customers to want your product because it will fulfill their need better than any competing product.
5. Segmentation becomes critical because some products and markets can be segmented on the basis of needs alone.
E. The purpose of segmenting markets is to divide the entire population into groups with relatively homogeneous needs.
1. Most groups fall into one of three general categories:
a. State-of-being segmentation divides markets into segments using demographic factors, such as gender, age, income, and education.
b. State-of-mind segmentation deals not with the way consumers actually are, but how they think and feel.
c. Attitudes, interests, and opinions are generally used to categorize consumers into state-of-mind segments.
2. Both state-of-being segmentation and state-of-mind segmentation are really surrogates for the true issue in market segmentation: benefits sought (wants).
3. State-of-being segmentation tends to be the most widely utilized because demographic variables are relatively easy to measure.
III. Differentiation and Positioning
A. The marketing manager should attempt to differentiate the product from competitive offerings and position it so that it seems to possess the characteristics the target market most desires.
1. The principle task for the marketer is to develop and maintain a relative perception of the product in customers’ minds.
2. Customers must hold a favorable mental image or perception of a product relative to all other competing products.
B. Product differentiation is one of the most important goals of any marketing strategy.
1. Differences among products can be based on real qualities or psychological qualities.
2. The most important tool of product differentiation is the brand.
3. Other important bases for differentiation, including product descriptors, customer support services, and image.
C. Product Descriptors or information about products is generally provided in one of these contexts:
1. Product features are factual descriptors of the product.
2. Advantages are performance characteristics that communicate how the features make the product behave.
3. Benefits are the positive outcomes or need satisfaction they acquire from purchased products.
4. Quality refers to the overall degree of excellence or superiority of a firm’s product.
D. Customer Support Services
1. Providing good customer support services may be the only way to differentiate the firm’s products.
2. Support services include anything the firm can provide in addition to the main product hat adds value to that product for the customer.
E. Image of a product or an organization is the overall impression, positive or negative, that customers have of it.
1. This includes what the organization has done in the past, what it presently offers, and projections about what it will do in the future.
2. All aspects of the firm’s marketing mix as perceived by customers will affect this overall impression.
F. Positioning Strategies
1. Marketers can manipulate their marketing mix to position and enhance a product’s image in customers’ minds.
2. To create a positive image for a product, a firm can choose from among several positioning strategies, including:
a. Strengthening the current position.
b. Moving to a new position.
b. Attempting to reposition the competition.
G. Strengthen Current Position
1. The key to strengthening a product’s current position is to monitor constantly what target customers want and the extent to which the product or firm is perceived as satisfying those wants.
2. The firm must continue to invest time, money, talent, and attention in after-sale service to protect its market share and sales from competitors.
3. Strengthening a current position is all about continually “raising the bar” of customer expectations and being perceived by customers as the only firm capable of reaching the new height.
H. Move to a New Position
1. Declining sales or market share may signal that customers have lost faith in a product’s ability to satisfy their needs.
2. Strengthening the present position may well accelerate the downturn in performance; a new position may be the best response.
3. Repositioning may involve a fundamental change in any of the marketing mix elements.
I. Sometimes it is advantageous to attempt to reposition the competition rather than change your own position.
Business-to-business marketing does not totally depart from the issues regarding marketing strategy.
1. It raises some additional considerations that must be addressed for successful strategies to be developed and implemented.
2. The marketing manager must determine target customers’ needs, assess the extent to which those needs are being met, and then determine the ways in which these needs and competitive offerings may be changing in the future.
J. Business-to-business marketing differs from consumer product marketing in at least four ways.
1. The buying center is the group of people responsible for making purchasing decisions.
a. For consumer products, the adult head-of-household tends to make most major purchase decisions.
c. In an organization it may include three distinct groups of people:
1) economic buyers –those senior managers with the overall responsibility of achieving the buying firm’s objectives.
2) technical buyers—employees with the responsibility of procuring products to meet the needs of the firm on an ongoing basis.
3) Users—managers and employees who have the responsibility of using a product purchased by the firm.
2. The second difference between business-to-business marketing and consumer marketing relates to the significance of hard and soft costs.
a. Hard costs include monetary price and costs associated with the purchase.
b. Soft costs, such as downtime, opportunity costs, and human resource costs are associated with the compatibility of systems in the buying decision.
3. The third key difference involves the existence of reciprocal buying relationships.
a. Business-to-business marketing is often a two-way street with each firm marketing products that the other firm buys.
b. Reciprocal buying is less likely to occur under relationship-based marketing unless it helps both parties achieve their respective goals.
4. Finally, in business-to-business marketing, the buyer and seller are more likely to be dependent on one another, particularly in client relationships.
a. In relationship-based marketing sole-source or limited-source buying may leave an organizational customer’s operations severely distressed if a supplier shuts down or cannot deliver.
b. Likewise, the selling firm has invested significantly in the client relationship, modifying products and altering information systems and other systems central to the organization.
K. Business-to-business relationship management includes a shift from a win/loose strategy—one side gets more—to a win/win strategy—where both sides win. This is accomplished by changes including:
1. A change in buyers’ and sellers’ roles.
a. Buyers and sellers must shift from being competitive negotiators to being true communications specialists.
b. This represents a major change in all aspects of the promotion mix for the selling firm.
2. An increase in sole sourcing.
a. Supplier firms will continue to sell directly to large customers.
b. Sell through “systems suppliers” that put together a set of products from various suppliers to deliver a comprehensive solution to buyers.
3. An increase in global sourcing.
a. Both buyers and sellers are scanning the globe in search of suppliers or buyers that represent the best match with their specific needs and requirements.
b. Only the best potential partners will be pursued.
4. An increase in team-based buying decisions.
a. Purchase decisions are being made among teams from both supply-side and buy-side firms.
b. These teams consist of employees from different areas of expertise.
c. Senior management will be represented on these teams.
5. Advanced earning power though productivity enhancements.
a. Firms need to identify and remove any inefficiency in their buying and selling operations.
b. Only efficient channels will survive.