Chapter 3: Focusing Marketing Strategy with Segmentation and Positioning

Chapter 3 Objectives When you finish this chapter, you should 1. Understand why marketing strategy planning involves a process of narrowing down from broad opportunities to a specific target market and marketing mix. 2. Know about the different kinds of marketing opportunities. 3. Understand why opportunities in international markets should be considered. 4. Know about defining generic markets and product-markets. 5. Know what marketing segmentation is and how to segment product-markets into submarkets. 6. Know three approaches to market-oriented strategy planning. 7. Know dimensions that may be useful for segmenting markets. 8. Know what positioning is— and why it is useful. 10. Understand the important new terms. 3-2

Marketing Strategy Planning Process This slide relates to the material on pp. 63-66. Instructor’s Note: This slide corresponds to Exhibit 3-1 on p. 65 and Transparency 22. See also Transparency 21 and Overheads 20-21. This slide can be reused through the course to reinforce to students how individual topics relate to the “big picture” Customers Company Competitors S. W. O. T. Segmentation & Targeting Differentiation & Positioning Product Place Promo Price Narrowing down to focused strategy with screening criteria External Market Environment Target Market Summary Overview Marketing strategy planning tries to match opportunities to the firm’s resources and its objectives. A key feature of successful marketing strategy planning is identifying attractive opportunities uniquely fitted to the strengths of the firm. Attractive Opportunities Breakthrough Opportunities. The best opportunities come when innovators develop hard-to-copy marketing strategies that will be profitable for a very long time. Teaching Tip: For a long time, Intel had a competitive advantage and high profits because most of the popular software was designed to work only on Intel computers. Competitive Advantage. With or without a breakthrough opportunity, long run success requires competitive advantage -- that is, having a marketing mix that the target market sees as better than a competitor’s mix. Differentiation. This means that the firm’s marketing mix if distinct from and better than what is available from a competitor. Differentiation often requires that the firm fine-tune all of the elements of its marketing mix to the specific needs of a distinctive target market. S.W.O.T. Analysis. This analysis highlights advantages and disadvantages and is a useful aid for identifying relevant screening criteria and for zeroing in on a feasible strategy. It identifies and lists the firm’s strengths and weaknesses and its opportunities and threats. Then, these can be compared with the pros and cons of different strategies that are considered. Exhibit 3-1 3-3

Types of Opportunities This slide relates to the material on pp. 66-67. Instructor’s Note: This slide corresponds to Exhibit 3-2 on p. 66 and Transparency 23 and Overhead 22. Market Penetration Development Product Diversification Present Products New Products Four Basic Types of Opportunities Present Markets New Markets Summary Overview The 2 x 2 grid on the slide provides a framework for marketers to think about the types of opportunities available for meeting customer needs. These four broad possibilities help marketers focus on different areas of opportunity. Four Basic Types of Opportunities Market Penetration. Market penetration means trying to increase sales of a firm’s present products in its present markets. This typically calls for a more aggressive marketing mix to increase the use or rate of purchase among current customers or to attract competitors’ customers or nonusers to the company’s products. Market Development. Market development means trying to increase sales by selling present products in new markets. This type of opportunity can focus on either opening up new channels of distribution, as in going international for the first time, or on finding new uses for the product that will logically extend into new consumer markets. Product Development. Product development means offering new or improved products to present markets. In response to the needs of present markets, this type of opportunity may add or modify product features, create several quality levels, or add more types and/or sizes of products to provide the present market with more choices. Diversification. Diversification means moving into totally different lines of business. Diversification involves both new products and new markets and presents the most challenging opportunities. Because of this dual difference, diversification involves higher risks. Locating Opportunities The text points out the changing competitive conditions within the US (slowing population growth and leveling off of income) make it increasingly necessary for companies to pursue growth in faster-growing international markets. Exhibit 3-2 3-4

