Chapter Seven Customer-Driven Marketing Strategy:

Chapter Seven Customer-Driven Marketing Strategy:
Creating Value for Target Customers

Differentiation and Positioning
Customer-Driven Marketing Strategy: Creating Value for Target Customers Topic Outline Market Segmentation Market Targeting Differentiation and Positioning

Introduction Companies today recognize that they cant appeal to all buyers in the marketplace or at least not to all buyers in the same way. Buyers are too numerous, too widely scattered and too varied in their needs and buying practices. Companies vary widely in their abilities to serve different segments of the market.

Introduction Most companies have moved away from mass marketing and toward target marketing- identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each.

Market Segmentation Market segmentation is the process that companies use to divide large heterogeneous markets into small markets that can be reached more efficiently and effectively with products and services that match their unique needs

Market Segmentation

Market Segmentation The figure shows the four major steps in designing a customer driven marketing strategy, in the first two steps, the company selects the customer that it will serve. In the final two steps , the company decides on a value proposition , on how it will create value for target customers.

Market Segmentation Differentiation involves actually differentiating the firm’s market offering to create superior customer value. Positioning consists of arranging for a market offering to occupy a clear, distinctive and desirable place relative to the competing products in the minds of target customers.

Market Segmentation Segmenting consumer markets
Segmenting business markets Segmenting international markets Requirements for effective segmentation

Segmenting Consumer Markets
Market Segmentation Segmenting Consumer Markets Geographic segmentation Demographic segmentation Psychographic segmentation Behavioral segmentation

Market Segmentation Segmenting Consumer Markets Geographic segmentation divides the market into different geographical units such as nations, regions, states, counties, cities or even neighborhoods. A company may decide to operate in one or a few geographical areas, or to operate in all areas but pay attention to geographical differences in needs and wants.

Market Segmentation Segmenting Consumer Markets Many companies today are localizing their products, advertising, promotion and sales effort to fit the needs of individual regions, cities, and even neighborhoods. For example :one consumer products company ships additional cases of low calorie snack food to stores in neighborhoods near(weight loss) clinics

Market Segmentation Segmenting Consumer Markets Demographic segmentation divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, and nationality

Market Segmentation Segmenting Consumer Markets Demographic factors are the most popular bases for segmenting customer groups. One reason is that consumer needs , wants, and usage rates often vary closely with demographic variables, another reason is that demographics variables are easier to measure than most other types of the variables.

Market Segmentation Segmenting Consumer Markets Marketers first define segments using other bases such as benefits sought or behavior, they must know segment demographic characteristics in order to assess the size of the target market and to reach it efficiently.

Gender segmentation divides the market based on sex (male or female)
Market Segmentation Age and life-cycle stage segmentation is the process of offering different products or using different marketing approaches for different age and life-cycle groups Gender segmentation divides the market based on sex (male or female) Note to Instructor This link goes to gurl.com, a Web site for female teenagers and young adults. It is interesting to browse with the students to note what kind of content is of interest to this group. A look at the advertisers with banner ads, sponsorships, or contests on the site shows the importance of targeted locations to these advertisers.

Market Segmentation Gender segmentation has been long used in clothing , cosmetics and magazines. Many women’s cosmetics makers have begun marketing men’s lines. Nivea markets Nivea for men “ an advance line of enriching skincare and soothing aftershave products specially designed for the active, healthy men’s lifestyle”

Market Segmentation A neglected gender segment can offer new opportunities in markets ranging from motorcycles to Guitars

Market Segmentation Segmenting Consumer Markets Marketers of products and services such as clothing, financial services and travel have long used income segmentation Income segmentation divides the market into affluent or low-income consumers Note to Instructor There are a whole group of products which are targeted to the affluent including hotels like Four Seasons, which is mentioned in the book.Their products offerings are deluxe: Kids in the City package for $520 a night and, among other things, enjoy a visit in their room from the Ice Cream Man, who arrives with all the fixings to make any concoction they desire. The Benjamin Hotel in New York City provides dog beds in a variety of styles and doggie bathrobes, as well as canine room service and DVDs for dogs. At the Ritz-Carlton, Lake Las Vegas in Henderson, Nevada, the Love at Lake Las Vegas weekend package includes two nights in the 2,400 square foot presidential suite, helicopter and gondola rides, a champagne-tasting party on a yacht complete with rose petals strewn about and a string trio, use of a luxury car throughout the stay, in-room couples spa treatment, a $5,000 casino line of credit, a $50,000 shopping spree at Neiman Marcus, 14 dozen roses, and a butler-drawn Cristal champagne bath.

