3.2 Market Segmentation, Targeting and Positioning 135 3.2 Market Segmentation, Targeting and Positioning Markets consist of buyers, who differ in one or more ways, for example, in their wants, resources, buying attitudes, and locations. The technique that is used by marketers to get grips with the diverse nature of markets is called market segmentation. Through market segmentation, companies divide large, heterogeneous markets into smaller homogenous segments that can be targeted more efficiently and effectively with products and services that match their unique needs and wants. The objective is to identify groups of customers with similar requirements so that they can be served effectively while being of a sufficient size for the product or service to be supplied efficiently. Usually, especially in consumer markets, it is not possible to create a marketing mix that satisfies every individual’s specific requirements precisely. Market segmentation, by grouping together customers with similar needs, provides a commercially viable way of serving these consumers (Jobber, 2010). The first step within the process of market segmentation involves the identification of the best ways to segment a market and then pin down the characteristics of each group (this second step is called profiling). Next, the company must evaluate the attractiveness of the segments and select the most appropriate target markets. Finally, the business organisation needs to position the product or service relative to competitive offerings within the chosen market segments. 3.2.1 The Benefits and Underlying Premises of Market Segmentation There are a number of significant benefits that can be derived from segmenting a market, which can be summarized in the following terms: Segmentation is a particularly useful approach to marketing for small and medium-• sized enterprises (SMEs). It allows target markets to be matched to company competencies (see also Chapter 2) and makes it more probable that smaller companies can create a defendable niche in the market. Market segmentation facilitates the identification of gaps in the market, i.e. unserved • or underserved segments. These may serve as targets for new product development or extension of the existing product or service range. In mature or declining markets it may be possible to identify explicit segments that • are still in growth. Concentrating on growth segments when the overall market is declining is a key approach in the later stages of the product life cycle. Segmentation enables the marketer to match the product or service more directly to • the needs of the target market. In this way a stronger competitive position can be developed and maintained. The threat of not segmenting the market when competitors do so must also be em-• phasized: The competitive advantages stated above can be lost to competitors if the company fails to take advantage of them. A company practicing a mass marketing strategy in a plainly segmented market against competitors operating a focused strategy can find itself to be ‘stuck in the middle’. In order to get an overview of segmentation issues it is important to first consider the underlying requirements for market segmentation (Hooley et al., 2004). To be useful, market segments have to be: Kapitel_3.indd 135 03.08.2010 12:47:58 Uhr 3. Strategy Formulation in the Marketing Planning Process136 Measurable• : The size, purchasing power, and profiles of the segments can be measured. The operational use of segmentation usually requires that segment targets can be identified by measurable characteristics to enable their potential value as a market target to be estimated and for the segment to be identified. Fundamental to utilizing a segmentation scheme to make better marketing decisions is the ability of the marketing strategist to evaluate segment attractiveness and the current or potential strengths the company has in serving a particular segment. Depending on the level of segmentation analysis, this may require internal company analysis or external market appraisal. Accessible• : The market segments can be effectively reached and served. A fragrance company, for example, finds that heavy users of its brand are single men and women who stay out late and socialize a lot. Unless this group lives or shops at certain places and is exposed to certain media, its members will be difficult to reach. Substantial• : The market segments are large and profitable enough to serve. In this context, a segment could be the largest possible homogenous group worth pursuing with a tailored marketing program. Differentiable• : The segments are conceptually distinguishable and respond differently to diverse marketing mix elements and programs. For segmentation to be useful customers must differ from one another in some important respect, which can be used to divide the large heterogeneous market. If they were not different in some significant way, if they were totally homogeneous, then there would be no basis on which to segment the market. However, in reality all customers differ in some respect as already stated above. The key to whether a particular difference is useful for segmentation purposes lies in the extent to which the variations are related to different behaviour patterns (e.g. different levels of demand for the product or service, or different use/benefit requirements) or susceptibility to different marketing mix combinations (e.g. different product/service offerings, different media, messages or distribution channels), i.e. whether the differences are important to how we develop a marketing strategy. Actionable• : Effective programs can be designed for attracting and serving the segments. For example, although a small company might identify multiple target segments, its resources like staff and capital may be insufficient to develop and implement a separate marketing program for each segment. For any segmentation system to be valuable it must possess the above stated characteristics. 