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Introduction to Marketing

Market segmentation, product positioning and the marketing-mix


These notes are based on materials adapted from: Jobber, D., Principles & Practice of Marketing 2nd Edition, (1998) Baker, M. J. The Marketing Book, 4th Edition (1999), Kottler, P. Marketing Management, (The Millennium Edition), and Ries & Trout Positioning: The Battle for your Mind, Reissued (1981).

Market Segmentation
The principle underlying market segmentation is that you cannot treat customers all the same. Human beings show similarities, and basic needs do exist but there are psychological, social, and cultural differences that come into play. Not everyone likes, for example, the same type of soap, eating in the same restaurant, and buying the same types of newspapers. In addition, some consumers are price sensitive, whereas for others quality matters. Reasons for purchase will also matter, as would the perceived status differences products are intended to convey (e.g. messages enshrined in a Rolex purchase versus a Swatch). The idea of segmentation also fits in with the notion of being market-oriented. If you really do believe the customer is the focus for the organisations activities, you would realise that offering a range of products and services is the best strategic option. Market segmentation allows firms to get-to-grips with the diverse nature of markets. It is variations in consumer needs that provide the basis for segmentation. Market segments can be identified by examining differences among buyers (normally related to demographics, psychographics, and behavioural dimensions). Once identified, the firm must then decide which segments present the firm with the greatest opportunity to meet its business objectives profitably. Why is segmentation important to marketers? Segmentation is a central tenet of marketing strategy (understanding markets) It is necessary for developing a marketing-mix (helps to target segments better) It is a natural outgrowth of a marketing-orientation (new markets may be identified)

The importance of segmentation has grown over the years. This is largely because of the effects of globalisation. There are now many more competitors in markets. This means firms must look for a means to differentiate their products. Differentiation can be in terms of the marketing mix, (i.e. the 4 Ps - price, place, promotion, and product). Think of a product and give some thought to how you would/could differentiate for each of these.

Dr Jenny Poolton PhD MBA BSc(Psychology) MBPS

Introduction to Marketing

Main steps in the segmentation process Step One. The first step is to understand the market in terms of its requirements for the product you are developing, and the characteristics of the individuals, groups and firms that comprise that market. Some form of market research is very important. This will give firms an opportunity to forecast potential growth for their product or service, and it will also provide some insight as to how well consumers needs are currently served in this market. Step Two. Customers are grouped into segments that have some degree of fit with the companies marketing strategy. The way the market is segmented depends on what we call choice criteria. These are normally grouped around the areas of technical, social, personal and economic criteria (see Appendix 1). Hence, a consumer may be looking for technical criteria (e.g. quality, and reliability etc) as well as economic criteria (a good price). So, for example Ford may segment the market for motor cars according to the type of buyer (individual versus organisational) the benefits sought from the car (functionality versus status) as well as looking at further segmentation criteria such as family size etc. Market segmentation has a clear end-point. The idea is to hone in on segments that are likely to be the most fruitful or profitable i.e. targeting the market. The question senior managers will be asking themselves will be akin to given our prevailing market strategy, which of the markets should we be targeting? Evaluating market segments It is important to understand that segmentation may reveal some very choice segments, but it would be foolish to think this automatically leads to an open-door policy. First the company would have to examine their capability for competing in the segment. Do we have the resources available to service this segment (e.g. do we have an adequate sales force, and do we need to train them)? Are we encroaching on the territory of competitors? If so, how strong are they? Can we mount an adequate attack if they were to reduce their prices? There may well also be political and legislative matters that may rear their head, e.g. such as those that have recently hit the farming industry. You may think larger segments are better, but this will usually mean there is more competitive rivalry here. There are also many issues that relate to the life cycle the product is at (i.e. the market may be declining quickly). It may also be a very price sensitive segment. If so, keeping product development and manufacturing costs low is critical. It is either that or the firm must seek to differentiate itself so well such that customers are willing to pay the higher price.

Dr Jenny Poolton PhD MBA BSc(Psychology) MBPS

Introduction to Marketing

When is segmentation appropriate? Segments must be profitable (are they large enough segments?) Segments must be achievable (is the marketing mix OK?) Segments must be strategically viable (should we be in this market at all?) Segments must be accessible (what if we cant reach it with distribution?)

The purpose of evaluating segments is to choose one or more markets to enter. In sum, for each chosen target market, the firm will develop a market offering. Once the offering is developed, the task is then to position the product in the mind of the target buyers based on the benefits the product or service is intended to confer (more of this later). For example, Volvo effectively targets those car buyers for which safety is a major issue. As the final step in the process, Volvo positions it cars as the safest vehicle that consumers can buy.

