1. Strategic market choices and targets: Where to compete and where not to
Lecture 6 1

2. A route-map for market-led strategic change
Part I
Customer value
imperatives
Part II
Developing a value-based
marketing strategy
Part III
Processes for managing
strategic transformation
The strategic pathway
Change strategy
Market sensing
and learning
strategy
The Customer
is always
right-handed
Strategic
gaps
Strategic
market choices
and targets
Strategic
thinking and
thinking
strategically
New marketing
meets
old marketing
Organization
and processes
for change
Customer value
strategy and
positioning
Implementation
process and
internal
marketing
Value-based
marketing
strategy
Strategic
relationships
and networks

3. The strategic pathway Strategic thinking and thinking strategically
Market
sensing
and
learning
strategy
Strategic
market
choices
targets
Customer
value
positioning
relationships
networks
Strategic thinking and
thinking strategically
transformation
and strategy
implementation

4. Agenda Market definition and the competitive box
Market segmentation and targeting
Market positioning
Market choices

5. Strategic market choices and targets
Market definition
and the
competitive box
Market
segmentation
and
targeting
Strategic market
choices and
targets
Market
positioning
Market
choices

6. Market definition and the competitive box
Markets are not fixed or static
The way they are defined should not be either
The danger is being trapped inside the competitive box while the important changes occur outside the box

7. The trap of the competitive box
The usual suspects
Known competitors, operating
in traditional ways with the
existing, known customer base
and competing for market share
through incremental innovation
New types of
competitor
New business
models
Conventional value propositions
New
customers
New
customers
Existing customer base
New customer base

8. Market definition and the competitive box
Re-thinking market boundaries is a high priority
The way management understands and defines its markets is one of the most significant strategic issues
The product-customer matrix
a practical tool for looking at markets in new ways

9. The product-customer matrix
Market:
Products 1. 2. 3. 4. 5. 6. 7.
Total
Customers 1. 2. 3. 4. 5. 6. 7.
Total

10. Market definition and the competitive box
Mapping market structure and change
insights into drivers of change
fundamental to looking at market segmentation and targeting

11. Mapping market structure and trends for central heating units
Production =
Consumption =
100,000 units
100,000 units
Direct sales = 10,000 units
Commercial
Construction
84,000 units
42,000 units
Construction
75,000 units
Companies
Independent
Sub -
(85,000 units)
Distributors
Contractors
42,000 units
7,000
units
Production
40,000
Of Central
Small
units
Heating
Hardware
Units
Retailers
2,000
units
5,000 units
Large
5,000 units
Hardware
Retailers
Domestic
Customers
(15,000 units)
Direct sales = 1,000 units

12. Market segmentation and targeting
dividing market into groups of buyers who make coherent targets, e.g., by demographics for consumers to industry type for companies
aims to develop consistent marketing programmes for segments with potentially different approaches for each

13. Consistency versus differentiation in market segmentation
Market segments A B C D
Product
Price
Communications
Distribution
& service
Differentiated
marketing
actions across
market
segments
Marketing
actions
Consistent value offerings for
each market segment

14. Market segmentation and targeting
Insightful segmentation is based on the customer benefit from the product or service
e.g., customer loyalty-based segmentation
e.g., customer relationship-based segmentation

15. Customer loyalty-based segmentation
Loyalty segments
Our customers
Competitors’ customers
Committed to us and rate
us highly, they show little
interest in competitors
Committed to competitors
and rate them highly, show
little interest in us
Satisfied stayers
Loyal customers, but this
may only be inertia, may
be vulnerable to competitors
Repeat buyers for
competitors, but may be
interested in us
Hostages
Show little positive
commitment, may become
interested in alternatives
Little commitment to
competitors, may be
interested in our offer
Happy wanderers
Show strong preference for
the best “deal” on the market,
with low supplier loyalty
No commitment to
competitors - open to
superior offers
Dealers

16. Customer relationship-based segmentation
segments
Our customers
Competitors’ customers
Invest in customer relationship
management and loyalty
programmes to give a close
relationship that is long term
Find ways to offer a
relationship that is superior in
the customer’s terms to attract
away from competitors
Relationship
seekers
Emphasize superiority in
value offering and rewards
for long-term retention superior
to those of competitors
Focus on retention through
the value offering and not
through relationship emphasis
Loyal buyers
Control expenditures on
loyalty incentives and provide
economic contact, e.g. through
Internet
Offer relationship-based
incentives to switch suppliers,
but control costs to allow for
short retention
Relationship
exploiters
Emphasize value offering and
avoid relationship investments
unless can be converted to
Loyal Buyers
Arm’s length
transactional
customers
Demonstrate superior value
offering and lack of ties or
barriers to switching

17. Market segmentation and targeting
Broad segments and micro-segments
Strategic market segmentation
distinction between strategic and managerial issues in segmentation

18. Strategic and managerial segmentation
Corporate mission
Values
Strategic intent
Strategic
segmentation
Market position
Resource allocation
Marketing plans
Managerial
segmentation
Operational
management
(sales, advertising)

19. Market segmentation and targeting
Conventional views of market segmentation
methodology to identify
criteria for evaluation
segmentation approach (differentiated, concentrated, undifferentiated)
An extended model of market segmentation
a diagnostic framework to distinguish between strategic and operational issues and address implementation questions

20. An extended model of market segmentation
Explicitness and focus
Explicit/external
Implicit/internal
Strategic segmentation
Strategic
Customer benefits
Qualitative approach
Links to mission and
vision
Organizational structure
Information processing
Corporate culture and
history
Organizational
decision making
level
Managerial segmentation
Sales and distribution
organization
Advertising and
promotion
Media buying
Pricing tactics
Conventional
segmentation bases
Quantitative approach
Conventional tests
and criteria of choice
Operational

21. Market segmentation and targeting
Market segment attractiveness and internal compatibility
consider not just how attractive a segment is as a target, but also how well it fits with company capabilities
a significant implementation question

22. Segment attractiveness and internal compatibility
High
Low
High
Attractive segments
Attractive segments
that match with
but with poor match
company
with company
capabilities
capabilities
Market segment
attractiveness
Unattractive segments
that do not match with
company capabilities
but with match to
company
capabilities
Low

23. Market positioning
How customers compare you to the competition and what they decide
The logic of blue oceans and red oceans
finding spaces where there is no competition

24. Market positioning Creating new market space
looking across substitute industries
looking across strategic groups within the industry
redefining the buyer group
look across to complementary products/services
re-think the functional/emotional orientation of the industry
participate in shaping external trends

25. Market positioning But, will the big idea work? buyer utility
strategic pricing
business model
adoption hurdles

26. Market choices
Usually there are choices – which markets/segments to target?
how do we set priorities?
Portfolio approaches compare
market/segment attractiveness (how well the opportunity fits our goals and capabilities
market position (how well we believe we can do in this market/segment)

27. Market attractiveness and position
High
Low
Core
business
Peripheral
business
Strong
Market
position
Illusion
business
Dead-end
business
Weak

28. Market choices Portfolio approach identifies
core business – targets with a good fit and where we can do well
peripheral business – market is less attractive to us but we will take a strong position
illusion business – attractive markets where we can take only a weak position
dead-end business – unattractive markets where we do badly.
Provides a basis for making investment choices