Considering International Opportunities This slide relates to the material on pp. 68-69. Competitive Advantage Smaller World Summary Overview In the ever-increasing interdependency of the global economy, marketing managers should consider international opportunities. Reasons to Consider International Opportunities It’s a Small World. From a business standpoint, the world is getting smaller -- and therefore more accessible to profitable business growth. There are two reasons for this. First, traditional barriers to international trade such as tariffs, regulations, monetary differences, and distribution are improving in favor of more trade. Second, telecommunications infrastructure -- the highway to move information -- is rapidly improving and expanding. Teaching Tip: Anyone who thinks you can’t make money on the Internet should visit the Dell Computer web site. In 1997, Dell did a million dollars a day in web-based computer sales. In 1998, CEO Michael Dell announced the firm was doing $6 million a day, much of it coming from Europe! Economies of Scale. Successful expansion into international markets can help drive down per unit manufacturing costs. Early Start in New Markets. Innovators and early market share leaders stand the best chance of making profits. Getting there first in new international markets may be the key to long-term success for many firms. Better Trends. The combination of variables affecting how well a firm competes may be better in international markets. Better Trends? Early Start 3-5

Narrowing Target Markets This slide relates to the material on pp. 69-72. Instructor’s Note: This slide corresponds to Exhibit 3-3 on p. 70 and Transparency 24. See also Overhead 23. Combined target market approach Single target market approach Multiple target market approach All customer needs Some generic One broad product market Homogeneous (narrow) product markets Narrowing down to specific product-market Segmenting into possible target markets Selecting target marketing approach Summary Overview Searching for opportunities needs to be a systematic process to ensure that firms don’t overlook important prospects or use resources ineffectively. To search well, marketing managers should understand markets thoroughly and take a step-by-step approach to narrowing down opportunities for consideration from the broadest to most specific items. Narrowing Target Markets Market Defined. A market is a group of potential customers with similar needs who are willing to exchange something of value with sellers offering various goods and/or services that satisfy the customers’ needs. Market-oriented managers develop marketing mixes for specific target markets. The “narrowing-down” process is designed to move marketers away from mass-market approaches to target-market thinking. Generic Market. A generic market is a market with broadly similar needs and sellers offering various, often diverse, ways of satisfying those needs. Product-Market. In contrast to a generic market, a product market is a market with very similar needs and sellers offering various close substitute ways of satisfying those needs. Defining Product-Markets. A complete product-market description includes four parts: Product type. This is the type of good and/or service offered. Customer Needs. This refers to the needs of the customer (user) that are being met by the product. Customer Types. This identifies who specifically is using the product. Geographic Area. This identifies where the market is located. In defining product-markets, marketers provide names for each level of definition that distinguishes it from other possible markets. This process helps focus the attention of the company on meeting customer needs. Exhibit 3-3 3-6

Generic and Product-Market Definitions This slide relates to the material on pp. 71-72. Instructor’s Note: This slide corresponds to Exhibit 3-4 on p. 72 and Transparency 25. Generic Market Definitions Summary Overview Searching for opportunities needs to be a systematic process to ensure that firms don’t overlook important prospects or use resources ineffectively. To search well, marketing managers should understand markets thoroughly and take a step-by-step approach to narrowing down opportunities for consideration from the broadest to most specific items. Narrowing Target Markets Market Defined. A market is a group of potential customers with similar needs who are willing to exchange something of value with sellers offering various goods and/or services that satisfy the customers’ needs. Market-oriented managers develop marketing mixes for specific target markets. The “narrowing-down” process is designed to move marketers away from mass-market approaches to target-market thinking. Generic Market. A generic market is a market with broadly similar needs and sellers offering various, often diverse, ways of satisfying those needs. Product-Market. In contrast to a generic market, a product market is a market with very similar needs and sellers offering various close substitute ways of satisfying those needs. Defining Product-Markets. A complete product-market description includes four parts: Product type. This is the type of good and/or service offered. Customer Needs. This refers to the needs of the customer (user) that are being met by the product. Customer Types. This identifies who specifically is using the product. Geographic Area. This identifies where the market is located. In defining product-markets, marketers provide names for each level of definition that distinguishes it from other possible markets. This process helps focus the attention of the company on meeting customer needs. Customer (user) needs types Geographic area Product type (good and/or service) + Product- Market Definitions Exhibit 3-4 3-7

