Chapter 7

1. Chapter 7 Customer-Driven Marketing Strategy & Integrated Marketing Mix

2. Introduction • Companies cannot appeal to ALL buyers or at least, not ALL buyers in the same way. • Buyers are numerous, too widely scattered & too varied in their needs & buying practices. • Thus, companies identify parts of the total market that it can serve best & profitably. • Companies are moving from “mass marketing” towards “target marketing”. • Instead of scattering marketing efforts (“shotgun” approach), firms are focusing on greater interest in values they create best (“rifle” approach).

3. Market Segmentation • Steps in Market Segmentation, Targeting & Positioning D Decide on a value proposition Select Customers to Serve Differentiation Differentiate the market offering to create superior customer value Segmentation Divide the total market into smaller segments Create Value for Targeted Customers Positioning Position the market offering in the minds of target customers Targeting Select the segment or segments to enter

4. Market Segmentation • Market Segmentation • Dividing a market into smaller groups with distinct needs, characteristics, or behaviors who might require separate products or marketing mixes. • Market Targeting • The process of evaluating each market segment’sattractiveness and selecting one or more segments to enter. • Differentiation • Actually differentiating the firm’s market offering to create superior customer values. • Positioning • Arranging for a product to occupy a clear, distinctive, and desirable placerelative to competing products in the minds of target consumers.

5. Market Segmentation • Market Segmentation • Buyers differ in their wants, resources, locations, buying attitudes & buying practices. • Through market segmentation, we divide large, heterogeneous markets into smaller segments that can be reached more efficiently & effectively. • Market Segmentation • Segmenting Consumer Markets • Segmenting Business Markets • Segmenting International Markets • Requirements for Effective Segmentation

6. Market Segmentation • Segmenting Consumer Markets • Marketers have to try different segmentation variables, alone and in combination to view the market structure. • Geographic Segmentation • Demographic Segmentation • Psychographic Segmentation • Behavioral Segmentation

7. Market Segmentation • Geographic Segmentation • Nations • Regions • States • Countries • Cities • For four geographic regions in Japan, Coca-Cola developed four ready-to-drink canned coffees.

8. Market Segmentation • Geographic Segmentation (continued)

9. Market Segmentation • Demographic Segmentation • Dividing a market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation & nationality. • P&G for kids and adults offers different shapes of toothpastes and toothbrushes. • Nintendo offers “Brain Training” for older baby boomers. • Nike for men & now for women. • Credit cards for different income groups. • Marketers must be careful to guard against“stereotypes” i.e. all 70-years old do not require wheelchairs.

10. Market Segmentation • Demographic Segmentation (continued)

11. Market Segmentation • Demographic Segmentation (continued)

12. Market Segmentation • Psychographic Segmentation • Social Class distribution, Life-Style & Personality • The American Express offers “My Life. My Card” to a specific life-style people. • Honda scooters targets older consumers with the slogan; • “You’ve been trying to get there all your life.” • Honda is appealing to the rebellious, independent kid in all of us.

13. Market Segmentation • Psychographic Segmentation (continued)

14. Market Segmentation • Behavioral Segmentation • Dividing a market into groups based on consumer knowledge, attitude, use or response to a product. • for Occasions; • Altoids offers a special “Love Tin” for valentine. • Peeps creates different shaped sugar and fluffy marshmallow treatsfor Easter, Halloween & Christmas. • For Benefits; • Champion athletics offers “Fit & Polish” consumers for function & style seekers; “Serious Sports”consumers seek performance & function as they exercise heavily & live in active wear; “Value Seeking Moms” seek durability & value. • Burger King’s heavy users between “18 & 34”. • Apple Mac’s “Macolytes”. • Different segments seek different mix of benefits.

15. Market Segmentation • Behavioral Segmentation (continued)

16. Market Segmentation • Using Multiple Segmentation Bases • Multiple segmentation bases is an effort to identify smaller, better-definedtarget groups. • Thus, a bank may not ONLY identify a group of wealthy retired adultsBUT ALSO within that group, distinguish several segments based on their current income, assets, savings and risk preferences, housing and life-style. • One good example of multivariable segmentation is “Geodemographic” segmentation. • In the US, many business-information-service firms (Claritas, Express, Acxiom & MapInfo) help marketing planners link US Census & consumer transition data with consumer life-style patterns to better segment.

17. Market Segmentation • Using Multiple Segmentation Bases • Assignment (download & present) • PRIZM NE (New Evolution) system by Claritas.