3.2.2 The Segmentation, Targeting and Positioning Approach Market segmentation provides a basis for the selection of target markets. A target market is a depicted segment of market that a company has decided to serve. As customers in the target market segment have similar characteristics, a single marketing mix can be developed to match those requirements. The selection of a target market or markets is a three-step process, as shown in Figure 3.8: Segmentation, Targeting and Positioning (STP). According to this model, the process begins with the aggregation of customers into groups, to maximize homogeneity within, and heterogeneity between the segments. Kapitel_3.indd 136 03.08.2010 12:47:58 Uhr 3.2 Market Segmentation, Targeting and Positioning 137 The first step is market segmentation – dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviours who might require separate products or marketing mixes. The company identifies different ways to segment the market and develops profiles of the resulting market segments. It is important to state, that a given market can be segmented in various ways depending on the choice criteria at this stage. For example, the market for motor cars could be broken down according to the type of buyer (individual or organisational), by major benefit sought (e.g. functionality or status) or by family size (empty nesters versus family with children). Extremely small groups of customers identified through the segmentation process are called niche markets. The second step is target marketing – evaluating each market segment’s attractiveness and selecting one or more of the market segments to target with an appropriate marketing strategy. The final step is market positioning – setting the competitive positioning for the products and services and creating a tailored marketing mix in order to achieve a sustainable competitive advantage and to create a unique spot in customers’ minds (Kotler and Armstrong, 2009). The implicit goal of all STP is to improve marketing performance. Thus, an organisation may aim to use STP to increase customer satisfaction, competitive differentiation, and profitability. The STP process offers additional benefits when used accurately. It significantly increases marketers’ ability to develop a thorough understanding of the needs of their well-defined customer segments, and it improves their ability to respond to changing segment needs. Marketing efficiency is improved as resources are targeted at segments that offer the most potential for the organisation. Because the marketing pro gram is better matched with segment requirements, effectiveness of the marketing approach is improved. Specifically, STP analysis aid marketing managers design a product line to meet market demand, determine advertising messages that will have most appeal, select media that will have greatest impact for each segment and time product and advertising launches to capitalize on market responsiveness. SEGMENTATION ? Choose variable for segmenting the market ? Build a profile of segments ? Authenticate rising segments TARGETING ? Decide on targeting strategy ? Identify which and how many segments should be targeted POSITIONING ? Understand consumer perceptions ? Position products in the hearts and minds of the customer ? Tailor appropriate marketing mix to satisfy customer needs Source: Adapted from Hollensen, 2006, modified Figure 3.8: The STP of market segmentation Kapitel_3.indd 137 03.08.2010 12:47:58 Uhr 3. Strategy Formulation in the Marketing Planning Process138 Prior to conducting STP analysis, managers should define the purpose and scope of segmentation, including their marketing objectives, whether the purpose is to explore new segments or better serve existing ones, whether existing data will be used or capital will be invested in market research, and the level of detail they need from the STP exercise. These choices help focus the segmentation effort on the most important issues for the organisation. For example, when the purpose is to better serve current segments, researchers need to pay superior attention to profiling these segments. On the other hand, if the purpose is to identify new segments, researchers will pay greater attention to grouping customers, identifying the number of segments, and profiling new segments. Evidence of how this process works in practice raises two elementary concerns: 1. Businesses, which believe they are applying a market segmentation approach may not necessarily be doing so; and 2. Marketers who are following the prescribed steps may not be achieving results, which can be implemented. The first problem arises, in part from the vague use of segmentation language. The intrinsic attractiveness of the process and the pleasing nature of the benefits on offer have resulted in the label of ‘segment’ being applied to almost any grouping of customers. In many cases these groupings do not consist of customers with homogeneous needs and buying behaviour. The second problem concerns the fact that marketers who follow the prescribed segmentation sometimes fail to generate a usable segmentation solution. In this respect the apparent simplicity of the three-stage STP process belies some of the underlying difficulties (Hollensen, 2006). Bases for Segmenting Markets Some of the major issues in market segmentation centre on the bases on which the segmentation should be conducted and the number of segments identifiable as target