Market Segmentation This slide relates to the material on pp. 72-75. Instructor’s Note: This slide corresponds to Exhibit 3-5 on p. 74 and Overhead 24. See also Overhead 25. Broad product-market (or generic market) name goes here (The bicycle-riders product-market) Submarket 1 (Exercisers) Submarket 2 (Off-road adventurers) Submarket 3 (Transportation riders) Submarket 4 (Socializers) Submarket 5 (Environmentalists) Summary Overview Market segmentation is a two-step process of: (1) naming broad product-markets and (2) segmenting these broad product-markets in order to select target markets and develop suitable marketing mixes to serve them. This process fails too often because the marketer does not realize the complexities of consumer behavior and attempts to categorize a market around too few consumer-related variables of distinction. Segmenting should be considered an aggregating process of clustering people with similar needs into individual market segments. Market Segmentation A market segment is a relatively homogeneous group of customers who will respond to a marketing mix in a similar way. Good market segments meet the following criteria: 1. Homogeneous Within. The customers in a market segment should be as similar as possible with respect to their likely responses to marketing mix variables and their segmenting dimensions. 2. Heterogeneous Between. The customers in different segments should be as different as possible with respect to their likely responses to marketing mix variables and their segmenting dimensions. 3. Substantial. The segment must be big enough to be profitable. 4. Operational. The segmenting dimensions should be useful for identifying customers and deciding on marketing mix variables. Exhibit 3-5 3-8

Market Segmentation A. Product-market showing three segments This slide relates to the material on pp. 72-75. Instructor’s Note: This slide corresponds to Exhibit 3-6 on p. 74 and Transparency 26. See also Transparency 27. Status dimension Dependability dimension A. Product-market showing three segments B. Product-market showing six segments Summary Overview Market segmentation is a two-step process of: (1) naming broad product-markets and (2) segmenting these broad product-markets in order to select target markets and develop suitable marketing mixes to serve them. This process fails too often because the marketer does not realize the complexities of consumer behavior and attempts to categorize a market around too few consumer-related variables of distinction. Segmenting should be considered an aggregating process of clustering people with similar needs into individual market segments. Market Segmentation A market segment is a relatively homogeneous group of customers who will respond to a marketing mix in a similar way. Good market segments meet the following criteria: 1. Homogeneous Within. The customers in a market segment should be as similar as possible with respect to their likely responses to marketing mix variables and their segmenting dimensions. 2. Heterogeneous Between. The customers in different segments should be as different as possible with respect to their likely responses to marketing mix variables and their segmenting dimensions. 3. Substantial. The segment must be big enough to be profitable. 4. Operational. The segmenting dimensions should be useful for identifying customers and deciding on marketing mix variables. Exhibit 3-6 3-9

Market-Oriented Approaches This slide relates to the material on pp. 75-78. Instructor’s Note: This slide corresponds to Exhibit 3-7 on p. 76 and Transparency 28, See also Overhead 26. There are several slides in this series; please see student handout pages. The Strategy A segmenter Using single target market approach— can aim at one submarket with one marketing mix Summary Overview Market-oriented strategies refine the segmentation process into actionable submarkets. Three Basic Ways to Develop Market-Oriented Strategies 1. Single Target Market Approach. This involves segmenting the market and picking one of the homogeneous segments as the firm’s target market. 2. Multiple Target Market Approach. This involves segmenting the market and choosing two or more segments, then treating each segment as a separate target market needing a different marketing mix. 3. Combined Target Market Approach. This involves combining two or more submarkets into one larger target market as a basis for one strategy. This strategy seeks economies from having one effort serve more than one market but is risky in that more focused competitors are very likely to do a better job meeting target needs. Exhibit 3-7 3-10

Market-Oriented Approaches This slide relates to the material on pp. 75-78. Instructor’s Note: This slide corresponds to Exhibit 3-7 on p. 76 and Transparency 28. See also Overhead 26. Strategy Three Two One A segmenter Using multiple target market approach— can aim at two or more submarkets with different marketing mixes Summary Overview Market-oriented strategies refine the segmentation process into actionable submarkets. Three Basic Ways to Develop Market-Oriented Strategies 1. Single Target Market Approach. This involves segmenting the market and picking one of the homogeneous segments as the firm’s target market. 2. Multiple Target Market Approach. This involves segmenting the market and choosing two or more segments, then treating each segment as a separate target market needing a different marketing mix. 3. Combined Target Market Approach. This involves combining two or more submarkets into one larger target market as a basis for one strategy. This strategy seeks economies from having one effort serve more than one market but is risky in that more focused competitors are very likely to do a better job meeting target needs. Exhibit 3-7 3-11

