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Lesson 5: Marketing Strategy-STP Lesson 5 Objectives The purpose of this lesson is to create understand of the core of Marketing strategy Lesson 5 Topics 1. Segmentation 2. Targeting 3. Positioning • These three issues lie at the very heart of developing a successful marketing strategy. • The effectiveness of planning in these areas determines whether the business will succeed in its markets or not. Segmentation What is Market segmentation? • Market Segmentation is the subdivision of a large market into homogeneous sub-set of customers, where any subset may conceivably be selected as a market target to be reached with distinct Marketing Mix (Kotler, 2008). • It entails dividing the entire market into small parts with more or less similar features. • It is the way to group together the buyers, who have common needs in order to serve them better based on their common needs and characteristics Segmentation cont….. Customers are not a homogeneous group because: – Different types of customers have different needs. – Different categories of customers have different price sensitivities – Different types of customers respond to different marketing activities and programmes differently Customers are therefore a heterogeneous group. Segmentation cont…. – Different categories of customers react differently to different marketing activities. • Identifying and taking advantage of these differences between customer groups or segments is the key to profitable marketing today. • Every organization must therefore Sub divide its entire market for all its Customers and offer products at prices that are Acceptable to every one of its market segments Example • Procter and Allan (the cereals company) can segment its market as follows - Institutions e,g Hotels, Restaurants, boarding learning institutions - Large supermarket chains - Wholesalers - Convenience stores etc Qn. How can a bank like KCB or Equity bank segment its market? Question • Using Inter-continental hotel, come up with different market segments that the hotel can service Criteria of Market Segmentation • Measurable A segment should be measurable. It means you should be able to tell how many potential customers and how many businesses are out there in the segment. • Accessible A segment should be accessible through channels of communication and distribution like: sales force, transportation, distributors, telecom, or internet. Segmentation Criteria cont.. • Substantial Make sure that size of your segment is large enough to warrant as a segment and large enough to be profitable • Differentiable Segments should be different in their response to different marketing efforts (Marketing Mix). • Actionable The firm must have an ability to draw an effective marketing program for its customers Benefits of Market Segmentation • Market segmentation facilitates formation of marketing-mix which is more specific and useful for achieving marketing objectives. • Facilitates introduction of effective product strategy: Due to market segmentation, product development is compatible with consumer needs. Market segmentation facilitates the matching of products with consumer needs. • Facilitates the selection of promising markets: Market segmentation facilitates the identification of those sub-markets which can be served best with limited resources Segmentation benefits cont… • Provides proper direction to marketing efforts. Due to segmentation, a firm can avoid the markets which are unprofitable and irrelevant for its marketing purpose and concentrate on certain promising segments only • Facilitates effective advertising: Advertising media can be more effectively used because only the media that reach the segments can be employed. It makes advertising result oriented. Segmentation benefits cont… • Facilitates optimum use of resources: Market segmentation facilitates efficient use of available resources. • It enables a firm to use its marketing resources in the most efficient manner in the selected target market. • The marketing firm selects the most promising market segment and concentrates all attention on that segment only. • This offers best results to the firm in terms of sales and profits Levels of segmentation Mass Marketing • This is where a company targets the whole market with its products and services without considering any unique differences in customers • It involves mass production, mass distribution and mass promotion of the products in the same way to all consumers • Was optimoized by Henry Ford when he offered the Model T Ford to all buyers - ‘they could have the car in any colour as long as it was black’ Mass Marketing • Initially coca cola also offered Coke in only one variant to the whole market • Mass marketing was believed to create a wide market with low costs of targeting thus lower prices and higher margins • This argument was challenged due to many benefits of segmentation Market Segmenting • Consists of a group of customers who share a similar set of needs and wants. • Identifiable group within a Market with Similar - Wants - Purchasing Power - Geographical Location - Buying Attitudes Niche Marketing • Group of customers seeking a distinctive mix of benefits and are ready to pay extra premium. • A niche is a more narrowly defined group, defined by dividing a segment into sub segments or by defining a group with a distinctive set of traits that may seek a special combination of benefits • E.g. the utility vehicles