segments in a particular market. The selection of the base for segmentation is crucial to gaining a clear picture of the nature of the market – the use of different bases can result in extremely diverse outcomes. In fact the process of segmentation and the creative selection of different segmentation bases can often help to gain new insights into old market structures that in turn may offer new opportunities – this is not merely a mechanical piece of statistical analysis. In addition to choosing the relevant bases for segmentation, to make the segments more accessible to marketing strategy, the segments are typically described further on general characteristics. Segments formed, for example, on the basis of brand preference may be further described in terms of customer demographic and attitudinal characteristics to enable appropriate media to be selected for promotional purposes and a more sophisticated picture of the chosen segments to be built. In the following sections we discuss each of the steps in the STP process, segmenting, targeting, and positioning, in more detail. 3.2.3 Segmenting Consumer Markets (B2C) As mentioned already, a market may be segmented in many ways. Segmentation variables are the criteria that are used for dividing a market into segments. When examin- Kapitel_3.indd 138 03.08.2010 12:47:59 Uhr 3.2 Market Segmentation, Targeting and Positioning 139 ing criteria, the marketer must try to identify good predictors of differences in buyer behaviour. There is an array of options and no single, prescribed way of segmenting a market (Wind, 1978). A marketer has to try different segmentation variables, alone and in combination, to find the best way to view the market structure. In addition, the bases selected must fulfil the criteria outlined earlier for effective segmentation. Table 3.2 outlines the major variables that might be used in segmenting consumer markets. Here, we look at the major groups of consumer segmentation criteria: profile, psychographic and behavioural. Profile Segmentation Profile segmentation variables allow customer groups to be classified in such a way that they can be reached by communications media (e.g. advertising, direct mail). Even if behaviour and/or psychographic segmentation have successfully separated between consumer preferences there is often an urge to analyse the resulting segments in terms of profile variables such as age and socio-economic group in order to communicate to them. The reason is that readership and viewership profiles of newspapers and television programmes tend to be expressed in that way (Jobber, 2010). We shall now examine a number of the most common demographic, socio-economic and geographic segmentation variables: Demographic variables • are the most popular bases for segmenting customer groups. One reason is that customer needs, wants and usage rates often vary closely with these variables. Another is that demographic variables are easier to measure than most other types of variables described hereafter. Even if market segments are first Table 3.2: Major segmentation variables for consumer markets Variable Examples Profile Demographic• Age – Gender – Family size – Socio-economic• Social class – Geographic• Under 12, 12-18, 65+ Female, male 1-2, 3-4, 5+ Working class, middle class, upper middles North America, Western Europe, Middle East Psychographic Lifestyle• Personality • Achievers, strivers, survivors Compulsive, authoritarian Behavioural Benefits sought• Purchase occasion• Purchase behaviour• Usage• Perceptions and beliefs • Convenience, status, performance, price Self-buy, gift, special occasions Solus buying, brand switching Heavy, light Favourable, unfavourable Source: Adapted from Jobber, 2010, modified Kapitel_3.indd 139 03.08.2010 12:47:59 Uhr 3. Strategy Formulation in the Marketing Planning Process140 Exhibit 3.1 Segmentation of Triumph lingerie Triumph International is one of the world’s leading manufacturers of lingerie, sleepwear and swimwear and was founded as a family business in Germany in 1886. Still a family business (privately owned in its entirety by the family Spiesshofer & Braun) Triumph International has grown to 40,000 employees and an annual turnover of CHF 2.5 billion (EUR 1,7 billion). Bad Zurzach in Switzerland has now become the headquarters of the parent company, Triumph International. Triumph enjoys presence in over 120 countries encompassing the globe and is one of the leading underwear producers in the world. The company has 50 subsidiaries around the world. Its top selling markets are Germany, UK and Japan. In 2007 Women’s underwear accounted for app. 80 % of the revenues. The company’s expansion has historically been based on geographical decentralization. For example, the Asia/regional operations are coordinated by Triumph International Overseas, headquartered in Hong Kong. As of the mid-1990s, the company’s decentralization was considered unique: ‘Triumph is the only international brand to be marketed and manufactured locally.’ Triumph’s principal activities are the manufacturing and distribution of women’s (and men’s) underwear, as well as clothing worn for in-house and leisure purposes. The Company distributes its products through its sole subsidiary Triumph International Vertrieb GmbH, while product marketing is done by another company. Among the most well-known brands in the Triumph brand portfolio are: Triumph, Sloggi, BeeDees, Valisére and HOM. Sold individually and in multi-packs, Sloggi’s unique packaging and branding performed strongly on the shelves of leading department stores during the nineties. Sloggi’s success had turned briefs into a fast-movingconsumer-goods (FMCG) market. By late 2009, Triumph International had sold over 450 million pieces of Sloggi around the world. Triumph is constantly balancing its design between sex appeal and function. However, this delicate balance is less an issue for women today than in the past. Women see their sexuality differently than they did a decade or more ago. Women are sexy for themselves, not to impress a man. Today’s market is a consumer’s market. Consumers rightly do not only expect fashionable products in excellent quality for their money, but they also expect a pleasant shopping experience to go with it. Triumph is working together with approximately 40,000 retail trade customers (franchise and partner stores) all across the world. Triumph’s own retail stores (altogether 1,620 stores worldwide to date) offer the opportunity to really showcase different Kapitel_3.indd 140 03.08.2010 12:47:59 Uhr Exhibit 3.1 141 Triumph brands, present their product in the way it should be and create an emotional experience for consumers. It provides the opportunity for Triumph to present their entire collections under one roof in selected locations. Triumph lingerie segmentation in the Nordic markets Triumph is lingerie market leader in three of four Nordic markets (Denmark, Norway and Finland), with 20-30 percent market share. In these markets Triumph has a broad customer group (+25), but the brand is strongest in the older target group (35+). It is a challenge to target the daughter, her mother (and the grandmother) at the same time. In order to make a better targeting of Triumph lingerie range and to increase women’s buying frequency rate (up from 1,7 bra per year), Triumph has developed a traditional segmentation (‘The wardrobe segmentation concept’), based on 4 usage situation and 4 fashion types segments. The aim with ‘The Wardrobe Segmentation Concept’ is to: Increase traffic in the stores – Put focus on Triumph’s broad assortment – Strengthen Triumph’s position as lingerie expert – 4 usage situations 1. Daywear – all day comfort 2. Sport – active support 3. Special – evening sexy 4. Home-wear – comfort at home Kapitel_3.indd 141 03.08.2010 12:47:59 Uhr 3. Strategy Formulation in the Marketing Planning Process142 4 Fashion Types 1. Urban Minimalist She likes it sexy, streamlined and simple. With a big city edge and no frills attached, she feels that her female power should do the talking, not the underwear 2. Soft & Romantic Ultra-feminine is her style. She feels that lingerie is a woman’s right and should be as girly as possible with pastel colours, curvy shapes and delicate textures 3. Life in Colour She has a zest for life and boring blacks and whites will not do. With her high energy styles she wants fun lingerie in latest colours, lively patterns and sexy shapes. 4. Seductive Details Cool, edgy and sensual – that’s her style. She is an original and dresses after her mood, mixing up colours and paying special attention to details like lace, bows and vintage cuts Urban Minimalist Soft & Romantic Life in colour Seductive details Kapitel_3.indd 142 03.08.2010 12:47:59 Uhr 143Exhibit 3.1 This 4 (‘Usage situations’) x 4 (‘Fashion types’) = 16 different lingerie products: This segmentation concept is then implemented in the stores: Sources: www.triumph.com, adapted from Hollensen, 2010 Kapitel_3.indd 143 03.08.2010 12:48:00 Uhr 3. Strategy Formulation in the Marketing Planning Process144 defined using other bases, such as behaviour, their demographic characteristics must be known and analyzed in order to assess the size of the target market and to reach it efficiently. We shall look at the demographic variables age, gender and life cycle: Age• has been used as a basic segmentation variable in many markets. The market for holidays is a classic example, with holiday companies tailoring their products to particular age groups such as ‘under 30s’ or ‘senior citizens’. Another example includes Procter & Gamble selling Crest spinbrushes featuring favourite children’s characters. For adults, it sells more serious models, promising ‘a dentist-clean feeling twice a day’ (Kotler and Armstrong, 2009). In these segmentation schemes it is rational that there are significant differences in behaviour and product/service requirements between the demographic segments identified. Gender• segmentation is a basic approach has long been used in clothing, cosmetics, and magazines. Many segmentation schemes use gender as a first step in the segmentation process, but then further refine their targets within the chosen gender category, e.g. by social class. In some markets the most relevant variable is gender preference as marketers have noticed opportunities for targeting women. Citibank, for example, launched Women & Co., a financial program created around the distinct financial needs of women. Life cycle segmentation• centres on the idea that consumers pass through a series of quite distinct phases in their lives, with each phase being associated with different purchasing patterns and needs. The unmarried person living at home may have very different purchasing patterns from a chronological counterpart who has left home and recently married. It is also recognized that the purchasing pattern of adults often changes as they approach and move into retirement. Producers of baby products, for example, build mailing lists of households with newborn babies on the basis of free gifts given to mothers in maternity hospitals. These lists are dated and used to direct advertising messages for further baby, toddler and child products to the family at the appropriate time as the child grows. The basic life cycle stages are presented in Table 3.3. In some instances segmentation by life cycle can help directly with product design, as is the case with package holidays. In addition