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Chapter 7

Chapter 7. Customer-driven marketing strategy: Creating value for target customers. Some definitions. Market segmentation : dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate products or marketing programs.

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Chapter 7

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  1. Chapter 7 Customer-driven marketing strategy: Creating value for target customers

  2. Some definitions • Market segmentation: dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate products or marketing programs. • Market targeting: the process of evaluating each market segment's attractiveness and selecting one or more segments to enter. • Positioning: arranging for a product to occupy a clear, distinctive and desirable place relative to competing products in the minds of target consumers. • Differentiation: actually differentiating the market offering to create superior customer value.

  3. Market segmentation • Market segmentation is dividing a market into distinct groups that have have common needs • Before considering a segment a viable target for a company, companies should ensure: • Individuals or businesses within the segment should be uniform. • The segment should differ from other segments.

  4. Bases for Segmentation • Geographic segmentation • Demographic segmentation • Psychographic segmentation • Behavioral segmentation: (Occasion segmentation) • Benefit segmentation

  5. Geographic segmentation • In the geographic segmentation approach, markets are divided into different geographic units. These units may include nations, cities, or even neighborhoods. • For example, seasonal products, such as coats, overcoats, boots and winter gear are marketed to geographic areas where the temperature gets very low. • People living around beaches, will need swimwear and beach attire.

  6. Demographic segmentation • Demographic segmentation divides the market into groups based on variables such as age, gender, family size, birth era, household size, life stage, religion, race, marital status and nationality.

  7. Psychographic segmentation • Psychographic segmentation: it divides buyers into different groups based on social class, lifestyle, or personality characteristics. People in the same demographic groups can have very different psychographic make ups.

  8. Behavioral segmentation • Behavioral segmentation: divides consumers into groups according to the following characteristics: • User status: in terms of smoking: non-smokers, ex-smokers, potential smokers, first time smokers, regular smokers. • Usage Rate: light user, medium user, heavy user. (Mobile phone operators offer smart plans according to the usage rate of consumers.) • Loyalty status: low, high (example Apple diehards have high loyalty). Will Apple users shift to Samsung ? • Buyer involvement: High involvement (special effort), low involvement (minimum effort).

  9. Occasion segmentation • Occasion segmentation: dividing the market into groups according to occasions when buyers get the idea to buy, actually make their purchase or use the purchased item.

  10. Benefit segmentation • Benefit segmentation: In purchasing products, consumers are generally trying to satisfy specific needs. Hence, they are looking for products which provide specific benefits that satisfies these needs. The grouping of consumers on the basis of the benefits they are looking for in a product is known as benefit segmentation. • Example: The sensitive segment (Sensodyne), the healthy segment (Pepsodent, white plus, Colgate), for fresh breath segment (Close-Up), the economic toothpaste segment (Magic toothpowder), for cavity protection (Crest), for teeth whitening (Pepsodent whitening, Medi plus whitening etc.)

  11. Segmenting international markets • Inter-market segmentation/cross market segmentation: forming segments of consumers who have similar needs and buying behavior even though they are located in different countries.

  12. Requirements for effective segmentation • To be useful, market segments must be: • Measurable: the size and the profiles of the segment must be measurable. • Accessible: the segment should be effectively reached and served. • Substantial: the segment must be large or profitable enough to serve. • Differentiable: the segments must be different from one another. • Actionable: the segment should be such that effective programs can be designed for attracting and serving.

  13. Selecting a target market (Market Targeting) The market targeting process involves two steps: Determining how many segments to enter Determining which segments offer the most potential.

  14. Selecting target market segments

  15. Selecting target market segments

  16. 1. Undifferentiated marketing: • Undifferentiated marketing: involves ignoring segment differences and offering just one product or service to the entire market. This strategy helps to keep the cost down. For example, Coca-Cola with one regular flavor.

  17. 2. Differentiated marketing • Differentiated marketing: involves marketing in a number of segments and developing separate marketing program for each. However, this increases the cost for the company.

  18. 3. Concentrated marketing • Concentrated marketing: involves firms selecting one segment and attempting to capture a large share of this market.