Market-Oriented Approaches This slide relates to the material on pp. 75-78. Instructor’s Note: This slide corresponds to Exhibit 3-7 on p. 76 and Transparency 28. See also Overhead 26. A combiner The Strategy Using combined target market approach—can aim at two or more submarkets with the same marketing mix Summary Overview Market-oriented strategies refine the segmentation process into actionable submarkets. Three Basic Ways to Develop Market-Oriented Strategies 1. Single Target Market Approach. This involves segmenting the market and picking one of the homogeneous segments as the firm’s target market. 2. Multiple Target Market Approach. This involves segmenting the market and choosing two or more segments, then treating each segment as a separate target market needing a different marketing mix. 3. Combined Target Market Approach. This involves combining two or more submarkets into one larger target market as a basis for one strategy. This strategy seeks economies from having one effort serve more than one market but is risky in that more focused competitors are very likely to do a better job meeting target needs. Exhibit 3-7 3-12

Segmentation Dimensions This slide relates to the material on pp. 78-82. Instructor’s Note: This slide corresponds to Exhibit 3-12 on p. 80 and Transparency 30. See also Transparency 31 and Overheads 27-33. All Potential Dimensions Qualifying Dimensions Determining Dimensions (Product Type) (Brand Specific) Relevant Purchase Behavior Relevant Customer Type Specific Purchase Influence Attraction to Brand Focus: Focus : Summary Overview Market segmentation forces marketing managers to decide which product-market dimensions might be useful for planning marketing strategies. Segmenting dimensions guide marketing mix planning. Ideally, a product-market will be described in terms of customer behavior, customer urgency to satisfy his or her needs, and customer geographic location. Segmentation Dimensions Consumer Markets may be segmented along many dimensions, such as behavioral, geographic, and demographic. Business/Organizational markets may be segmented along dimensions such as the kind of relationship with the company, type of customer, demographics, length of product use, type of buying situation, or purchasing method. To select among so many choices, two key concepts are helpful: Qualifying Dimensions. Qualifying dimensions are those relevant to including a customer type in a product-market. For example, customers must have enough money to afford a specific product in order to qualify as a potential market. Qualifying dimensions help identify the “core features” that must be offered to everyone in a product-market. Determining Dimensions. Determining dimensions are those that actually affect the customer’s purchase of a specific product or brand in a product-market. For example, customers in need of a general product category can be further segmented into groups for whom various product features meet relatively more important needs to the customer. In the car-market, for instance, “sporty” and “economical” might be different determining dimensions for different consumers. Exhibit 3-12 3-13

Positioning of Different Bar Soaps This slide relates to the material on pp. 82-87. Instructor’s Note: This slide corresponds to Exhibit 3-13 on p. 86 and Transparency 32. See also Overheads 34-35. High moisturizing Tone Zest 7 4 Lever 2000 Dove 2 5 Safeguard Summary Overview Computer-aided methods afford marketers additional help in segmenting markets. The ability of the computer to record, sort, recombine, and analyze a great many variables relating to consumer behavior at the same time allows marketers to develop much more sophisticated market segments. More Sophisticated Techniques for Segmentation and Positioning Clustering. Clustering techniques try to find similar patterns within sets of data. Patterns of behavior can be combined into new needs analysis and product design and marketing communications can focus on how these needs can be filled. Database Sorting. Past customer behavior is often the source of information about new purchase opportunities or identification of cyclical buying habits. Teaching Tip: Database sorting is especially helpful in providing services. For example, a financial advisor enters a great deal of information about a client in a database. By contacting the client before key events, such as an wedding anniversary, the advisor demonstrates to the client the importance of their continuing relationship and how well the advisor has internalized what is important to the client. Differentiation. Differentiation refers to how the marketer tries to distinguish her or his offer in the marketplace -- how it is set off from the competition in hopefully meaningful ways. Positioning. Positioning refers to how customers think about proposed and/or present brands in a market. Marketing managers must always remember that it is the customer’s perception of where a product or brand is in relation to the other choices that is important. Lux 8 3 Nondeodorant Deodorant 1 Lava Dial “Product Space” Representing Consumers’ Perception for Different Brands of Bar Soap Lifebuoy 6 Low moisturizing Exhibit 3-13 3-14

Key Terms Breakthrough Opportunities Competitive Advantage Differentiation S.W.O.T. Analysis Market Penetration Market Development Product Development Diversification Market Generic Market Product-Market Market Segmentation Segmenting Market Segment Single Target Approach Multiple Target Approach Combined Target Approach Combiners Segmenters Qualifying Dimensions Determining Dimensions Clustering Techniques Positioning 3-15