segment might include light-duty pick up trucks and sports utility vehicles (SUVs). The sport utility vehicles sub segment might be further divided into standard SUV (as perceived by Ford and Chevrolet) and luxury SUV ( as served by Lexus) niches • Niches are smaller and only attracts very few competitors unlike in mass marketing ROLLS ROYCE Micro Marketing • Is the tailoring of products and programmes to suit the taste of specific individuals and locations • It includes local marketing and individual marketing • Local marketing is the tailoring of brands and promotions to meet the needs and wants of local customer groups e,g cities, neighborhoods, stores etc Micro Marketing • Individual marketing involves tailoring of products and programes to meet needs and preferences of individual customers • It’s also known as one-to-one marketing or customized marketing • Examples of individual marketing is with tailors customizing specific suits for individual customers, furniture shops making products according to tastes of individual customers etc – not one fits all scenarios Bases of segmentation • There are number of variables involved in consumer market segmentation which are: • Geographic variables • Demographic variables • Psychographic variables • Behavioral variables Geographic Segmentation • Market is divided into different geographical units like: - Regions (by country, nation, state, neighborhood) - Population Density (Urban, suburban, rural) - City size (Size of area, population size and growth rate) - Climate (Regions having similar climate pattern) • A company, either serving a few or all geographic segments, needs to put attention on variability of geographic needs and wants. • After segmenting consumer market on geographic bases, companies localize their marketing efforts (product, advertising, promotion and sales efforts). Demographic segmentation • Market is divided into small segments based on demographic variables like:• Age, Gender, Income, Occupation, Education, Social Class, Family size, Family life cycle, Home Ownership, Religion, Ethnic group/Race, Nationality. • Demographic factors are most important factors for segmenting the customers groups. • Consumer needs, wants, usage rate etc, all depend upon demographic variables thereby making considering demographic factors, while defining marketing strategy, very crucial. • Qn. Class to share examples of demographic segmentation Demographic segmentation cont.. • As people age their needs and wants change, • Some organizations develop specific products aimed at particular age groups for example diapers for babies, toys for children, clothes for teenagers and etc. • Gender segmentation is commonly used within the cosmetics, clothing and magazine industry. Psychographic Segmentation • These are defined on the basis of social class, lifestyle and personality characteristics. • Psychographic variables include: - Interests - Opinions - Personality - Self Image - Activities - Values - Attitudes Lifestyle groups Yuppie Associations • Mobile phone brands • High valued house/apartment • Good Salary • ‘Young’ branded car. Golden Agers' Associations. • Over 60's, often empty nest • Retired early from profession. • Have more time to spare • Adventure Seekers Behavioral segmentation • Refers to why people purchase products or services • In this segmentation market is divided into segments based on consumer knowledge, attitude, use or response to product. • Behavioral variables include: - Usage Rate - Product benefits - Brand Loyalty - Price Consciousness - Occasions (holidays like mother’s day, New Year and Eid) - User Status (First Time, Regular or Potential) Behavioral segmentation cont… • Behavioral segmentation is considered most favorable segmentation tool as it uses those variables that are closely related to the product itself • OCCASIONS - Weddings (Cakes, flowers, attires etc) • BENEFITS – Shampoo for hair conditioning, cleaning , hair fall dry hair, dandruff control etc • USER STATUS- light – medium – heavy user • LOYALTY STATUS- hardcore loyal , split loyal- loyal to 2-3 brands, shifting loyal, switcher Once you have chosen a possible segmentation scheme, then ask: – How could we modify our products or services to make it more attractive to each separate group? You must also prepare a profile for each brand and the segment it serves. Consider also the price you could offer for each segment. 33 • Is there an opportunity to get a premium price? • Premium product or service offerings must be clearly differentiated in their offerings so as to attract a premium price. • How can we build an enduring reason for preference among target customers in the marketing strategy 34 Targeting Targeting: Evaluating Market Segments • Market segmentation reveals the market segment opportunities facing a firm. • The firm now has to evaluate the various segments and decide the number of segments to cover and the ones to serve Target market evaluation • Segment Size and Growth (Analyze sales, growth rate and expected profitability.profitability. • Segment Structural Attractiveness (Consider effects of competitors, availability of substitutes products and the power of buyers and suppliers.Pros and, the Power of Buyers & Suppliers. • Company Objectives and Resources – Company skills & resources relative to the segment(s). – Look for Competitive Advantages. Targeting cont… • After evaluating different segments, a company must decide on one or more market segments worth