  19. 4. Micro-marketing • Micro-marketing: the practice of tailoring products and marketing programs to the needs and wants of specific individuals.

  20. Differentiation and Positioning • Differentiation: actually differentiating the market offering to create superior customer value. For example: iphone. • Competitive advantage can be achieved through advertising by informing the consumers about the superior value of the brand. More and more Bangladeshi brands have realized the importance of gaining competitive advantage by building strong brands. For instance: For Grameenphone, the competitive advantage is network. • Product positioning: the way the product is defined by consumers on important attributes- the place the product occupies in consumers’ minds relative to competing products. For example, Walmart offers economically priced but good quality products (positioning by price), Volvo focuses on safety (positioning by benefit), L’Oreal shampoo: 6 oils 6 benefits (positioning by attributes and benefits), Rolex (positioning by quality), Nike (positioning by user).

  21. Possible value propositions • Possible value propositions shows upon which a company might position its products. • The five green cells represent winning value propositions and the red cells represent losing value propositions. The center yellow cell represents at best a marginal proposition. • The five winning propositions are: • More for more • More for the same • More for less • The same for less • Less for much less

  22. Possible value propositions

  23. Possible value propositions • More for more: more for more involves providing the most upscale product or service charging a high price to cover the higher costs. • For instance, Ritz Carlton hotels, Mont Blanc writing instruments, Mercedes automobiles- each claim superior quality, craftsmanship, durability, performance, or style and charges a high price to match. These products also give prestige to buyers. They symbolize status. Often price difference exceeds the actual increment in quality. • Consumers are often surprised and even delighted when a new competitor enters a category with an unusually high priced brand. For instance, Starbucks entered as a very expensive brand in a largely commodity category. When Apple premiered its iphone, it offered higher quality features than a traditional cell phone with a hefty price tag to match.

  24. Possible value propositions • More for the same: companies can attack a competitor’s more for more positioning by introducing a brand offering comparable quality at a lower price. • For instance, Toyota introduced its Lexus line for more for the same value proposition versus Mercedes and BMW. Its first headline was “perhaps the first time in history that trading a $72,000 car for a $36,000 can could be considered trading up.” It communicated the high quality of its new Lexus through rave reviews in car and a widely distributed video showing side by side comparisons of Lexus and Mercedes automobiles. • Many Mercedes owners switched to Lexus and the Lexus repurchase rate has been 60%, twice the industry average.

  25. Possible value propositions • The same for less: offering the same for less can be a very powerful value proposition- everyone likes a good deal. • Discount stores such as Walmart uses this positioning. R They don’t claim to offer different or better products. Instead they offer many of the same brands as department stores and specialty stores but a deep discounts based on superior purchasing power and lower cost operations. • Some companies offer lower priced brands to get customer attention from the market leader. Amazon offers Kindle Fire tablet computer, which sells for less than 40% of the price of the Apple ipad or Samsung Galaxy.

  26. Possible value propositions • Less for much less: this positioning involves meeting customer’s lower performance or quality requirements at a much lower price. • For example, Family Dollar or Dollar General stores offer more affordable goods at very low prices. • Costco warehouse stores offer less merchandise selection and consistency and much lower level of service while they charge rock bottom prices. • Hotel chains such as Ramada Limited, Holiday Inn Express and Motel 6 offer less amenities and charge less accordingly.

  27. Possible value propositions • More for less: the winning value proposition would be to offer more for less. • For example, Home Depot when first opened, had arguably the best product selection, the best service, and the lowest prices compared to local hardware stores and other home improvement chains. But it is very difficult to offer such value propositions for the long run. So companies have to decide whether to continue this value proposition or not in order to sustain in the market. • More for more will draw one target market and less for much less will target another. Hence there is usually room for many different companies each occupying its own different positions.

  28. Positioning statement • A statement that summarizes company or brand positioning using this form: • To (target segment and need) our (brand) is (concept) that (point of difference). • “To busy multitaskers who need help remembering things, Evernote is digital content management application that makes it easy to capture and remember moments and ideas from your everyday life using your computer, phone, tablet and the Web.”

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