Market Segmentation Segmenting Consumer Markets Many companies target affluent consumers with luxury goods and convenience services. For example: luxury hotels provide amenities to attract specific groups of affluent travelers such as families.

Market Segmentation Segmenting Consumer Markets However, not all the companies that use income segmentation target the affluent. For example: when experts scout locations for new pound and dollar stores, they look for lower-middle class neighborhoods where people wear less expensive shoes and drive old cars that drip a lot of oil.

Market Segmentation Segmenting Consumer Markets Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or personality traits Marketers often segment their markets by consumer lifestyles and base their marketing strategies on lifestyle appeals.

Market Segmentation Segmenting Consumer Markets Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses, or responses to a product Many marketers believe that behavioral variables are the best starting point for building market segments. Note to Instructor Students often get confused with the difference between behavioral and psychographic segmentation. Behavior is more tied into how consumers use the product. A good illustration is greeting cards—ask students how their purchasing would be different when buying a birthday card for their mother versus one for a new boyfriend. In addition, ask them how people might look for different benefits when purchasing a car? Some might look for safety while others will look for the best gas mileage.

Market Segmentation Segmenting Consumer Markets Occasions Benefits sought User status Usage rate Loyalty status

Occasions Buyers can be grouped according to the occasions when they get the idea to buy, actually make their purchase, or use the purchased item. Occasion segmentation can help firms build up product usage For example, most consumers drink orange juice in the morning but orange growers have promoted drinking orange juice as a cool refresher at other times of the day.

Occasions Some holidays such as the mother’s day was originally promoted partly to increase the sale of candy, flowers, cards and other gifts. Many marketers prepare special offers and ads for holiday occasions.

Benefits Sought A powerful form of segmentation is to group buyers according to the different benefits that they seek from the product Benefit segmentation requires finding the major benefits people look for in the product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit.

Benefits Sought For example: Champion athletic wear segments its markets according to the benefits that different consumers seek from their active wear , consumers seek a balance between function and style.

User status Markets can be segmented into nonusers, ex-users , potential users, first time users and regular users of the product Marketers want to reinforce and retain regular users, attract targeted nonusers , and reinvigorate relationships with exusers. Included in the potential user group are consumers facing life- stage changes such as new parents

Usage Rate Markets can also be segmented into light , medium , and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption For example : Burger king targets what it calls “ super fans”, they eat at burger king an average of 16 times a month

Loyalty status A market can also be segmented by consumer loyalty.
Consumers can be loyal to brands , stores , and companies Buyers can be divided into groups according to their degree of loyalty Some consumers are completely loyal, they buy one brand all the time.

Loyalty status Other consumers are somewhat loyal , they are loyal to two or three brands of a given product or favor one product while sometimes buying others. Still other buyers show no loyalty to any brand. They either want something different each time they buy or they buy whatever’s on sale.

Conclusion A company can learn a lot by analyzing loyalty patterns in its market Studying less loyal buyers, the company can detect which brands are most competitive with its own By looking at customers who are shifting away from its brand, the company can learn about its marketing weakness.

Using Multiple Segmentation Bases
Market Segmentation Using Multiple Segmentation Bases Multiple segmentation: Marketers rarely limit their segmentation analysis to one or a few variables. Rather , they often use multiple segmentation bases in an effort to identify smaller, better defined target groups * Several business information services provide multivariable segmentation systems that merge geographic, demographic , lifestyle and behavioral data to help in segmenting the markets

Market Segmentation Geodemographic segmentation is an example of multivariable segmentation that divides groups into consumer lifestyle patterns

Using Multiple Segmentation Bases
Market Segmentation Using Multiple Segmentation Bases PRIZM NE classifies every American household into 66 unique segments organized into 14 different social groups. These groups segment people and locations into marketable groups of like-minded consumers that exhibit unique characteristics and buying behavior based on a host of demographic factors

Segmenting business markets
Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically or by benefits sought, user status, usage rate, and loyalty status.