18. Market Segmentation • Business Markets Segmentation • Consumer & business marketers use many of the same variables to segment their markets. • Geographically • Demographically (industry, company size) • Benefits Sought • User Status • Usage Rates • Loyalty Status • However, some additional variables are used too. • Operating Characteristics • Purchasing approaches • Situational factors • Personal characteristics

19. Market Segmentation • Business Markets Segmentation (continued) • Operating Characteristics • Technology • Customer Capabilities (customers needing many or few services) • Purchasing Approaches • Purchasing-function organization • Companies with centralized or decentralized purchasing • Nature of Existing Relationships • Focus on DESIRABLE Companies OR on companies with whom we have strong relationships • Purchasing Criteria • Companies seeking QUALITY, PRICE or SERVICE?

20. Market Segmentation • Business Markets Segmentation (continued) • Situational Factors • Urgency • Companies with QUICK & SUDDEN delivery or service? • Specific Application • Companies with CERTAIN applications of our products or ALL applications of them • Size or order • Companies with SMALL or LARGE orders • Personal Characteristics • Buyer-Seller similarity • Companies with PEOPLE and VALUES like OURS • Attitudes towards RISK • Risk-taking or risk-avoiding companies • Loyalty • Companies with FAIR, NO or HARD CORE loyalty to their suppliers (us)

21. Market Segmentation • Business Markets Segmentation (continued) • American Express offers two different cards to small and large businesses. • Many marketers believe that buying behavior and benefits provide the best basis for segmenting business markets.

22. Market Segmentation • Segmenting International Business • Few companies become international • Coca-Cola sells in 200 countries • Even closer countries have different; • Economic, cultural & political makeups. • Geographically countries are segmented • Western European Countries • Middle Eastern Countries etc. • Geographic segmentation assumes that geographically close nations will have many commonalities. • However, this is not always true. In S. America, many people do not speak spanish.

23. Market Segmentation • Segmenting International Business (continued) • Economic structure of a country shapes its population’s product and service needs; hence, marketing opportunities. • Political structure of a country too affects the stability of government, receptivity to foreign firms, monetary regulations & amount of bureaucracy. • Such factors play a crucial in a company’s choice of which countries to enter & how. • Cultural structure groups markets and their choices on the basis on language, religions, values and attitudes, customs & behavioral patterns.

24. Market Segmentation • Segmenting International Business (continued) • Segmenting international markets based on geo-political-cultural factors assume that segments should consist of clusters of countries. • However, many marketers use a different approach; “Intermarket Segmentation” • It forms segments of consumers with similar needs and buying behavior even though they are located in different countries. • Mercedes-Benz targets the world’s well-to-do, regardless of their country. • IKEA targets the aspiring global middle class. • MTV target 1.2 million teens around the world; hence, teens almost look alike be it in China, Japan, US, Kabul, Karachi or Singapore. They all swing to MTV beats sipping coke.

25. Market Segmentation • Requirements of Effective Segmentation • Not all ways of segmenting are effective. • e.g. buyers of table saltcould be divided into blond and brunette customers. But hair color obviously does not affect the purchase of salt. • Furthermore, if all salt buyers; • Bought the same amount of salt • Believed that all salt is the same • Wanted to pay the same price • Then, segmenting the market wouldn’t benefit.

26. Market Segmentation • Requirements of Effective Segmentation • To be useful, segments must be • Measurable: • Size, purchasing power & profile • But certain characteristics cannot be measured e.g. US Census Bureau does not keep track of left-handed individuals. Hence, it’s difficult to measure it. • Accessible: • for both placement & promotion, the target segment must be reachable. • Substantial: • Large or profitable enough. • Within the segment, the preferences should be homogenous enough to be profitable. • A car manufacturer would not make much out of manufacturing cars for people over 7 feet tall.

27. Market Segmentation • Requirements of Effective Segmentation(continued) • To be useful, segments must be (continued) • Differentiable: • Segments must respond differently to different marketing mix programs • If married & unmarried women respond similarly to a sale of perfume, then they do not constitute separate segments, • Actionable: • The firm should have capabilities to serve. • An Airline company identified SEVEN segments, its staff was too small to develop separate marketing programs for each segment.

28. Market Targeting • The next step, after identification of segments, is market targeting. • i.e. evaluation of different segments & decide how many and which segments the company can serve best. • Following are the criteria: • Evaluating Market Segments • Selecting Target Market Segments • Undifferentiated Marketing (mass marketing) • Differentiated Marketing (segment marketing) • Concentrated Marketing (niche marketing) • Micro-marketing • Choosing a Targeting Strategy • Socially Responsible Marketing

29. Market Targeting • Evaluating Market Segments • Three factors constitute evaluation • Segment Size & Growth • A marketer must collect & analyze data on current segment sales, growth rates & expected profitability • “Right Size and Growth” is relative. Largest segment may not be profitable. • Smaller companies may lack the skills to serve them. • Segment Structural Attractiveness • Competitors number and strength • Substitute products also limit the prices and sales • Bargaining power of buyers • Powerful suppliers can control quantity and prices affecting a company’s ability to serve a segment • Company Resources & Objectives • Both of the above may not be enough. • The company must consider its resources and long-term objectives if the new segment meshes with them.