Target Marketing
The end result of market segmentation is target marketing. Once segmentation is completed, the firm is clear about what types of segments exist, and so the next step is to evaluate the segments so that the firm is clear about which ones are the most appropriate to serve in line with the firms prevailing strategy. During the course of evaluating the market segments, the company should be guided by two main considerations (1) marketing attractiveness and (2) the companies capabilities with respect to being able to compete effectively within the segment(s). Appendix2 lists some of the main factors firms should consider when evaluating market segments. Once the firm has decided which segments to enter, the firm then has to decide upon its target market strategy. Generally, there are several different types of target marketing strategies to choose from: (1) Undifferentiated marketing Sometimes a market analysis will show that a separate mix isnt needed hence, the company may run with a single mix. Firms that are not market oriented also tend to follow the route of undifferentiated marketing (i.e. they adopt a shotgun approach to the market). This type of strategy is convenient because only a single product needs to be produced. However, it is a dangerous strategy because there is a tendency to overlook differences between consumers, and hence opportunities can be lost. Many firms do not use segmentation because it puts firms in the position where they are likely to have to develop more new products, develop new promotional campaigns, possibly re-train the sales force, seek new distribution channels, and sales staff may have to start prospecting new segments.

Dr Jenny Poolton PhD MBA BSc(Psychology) MBPS

Introduction to Marketing

(2) Differentiated marketing Segmentation may reveal many different segments. For example, the Burton Group used segmentation to understand the finer points of the fashion market. They found a variety of different segments, and on the basis of the information developed a targeted marketing strategy for four distinct groups: Principles (the style market) Dorothy Perkins (young womens fashion market) Evans (the larger womens market) Debenhams (the family fashion market)

Burtons strategy was to focus on exploiting the difference between the market segments by designing a specific marketing mix for each segment that it identified. One disadvantage of a differentiated strategy is the loss of cost economies. However, flexible manufacturing may overcome this. It used to be the case that companies had severe problems with changeover times for setting-up new machinery and processes. Today, flexible manufacturing can be used to produce goods in very small batches (a batch of one if need be). (3) Focused marketing A company may identify multiple segments but decide to hit only one. Hence, the firm may develop a single marketing mix aimed at only one target market. Hence, its name focused marketing. It is a good strategy in that it allows for focused R&D spending (always a great concern for companies given the cost of developing new products). However, it also leaves firms very vulnerable. Because the firm is hitting only one segment, they obviously feel shock waves when bigger players decide to enter the market. For example, Sox Shop and Tie Rack had a very successful focused marketing strategy. However, when large players like Marks and Spencer saw opportunities in these markets and so expanded their product range, the effects on these producers was devastating.

Product Positioning
Product positioning is the end result of three steps companies should take to gain themselves a foothold in product and service markets. First, as we have seen the astute firm will segment the market. From this data, firms will then identify themselves a target market. The firm will then (hopefully) seek to provide itself with a key form of differential advantage in that market, such as a better product than Joe Bloggs provides, or a better level of service etc. In a famous early book, Ries & Trout challenged conventional wisdom on market positioning. They saw positioning as not something you do to a product - it is what you do to the minds of your consumers. Ries and Trout suggest beginning with what is already in the consumers mind. Hence, this involves capitalising upon psychological principles of schema theory,

Dr Jenny Poolton PhD MBA BSc(Psychology) MBPS

Introduction to Marketing

heuristics and categorisation. Ries and Trouts argument makes good sense given that it is well known that changing attitudes is a very difficult process. It is better to begin with what is already in the consumers mind, using this as the starting-point for reforming or retying existing schemas. Consumers are more receptive to information that fall within the realm of their existing experience. For example, you would have to make a strong case for selling green chocolate. Not impossible, but it would be very hard work! Why is positioning important? Consumer markets today are more dynamic than ever. In the era of mass consumption, there was little need for strategic differentiation, (the best example being Fords famous epigram you can have your car any colour providing it was black). segmentation Positioning products was far, far easier. There are now far more products on the market, and the range of products available has escalated dramatically, (e.g. just look at the number of exotic fruits targeting now available at your local supermarket). Hence, from as early as the 1960s on, the most innovative of firms were beginning to move away from a reliance on mass marketing in favour of targeted marketing strategies thereby offering a multitude of positioning products and brands to different market segments. During the era of mass production, there was less need for marketing than there is today, simply because there was sufficient demand. As competition has grown, however, the need for marketing has increased dramatically. Companies have felt themselves to be under pressure to flood the market with new and face lifted products at ever-shorter intervals (christened product churning by Lorenz 1992). One key advantage of churning is that customers are (supposedly) kept happy by the novelty of new technologies as they become available. However, there is a growing consensus that churning has led to product proliferation, resulting in consumer confusion. Cristol & Sealey, for example, have argued that as a result, simplification is the fastest growing of all consumer needs. If you are interested you can download the paper on consumer confusion by Cristol & Sealey at the following website: http://haas.berkeley.edu/~wba268/replacement.htm The sheer volume of information directed at consumers entails high levels of screening and rejection. This is why Ries & Trout argue that capitalising upon the existing knowledge of consumers is so important. Taking the Ries & Trout position, we can summarise thus: 9 9 9 9 9 Latter day societies are characterised by complex information; The mass of information leads to a tendency to over communicate; Consumers are awash with information and need simple messages; Perception is subjective (based on prior knowledge and beliefs); We are more likely to accept information that fits our experience;