Segmenting business markets
Business marketers also use some additional variables such as customer , operating characteristics, purchasing approaches, situational factors, and personal characteristics. By going after segments instead of the whole market, companies can deliver just the right value proposition to each segment served and capture more value in return.

Which of the following is not a way to segment consumer markets?
Geographic Psychographic Demographic Derived demand

Dividing a market based on consumer attitude, use, or response to a product is called ________ segmentation. occasion psychographic behavioral market

A marketer selling different offerings in different communities would be using ________ segmentation. geographic psychographic demographic behavioral

Marketers selling luxury cars often use income as a segmenting variable. Income is one component of ________ segmentation. geographic psychographic demographic behavioral

Many marketers believe that ________ variables are the best starting point for building market segments. geographic psychographic demographic behavioral

Segmenting International markets
Market Segmentation Segmenting International markets Geographic location Economic factors Political-legal factors Cultural factors

Segmenting international markets
Few companies have either the resources or the will to operate in all , or even most, of the countries that dot the globe, although some large companies sell products in more than 200 countries such as ( Coca- Cola) Operating in many countries presents new challenges.

Different countries, even those that are closer together, can vary greatly in their economic, cultural, and political make up. International firms need to group their world markets into segments with distinct buying needs and behaviors Companies can segment international markets using one or a combination of several variables

Marketers can segment the market by the geographic location, grouping countries by regions such as Western Europe, Pacific Rim, the Middle East or Africa . Geographic segmentation assumes that nations close to one another will have many common traits and behaviors

World markets can also be segmented on the basis of economic factors . For example countries might be grouped by population income levels or by their overall level of economic development. A country’s economic structure shapes its population’s product and service needs, and therefore, the marketing opportunities it offers

Countries can be segmented by political and legal factors such as the type and stability of government, monetary regulations and the amount of bureaucracy. Cultural factors can also be used, grouping markets according to the common languages, religions, values and attitudes.

Segmenting Business Markets
Market Segmentation Segmenting Business Markets Intermarket segmentation divides consumers into groups with similar needs and buying behaviors even though they are located in different countries. Coca cola is the official sponsor of American Idol, the country’s no.1 television show. In the Middle East commercial features Arab pop star such as Nancy Ajram

Mercedes Benz targets the world’s well-to-do and IKEA targets the aspiring global middle class. These companies are involved with ________ segmentation. positioning differentiation intermarket lifecycle

Requirements for Effective Segmentation
Market Segmentation Requirements for Effective Segmentation To be useful, market segments must be: Measurable Accessible Substantial Differentiable Actionable

Measurable: the size, purchasing power, and profiles of the segments can be measured, certain segmentation variables are difficult to measure. For example: there are many left handed people in the world, yet few products are targeted toward them. The main problem maybe that the segment is hard to identify and measure.

Accessible : the market segments can be effectively reached and served. For example : a fragrance company finds that heavy users of its brand are single men and women who stay out late and socialize a lot. Unless this group shops at certain places and is exposed to certain media, it members will be difficult to reach.

Substantial: the market segments are large or profitable enough to serve. A segment should be the largest possible homogenous group worth pursuing with a tailored marketing program For example: for an automobile manufacturer to develop cars especially for people whose height is greater than 7 feet

Differentiable : the segments are conceptually distinguishable and respond differently to different marketing mix elements and programs For example : if married and unmarried women respond similarly to a sale on perfume, they don’t constitute separate segments.

Actionable: effective programs can be designed for attracting and serving the segments. For example: although one small airline identified seven market segments, its staff was too small to develop separate marketing programs for each segment.

In order to be useful, market segments need to be which of the following?
Differentiable Accessible Substantial All of the above

Selecting Target Market Segments
Market Targeting Selecting Target Market Segments Target market consists of a set of buyers who share common needs or characteristics that the company decides to serve Market segmentation reveals the firm’s market segment opportunities. The firm has to evaluate the various segments and decide how many and which segments it can serve best.