30. Market Targeting • Selecting Target Market Segments • After evaluating, the company must now decide which and how many segments it will target. • Target Market – a set of buyers sharing common needs or characteristics that the company decides to serve. • Although, some companies do attempt to serve buyers individually, most companies face larger numbers of smaller buyers & do not find individual targeting worthwhile. • Instead, they look for broader segments. • Following are the different levels of market targeting (next slide)

31. Market Targeting • Selecting Target Market Segments (continued) • Undifferentiated Marketing (mass marketing) • Ignore market segments differences and target the whole market with one offer. • Modern marketers don’t prefer this method. • Mass Marketers often have trouble competing with more-focused firms. • Differentiated Marketing (differentiated marketing) • Enter several segments & design separate offers for each. • GM designs cars for every “Purse, Purpose & Personality”. • By differentiated marketing, companies hope for higher levels of sales and stronger position. • P&G markets SIX different laundry detergents which compete with each other. • Yet together, they bring home FOUR times the market share of nearest rival Unilever. • More expensive in terms of production, ,marketing information, human resources & promotion.

32. Market Targeting Assignment Real Marketing P&G: Competing with Itself – and winning (Principles of Marketing, 12th Edition, pages 186-187)

33. Market Targeting • Selecting Target Market Segments (continued) • Concentrated Marketing (Niche Marketing) • When company resources are limited. • Instead of targeting a small share of a larger market (segment), the firm targets a large share of one or few smaller segments (niches). • Tetra sells 80% of tropical fish food • Steiner Optical captures 80% of the world’s military binoculars market • Company gets a stronger position due to; • Greater knowledge of consumer needs • And special reputation that it requires • Its effective due to; • Fine-tuning its products, prices & programs to the needs carefully defined segments. • Its efficient due to: • Products/services, channels & communications programs towards ONLY consumers that it can serve

34. Market Targeting • Selecting Target Market Segments (continued) • Concentrated Marketing (Niche Marketing) • Usually large firms ignore niches • Thus, small firms find it less competitive & can compete very well with their limited resources • e.g. Apple is a nicher. • Focuses more on R&D and offers high-tech cutting edge products UNLIKE other PC makers who focus on prices and volumes. • Such nichersusually become trendsetters • Many smaller firms start with a niche to gain a foothold against larger, more resourceful competitors, then grow into broader competitors • e.g. Southwest Airlines started with local commuters then went big.

35. Market Targeting • Selecting Target Market Segments (continued) • Concentrated Marketing (Niche Marketing) • Its profitable but highly risky. • If the segment turns over or a larger competitor decides to enter it. • Thus, a company should keep in view diversification to avoid such traps.

36. Market Targeting • Selecting Target Market Segments (continued) • Micro Marketing • The practice of tailoring products & marketing programs to the needs and wants of specific individuals & local customer groups – it includes local marketing & individual marketing (customization) • Local Marketing – tailoring brands & promotions to the needs & wants of local customer groups – cities, neighborhoods & even specific stores. • Wal-Mart designs its stores according to the mentality of the local neighborhoods and offers different 60 types of canned food in one store while having 3 kinds around the country.

37. Market Targeting • Selecting Target Market Segments (continued) • Micro Marketing (continued) • Local Marketing Drawbacks • It can drive up manufacturing & marketing costs by reducing economies of scale • It can also create logistics problems • The overall image of a certain brand might be diluted if the product & message vary too much in different localities. • However, technological developments and more fragmented markets offer more advantages then drawbacks. • It meets the needs of the company’s first-line customers – retailers – who prefer more fine-tuned prodcct assortments for their neighborhoods

38. Market Targeting • Selecting Target Market Segments (continued) • Micro Marketing (continued) • Individual Marketing • In the extreme, micromarketing becomes individual marketing. • Tailoring products & marketing programs to the needs & preferences of individual customers. • It is also known as one-to-one marketing, mass customization & market-of-one marketing. • Traditionally, tailors, cobblers, cabinetmakers • Now with the help of technology, its back again. • Branches Hockey offers a dozen options; • Stick length • Blade patterns • Blade curve • Nike too.

39. Market Targeting • Selecting Target Market Segments (continued) • Business Marketers also find new ways to customize their offerings. • Unlike mass production, which eliminates human interaction, one-to-one marketing has made relationships stronger. • Mass production was the hype of 20th century, Mass Customization is of the 21st. • The move toward individual marketing mirrors the trend in consumer self-marketing. • Self Marketing – individuals taking MORE responsibility for determining which products & brands to buy. • As the trend toward more interactive dialogue & less advertising monologue continues, self-marketing will grow in importance.