entering. • It must then decide which and how many segments to serve. • A target market consists of a set of buyers sharing common needs or characteristics that the company decides to serve. • The company can adopt one of three market-coverage strategies: - Undifferentiated marketing, - Differentiated marketing or - Concentrated marketing. Undifferentiated marketing • A company might decide to ignore market segment differences and go after the whole market with one market offer. • It focuses on what is common in the needs of consumers rather than on what is different. • Is also known as mass marketing • This tends to apply to commodity products Differentiated marketing • A company decides to target several market segments, and designs separate offers for each. • By offering product and marketing variations, it hopes for higher sales and a stronger position within each market segment • A company considers differences in customers and designs offerings for individual markets Concentrated marketing • Is especially appealing when company resources are limited. • Instead of going after a small share of a large market, the company goes after a large share of one or few sub segments • E.g marketing a product specifically for teenage girls, or a retailer might market his business to residents in a specific town. • Concentrated marketing strategies are often geared for smaller groups of people, because they are designed to appeal to a specific segment. Choosing a market coverage strategy • Issues to be considered include: i. Company Resources ii. Product variability iii. Product’s stage in the Product Life Cycle iv. Market variability v. Competitors’ marketing strategies • Answers to the above enables better and profitable targeting that ensure complete satisfaction of the customers • This leads to positioning as a marketing strategy Positioning Positioning • Positioning is not what you do to a product but what you do in the minds of your consumers • Product’s Position - the place the product occupies in consumers’ minds relative to competing products; i.e. Volvo positions on “safety”. State one word that comes to mind Importance of Brand Positioning • Consumers are overloaded with information about the products and services • To make buying decisions simpler, consumers organize and categorize i.e. Position products and services in their minds. • A products position is complex set of perceptions, impressions and feelings that consumer have for a product compared with competing products. Brand Positioning and the Consumer • Consumers position the products with or without the help from marketers • But its risky to leave the products positioning to chance… • Hence, marketers plan a position that will give the product the greatest advantage, and design marketing mixes to create these planned positions. Brand Positioning results in The creation of a CUSTOMER FOCUSED VALUE PROPOSITION • A persuasive REASON WHY the target market should buy the product Effective Brand Positioning • Meaningful to consumers – Clarifies what the brand is about • Credible/believable – Why customers should purchase and use the Brand • Unique to your brand • Durable over time If a company decides to build a position it must deliver that position and maintain it through consistent performance and communication Brand Positioning Starts with… • A Competitive Frame of Reference And then looks at • Points-of-Difference and Points-of-Parity Brand Positioning Strategy Competitive Advantage Point of Difference Point of Parity 1. Competitive Advantage Competitive Advantage can be gained to the extent that the company can position itself as “providing superior value” by differentiating along the lines of products, services, people or image How many differences to promote? • Aggressively promote one benefit to target market. • Companies should develop a Unique Positioning for each brand and stick to it. However, if two or more companies claim to have same brand positioning, then the companies should position themselves on more than one differentiator attribute 1. Competitive Advantage Which to promote? • • • • • • • Important Distinctive Superior Communicable Pre-emptive Affordable (to company and consumer) Profitable 2. Points of Difference (POD) • Points of difference are attributes/ benefits that consumers strongly associate with a brand/product, positively evaluate, and believe that they could not find to the same extent with a competitive brand/product. • Points of difference are usually in line with the Brand Positioning and are critical in defining the competitive advantage of your products. E.g. Fast-food chain Subway offers healthier meals than other quickserve restaurants because its sandwiches have fewer grams of fat 2. Points of Difference (POD) The sources of difference can be – – – – – – – Product Design Quality Additional Services Image People (Staff) Price Others 3. Points of Parity (POP) • Associations that are not necessarily unique to the brand but may be shared with other brands. • While POPs may usually not be the reason to choose a brand, their absence can certainly be a reason to drop a brand. Category point of parity means that the brand offers necessary but not necessarily sufficient category features. E.g. A bank will not be suitable, for example, unless it offers adequate ATM service. Competitive point of parity is designed to negate a competitor’s point of difference. E.g. Lifebuoy soap will establish competitive POP with Dettol soap by