Evaluating Market Segments
Market Targeting Evaluating Market Segments In evaluating different market segments, a firm must look at three factors: 1.Segment size and growth 2.Segment structural attractiveness 3.Company objectives and resources Note to Instructor Structural attractiveness includes factors that affect long-run attractiveness. These factors might include strong and aggressive competitors, substitute products, and high power of buyers or powerful suppliers.

The company must first collect and analyze data on current segment sales, growth rates and expected profitability for various segments, the firm will be interested in segments that have the right size and growth characteristics.

1. Segment size and Growth “ Right size and growth “ is a relative matter. The largest, fastest growing segments are not always the most attractive ones for every company. Smaller companies may lack the skills and resources needed to serve the larger segments, or they may find these segments too competitive.

1. Segment size and Growth Such companies may target segments that are smaller and less attractive, in an absolute sense, but that are more profitable for them

2. Segment structural attractiveness The company also needs to examine major structural factors that affect long run segment attractiveness. For example , the segment is less attractive if it already contains many strong and aggressive competitors The existence of many actual or potential substitute products may limit prices and the profit that can be earned in a segment

2. Segment structural attractiveness The power of buyers affects segment attractiveness, buyers with strong bargaining power relative to sellers will try to force prices down, demand more services and set competitors against one another A segment may be less attractive if it contains powerful suppliers who can control prices or reduce the quality/quantity of ordered goods and services

3.Company objectives and resources Some attractive segments can be dismissed quickly because they don’t mesh with the company’s long run objectives, or the company may lack the resources and skills needed to succeed in an attractive segment. A company should enter only segments in which it can create superior customer value

Which of the following structural factors is not related to a segment’s attractiveness?
The presence of strong competitors in the segment. The existence of potential substitute products. The lack of raw materials. A number of powerful suppliers.

Target Marketing Strategies
Market Targeting Target Marketing Strategies

Undifferentiated marketing
Market Targeting Undifferentiated marketing Undifferentiated: marketing targets the whole market with one offer Mass marketing Focuses on common needs rather than what’s different The company designs a product and a marketing program that will appeal to the largest numbers of buyers

Undifferentiated marketing
Market Targeting Undifferentiated marketing Most modern marketers have strong doubts about this strategy Difficulties arise in developing a product or brand that will satisfy all consumers. Moreover, mass marketers often have trouble competing with more focused firms that do a better job of satisfying the needs of specific segments and niche.

Differentiated marketing
Market Targeting Differentiated marketing Differentiated marketing targets several different market segments and designs separate offers for each Goal is to achieve higher sales and stronger position More expensive than undifferentiated marketing

When using a(n) ________ marketing (mass-marketing) strategy, a firm decides to ignore market segment differences and target the whole market with one offer. differentiated undifferentiated positioning segmentation

When using a(n) _____ marketing (mass-marketing) strategy, a firm decides to ignore market segment differences and target the whole market with one offer. differentiated undifferentiated positioning segmentation

Target Market Strategies
Market Targeting Target Market Strategies Concentrated marketing targets a small share of a large market Limited company resources Knowledge of the market More effective and efficient

Marketing Targeting Target Market Strategies Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations Local marketing Individual marketing Note to Instructor In slideshow view, click on movie icon to launch Meredith video snippet. See accompanying DVD for full video segment

Market Targeting Target Market Strategies Local marketing involves tailoring brands and promotion to the needs and wants of local customer groups Cities Neighborhoods Stores Note to Instructor Advances in communications technology have given rise to a new high-tech version of location-based marketing. By coupling mobile phone services with GPS devices, many marketers are now targeting customers wherever they are with what they want. This might include marketers reaching people near their stores, looking to make a decision. Discussion Question What are the drawbacks of local marketing? It can drive up manufacturing and marketing costs by reducing economies of scale. It can also create logistics problems as companies try to meet the varied requirements of different regional and local markets. Further, a brand’s overall image might be diluted if the product and message vary too much in different localities.