40. Market Targeting • Choosing a targeting strategy • It depends on a few factors • If firms resources are limited, concentrated (niche) marketing makes the most sense. • The degree of product variability – for uniform products undifferentiated marketing strategy makes more sense. Products that vary in design, e.g. cameras & cars, differentiated or concentrated marketing strategies make more sense. • Product Life-Cycleis also important. • In introduction stage, ONLY one version might be practical (undifferentiated/concentrated). • In maturity, differentiated marketing begins to make more sense.

41. Market Targeting • Choosing a targeting strategy (continued) • It depends on a few factors (continued) • Another factor is variability– if the buyers have the same tastes, buy the same amounts & react the same way, undifferentiated marketing is appropriate. • Finally, competitors marketing efforts – if competitor is going undifferentiated/concentrated, THEN going undifferentiated can be suicidal. • Conversely, if the competitors are going undifferentiated, THEN going differentiated/concentrated can help the company gain a better position and; hence, an advantage.

42. Market Targeting • Socially Responsible Marketing • Targeting vulnerable& disadvantaged consumers. • e.g., the marketers of toys & other children products use high-powered advertising & premium offers that can overwhelm children’s defenses. • Marketing of adult products spilling over into the kid segment – intentionally or unintentionally, e.g., Cigarettes • McDonald’s high-fat, salt-laden burgers to low-income urban residents. • Not all attempts to target children or minorities are controversial. • e.g. Colgate makes a large selection of toothbrushes & toothpaste flavors and packages • It is not about who, but about how and for what. • Socially Responsible Marketing calls for balancing the interests of both the seller and buyer.

43. Differentiation & Positioning • Value Proposition – how the company will create differentiated value for targeted segments & what position it wants to occupy in those segments. • Product Positioning – the way a product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing brands. • “Products are created in the factory, but brands created in the mind.” • Tide is positioned as powerful, all-purpose family detergent. Ivory Snow is positioned as the gentle detergent for fine washable & baby clothes. At Subway you “Eat Fresh”. • Toyota Yaris & Honda Fit are positioned on economy. Mercedes on luxury, Porsche on performance, Toyota Prius as the fuel-efficient/high-tech solution to energy shortage.

44. Differentiation & Positioning • Why position a product? • Consumers are overloaded with information about products & services. They cannot reevaluate products every time they make a buying decision. To simplify the buying process, consumers organize products, services & companies into categories & “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. • Consumers position products with or without the help of marketers. So its imperative for marketers to plan a position. It’s inevitable anyways.

45. Differentiation & Positioning • Positioning Map • Marketers often prepare perceptual positioning maps, which show consumer perceptions of their brands versus competing products on important buying dimensions. Range Rover Price (thousands of $) Large Luxury SUVs Escalade (Cadillac) Land Cruiser Luxury Performance Orientation

46. Differentiation & Positioning • Sometimes it’s easy to position your products. A company positioned for quality can go for the same position in a new segment. • But, it becomes hard when two companies go for the same position. • Then, a marketer should differentiate its offer by a unique bundle of benefits that attracts a substantial group within that segment. • (the next THREE steps will make this more clear)

47. Differentiation & Positioning • Differentiation & Positioning involve THREE steps • Identifying a set of possible customer value differences that provide competitive advantage upon which to build a position. • Choosing the right competitive advantage • Selecting an overall positioning strategy

48. Differentiation & Positioning • Differentiation & Positioning involve THREE steps • Identifying a set of possible customer value differences that provide competitive advantage upon which to build a position. • Competitive Advantage – an advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices. • But solid position cannot be built on empty promises. • The company must first live the slogan. (real marketing) • An alert company should find ways to differentiate itself at every customer contact point. • Product Differentiation, Service Differentiation, Channels Differentiation, People Differentiation or Image Differentiation.

49. Differentiation & Positioning Assignment Real Marketing Staples: Positioning Made Easy (Principles of Marketing, 12th Edition, Pages 193-194)

50. Differentiation & Positioning • Differentiation & Positioning involve THREE steps • Identifying a set of possible customer value differences that provide competitive advantage upon which to build a position. • Product Differentiation: • on one extreme physical products can be differentiated little: chicken, salt, steel or aspirin. • Still Perdue claims that its branded chicken is better, fresher & more tender – and gets a 10% premium in prices. • On the other extreme, physical products can be easily differentiated e.g. automobiles, clothing & furniture. • Such products are usually differentiated on features, performance or style. • Volvo promises new & better safety features. • Whirlpool designs its dishwasher to run more quietly. • Moreover, these attributes are also a source of differentiation i.e. consistency, durability, reliability & reparability.