Dr Jenny Poolton PhD MBA BSc(Psychology) MBPS

Introduction to Marketing

What we are saying is that in complex societies characterised by over communication, there is a need for simple messages. You will not have time to get your entire message across to consumers (think of the costs of advertising alone)! Your message has to be sufficiently powerful and directed (1) because prior knowledge and experience affects information processing, and (2) because consumers are screening out more information from consciousness than ever before. The above dilemma is the main reason why getting inside the minds of consumers is paramount. Positioning is not about positioning the product; it is about positioning the mind. You have to focus on the perceptions of consumers. The reality of the product matters less because the perception is the reality. POSITIONING IS AN ORGANISED SYSTEM FOR FINDING A WINDOW IN THE MIND. Finding ways into the mind The easiest way to get into the minds of consumers is to be first to market. There is an inherent tendency to remember firsts, and very often, if a category does not exist in the mind already then this product has the opportunity to become the category prototype. This is important because it can provide the yardstick against which all other products are measured. Receptivity is also critical because it allows attention to focus. The ideal position for any company is to be first into the minds of consumers and then reinforcing that position so well that consumers are never given any reason to switch brands. What about if some other company gets into the consumers mind first? There are times when finding a hole in the market (a niche) is very difficult. An alternative strategy is called for. This would involve setting about re-positioning the competition. The basic idea is that you have to take a step backwards before moving forwards. To move a new idea, product or concept into the mind you must first move one out (i.e. the competition)! This is obviously more risky because you didnt get there first. Depending on how well competitors have already gotten into the minds of consumers will largely determine the extent to which your strategy will be successful. As a first step, you must say something about the competitors product that (1) causes the competitors product to be called into consciousness, and (2) causes the consumers to change their mind about that product (or at least begin to raise doubts about it). Providing the arguments are credible, re-positioning can then begin. The ultimate point to remember is about not going too far outside the realms of the consumers experience, (i.e. the bandwidth in the consumers mind beyond which arguments will not be believed or be perceived as credible). Positioning is most successful when it evokes favourable impressions in the mind, or evokes a bundle of associations associated with the product/service or brand. For example, what comes into mind when you think of McDonalds? Cleanliness Consistency of the product Fast service

Dr Jenny Poolton PhD MBA BSc(Psychology) MBPS

Introduction to Marketing

Positioning is not easy for firms to do. It takes real dedication, and an understanding of what really motivates consumers. In the main, four factors may be implicated: Clarity of purpose (a clear message) Consistency (breaking through the noise) Credibility (the product/service must be viable) Competitiveness (there has to be benefits that are highly valued)

Product Positioning and the Marketing Mix


A key decision that must follow segmentation is to decide which markets to enter. Key issues concern identifying those markets that will be profitable, and provide key areas for growth. Developing the marketing mix The marketing mix is a set of choices which defines the firms offer to its target market. These vary along the four dimensions of the marketing mix (product, price, place, and promotion.
Product Quality Features Name Packaging Services Guarantees Price List price Discounts Allowances Credit Place Distributors Retailers Locations Inventory Transport Promotion Advertising Personal selling Sales promotion Public relations

When you offer a superior marketing mix to customers then you have a very important form of differential advantage. EXAMPLE We are a company that develops electronic products, and we have just decided to look at the market to find out if there are any opportunities for us in the area of developing calculators. First we need to realise that the calculator is a mature product. Hence, for us to have any impact in this market we really must offer some form of differential advantage. First we undertake a segmentation analysis. Our data shows us that the market potentially consists of three types of users: Scientific users (need more functions) Business users (more robust products needed) General public (price conscious)

Dr Jenny Poolton PhD MBA BSc(Psychology) MBPS

Introduction to Marketing

Each of the segments will require a different type of product. This will have a major impact on us because scientific users need to be targeted differently (through journals and specialist magazines) whereas business users may need a specialist sales force. The ideas to grasp here are that the marketing mix is not fixed it will depend on the type of product we are developing, how much we can afford to promote it, and who our users are. We will need to speak to our users in different ways. According to Michael Porter there are two major ways to gain a strategic advantage in markets. One is to be price competitive, and the second is to develop a key source of differentiation. Differentiation can be anythinge.g. it could be price, service, quality etc. The most important point for firms is to focus on what consumers perceive to be a differential advantage for them.

Dr Jenny Poolton PhD MBA BSc(Psychology) MBPS

Introduction to Marketing

APPENDIX TWO

EVALUATING MARKET SEGMENTS: KEY CTITERIA


MARKET ATTRACTIVENESS Market factors Segment size Segment growth rate Price sensitivity Bargaining power of customers Bargaining power of suppliers Barriers to market entry Barriers to exit Competitive factors Nature of competition New entrants Competitive differentiation Political/social/evt. Political issues Social trends Environmental issues CAPABILITIES Market assets Brand name Distribution synergy Cost advantages Technological edge Managerial capabilities

Dr Jenny Poolton PhD MBA BSc(Psychology) MBPS

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