Market Targeting Target Market Strategies Individual marketing involves tailoring products and marketing programs to the needs and preferences of individual customers Also known as: One-to-one marketing Mass customization Markets-of-one marketing Note to Instructor Mass customization is the process through which firms interact one-to-one with masses of customers to design products and services tailor-made to meet individual needs. Has made relationships with customers important in the new economy. Provides a way to distinguish the company against competitors.

This type of micromarketing is also known as one-to-one marketing or mass customization.
Local marketing Tailored marketing Niche marketing Individual marketing

Choosing a Target Market
Market Targeting Choosing a Target Market Depends on: Company resources Product variability Product life-cycle stage Market variability Competitor’s marketing strategies

Socially Responsible Target Marketing
Market Targeting Socially Responsible Target Marketing Benefits customers with specific needs Concern for vulnerable segments Children Alcohol Cigarettes Internet abuses

If a beer manufacturer were to place a commercial on a TV show that was predominantly viewed by children, it could be considered using ________. socially irresponsible targeting socially responsible targeting adult targeting niche targeting

If a beer manufacturer were to place a commercial on a TV show that was predominantly viewed by children, it could be considered using ________ . socially irresponsible targeting socially responsible targeting adult targeting niche targeting

Product position is the way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products Perceptions Impressions Feelings Note to Instructor Tide is positioned as a powerful, all-purpose family detergent; Ivory is positioned as the gentle detergent for fine washables and baby clothes. At Subway restaurants, you “Eat Fresh;” at Olive Garden, “When You’re Here, You’re Family;” and at Applebee’s you’re “Eatin’ Good in the Neighborhood.” In the automobile market, the Nissan Versa and Honda Fit are positioned on economy, Mercedes and Cadillac on luxury, and Porsche and BMW on performance. Volvo positions powerfully on safety. And Toyota positions its fuel efficient, hybrid Prius as a high-tech solution to the energy shortage. “How far will you go to save the planet?” it asks.

Positioning maps show consumer perceptions of their brands versus competing products on important buying dimensions

Choosing a Differentiation and Positioning Strategy Identifying a set of possible competitive advantages to build a position Choosing the right competitive advantages Selecting an overall positioning strategy Developing a positioning statement

A product’s ________ is the way the product is defined by consumers on important attributes relative to the competition. image equity position value

Identifying Possible Value Differences and Competitive Advantage Competitive advantage is an advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices

Choosing a Differentiation and Positioning Strategy Identifying a set of possible competitive advantages to build a position by providing superior value from: Product differentiation Service differentiation Channel differentiation People differentiation Image differentiation

A firm that practices ________ differentiation gains competitive advantage by the way it designs its channel coverage. services product people channel

Choosing the Right Competitive Advantage Difference to promote should be: Important Distinctive Superior Communicable Preemptive Affordable Profitable Note to Instructor Discussion Question Are you familiar with GEICO advertisements? If so, what is their positioning? The Web link is to a YouTube ad. The question is what do they promote as their difference. It is that they cost less and they are easy to use. The instructor might want to play competitor’s ads to see what differences they promote (State Farm) is a good example.

Important : the difference delivered a high valued benefit to target buyers Distinctive: competitors don’t offer the difference, or the company can offer it in a more distinctive way Superior: the difference is superior to other ways that customers might obtain the same benefit

Communicable : the difference is visible to buyers Preemptive: competitors cant easily copy the difference Affordable: buyers can afford to pay for differences Profitable: the company can introduce the difference profitably

Selecting an Overall Positioning Strategy Value proposition is the full mix of benefits upon which a brand is positioned

Developing a Positioning Statement To (target segment and need) our (brand) is (concept) that (point of difference) Note to Instructor Ask this discussion question after watching the ad? Discussion Question What is a positioning statement for Verizon? Verizon positioning is always that they have the best connections in any area. Web link

Communication and Delivering the Chosen Position
Choosing the positioning is often easier than implementing the position.

What is the first step in target marketing?
Market positioning Market segmentation Target marketing None of the above

Which of the following steps of target marketing takes into account competitors’ offerings to the market? Market positioning Market segmentation Market targeting All of the above

Chapter Seven Customer-Driven Marketing Strategy:

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