claiming that it has germ killing qualities and vice versa. POD vs. POP In Fast-food outlets More menu flexibility Higher quality ingredients Similar menu choice, similar in-store facilities, similar pricing Discount offers Brand Positioning - Differentiation Marketers must choose which level of a Brand’s POD to highlight Attributes Hedex contains Aspirin Functional Benefits (What a brand does) Promotes Brain development This? This? PsychoSocial Emotional Benefits (Self-Image Social Image) I am a good Mom Instrumental and Terminal Values My children will love me This? Or this? Brand Positioning Statement The outcome of the process of creating a value proposition is a Positioning Statement: For (Target consumers) Who (have the following problem) Our product is a (describe the product/solution) That provides (cite the breakthrough capability) Example: To family oriented adult car owners concerned with safety, Michelin Tires are the premium tires that can provide greater peace of mind Overall Brand Positioning Strategy • Consumers want product and services that give them greatest value • Hence, companies should position their brands on key benefits that they offer relative to competing brands. • The full positioning of a brand is called the brand’s Value Proposition – the full mix of benefits upon which the brand is positioned. Brand Positioning Mistakes • Under-positioning: – Not positioning strongly enough. • Over-positioning: – Giving buyers too narrow a picture of the product. • Muddled Positioning: – Leaving buyers with a confused image of the product. Brand Positioning Concepts • Functional Positions - Solve problems - Provide benefits to customers - Get favorable perception from stakeholders and customers • Symbolic Positions - Self image enhancement - Ego Identification - Belonging/Social Meaningfulness • Experiential - Provides sensory stimulation - Provides cognitive stimulation By using customer research and perception mapping a marketer can create a positioning statement using one of the three main bases above Examples Example As a mother who cares about the health and well being of those you love, Dettol is the one you know you can trust to protect them from harm, by safely removing the germs that cause ill health, and because it is recommended by medical experts, you can rest assured that you, your family and home are healthy, clean & protected. Example Coca-Cola: It’s the real thing “For people around the world, Coca-Cola is the soft drink that has been the real thing since 1886.” Figure 16: An example of a Coca Cola advertisement that brings to life the positioning proposition. (Source: http://fontsinuse.com/uses/3220/it-s-the-real-thing-coca-cola-ads-196974) AXE: The AXE effect “To young men on the prowl, the AXE brand of body spray will give you the confidence to attract and get the girl you desire.” A good positioning statement • • • • Be real and credible; Reflect the way people really think and use real language; Be simple, specific, and consistent (while still being competitive); Say something that indicates how you can offer a solution to your target group; • Be unique (just because a competitor can make the same claim, it does not mean that you cannot); • Avoid generic words that are really quite meaningless (e.g. unique); and • Be tangible, vivid, snappy, and specific. Effective Positioning Meaningful to consumers Credible/believable Unique to your brand Durable over time If a company decides to build a position it must deliver that position and maintain it through consistent performance and communication Segmentation, Targeting and Positioning Applied A flour manufacturing company is looking to introduce a range of porridge products in the market. It chooses to segment possible markets according to age groups including: a) Infants (0-5 years) b) Children (6-12 years) c) Teenagers (13-19 years) d) Adults (20-55 years) e) Elderly (56-99 years). Segmentation, Targeting and Positioning Applied Based on market research the most viable segments in terms of size and likely hood of consumption are infants, children, adults and the elderly. The company therefore chooses to target these markets by creating products that will uniquely suit their needs. Segmentation, Targeting and Positioning Applied In positioning these products, the company looks at the unique needs of each target market and therefore develops the following positioning statements: a) For infants, porridge W provides all the nutritional needs required for proper growth and development of all vital organs in the body. b) For children, porridge X is a tasty nutritional easy to make breakfast option that will provide energy required throughout the day for school and play. Segmentation, Targeting and Positioning Applied a) For adults, porridge Y provides a healthy food option that helps in healthy weight maintenance whilst also providing nutrients not easily found in other foods. c) For the elderly, porridge Z is an easy to consume and digest food option allowing for easy bowel movement and meeting all nutritional needs. Conclusion Market segmentation, Targeting and positioning are at the heart of modern marketing. Successful profitable marketing depends on asking and getting good answers two questions: – What is target market segment? – What are we going to offer customers in this segment to make them prefer us to competitors? —If you answer these two strategic questions properly, the rest of the planning is very straightforward. 73 End