to using age as a segmentation variable, holiday firms target very specifically on different stages of the life cycle, from the Club Med emphasis on young singles, to Centre Parcs family holidays, to coach operators’ holidays for senior citizens (Hollensen, 2006). Socio-demographic variables • include social class and income. Here we shall look at social class as a predictor of buyer behaviour. Like the demographic variables discussed above, social class has the advantage of being fairly easy to measure, and is used for media readership and viewership profiles. In many cases, occupation and social class are linked together because, in numerous developed economies, official socio-economic group (social class) categorizations are based upon occupation. One way of doing it is shown in Table 3.4. The extent to which social class is a predictor of buyer behaviour, however, has been open to question as many people who hold similar occupations have dissimilar lifestyles, values and purchasing patterns. Nevertheless, social class has proved useful in discriminating between owing a dishwasher and having central heating, for example, and therefore should not be discounted as a segmentation variable (O’Brian and Ford, 1988). Geographic variables • facilitate the division of markets into different geographical units such as nations, regions, states, countries, cities, or even neighbourhoods. The geographic segmentation method is useful where there are geographic locational Kapitel_3.indd 144 03.08.2010 12:48:00 Uhr 3.2 Market Segmentation, Targeting and Positioning 145 differences in consumption patterns and preferences. For example, in the UK beer drinkers in the north of England prefer a frothy head on their beer, whereas in some parts of the south, local taste dictates that beer should not have a head (Jobber, 2010). Geographic segmentation is still widely used, at least as one element in a combination of segmentation bases. Undoubtedly, geographic segmentation is potentially at its most powerful and useful when considering international markets, and therefore is considered in more detail in the framework of segmenting international markets and countries. Stage Financial circumstances and purchasing characteristics Bachelor: Young, single, not living at parental home Minor financial burdens, recreation oriented; entertainments outside home Newly wed: Young couples, no children Better off financially, two incomes; purchase home, some consumer durables Full nest I: Youngest children under 6 Home purchasing zenith; increasing financial stress, may have only one income earner; predominantly purchase of ‘necessities’ Full nest II: Youngest child over 6 Financial position recovering; some working spouses Full nest III: Older married couples with dependent children Financial position better still; update household products and furnishings Empty nest I: Older married couple, no children at home Home ownership summit; renewed interest in travel and leisure activities; buy luxuries Empty nest II: Older couples, no children at home, retired Partially drastic cut in income; medical services bought Solitary survivor: Still in labour force Income fine, but likely to sell home Solitary survivor: Retired Special needs for medical care, affection and security Source: Adapted from Hollensen, 2006, modified Table 3.3: Stages of the family life cycle Social class grading Occupation A Higher managerial B Middle management C1 Supervisory/lower management C2 Skilled manual D Semi-skilled/unskilled E Lowest levels of subsistence Source: Adapted from Hollensen, 2006, modified Table 3.4: Social class/Occupation Kapitel_3.indd 145 03.08.2010 12:48:00 Uhr 3. Strategy Formulation in the Marketing Planning Process146 The increasing concern regarding the poor predictive power of many of the above stated ‘conventional’ bases for segmenting consumer markets, coupled with improvements in data collection and analysis methods, has led to the development in recent years of more contemporary and, some would suggest more powerful, bases for segmenting consumer markets like psychographic and behavioural segmentation which shall be discussed in more detail now. Psychographic Segmentation Psychographic segmentation involves grouping customers according to their lifestyle and personality characteristics: Lifestyle characteristics• : This research attempts to isolate market segments on the basis of the style of life adopted by their members. At one stage these approaches were seen as alternatives to the social class categories discussed above. Lifestyle segmentation is based upon the fact that individuals have characteristic modes and patterns of living, which may influence their motive to purchase selected products and brands. For example, some individuals may prefer a ‘homely’ lifestyle, whereas others may see themselves as living a ‘sophisticated’ lifestyle. Lifestyle segmentation is concerned with three main elements: activities (such as leisure activities, sports, hobbies, entertainment, home activities, work activities, professional work, shopping behaviour, house work and repairs, travel and miscellaneous activities, daily travel, holidays, charitable work); interaction with others (such as self-perception, personality and selfideal, role perceptions, as mother, wife, husband, father, son, daughter, etc., and social interaction, communication with others, opinion leadership); and opinions (on topics such as politics, social and moral issues, economic and business-industry issues and technological and environmental issues). The question that arises is the extent to which general lifestyle patterns are predictive of purchasing behaviour in specific markets (Sampson, 1992). Nevertheless, lifestyle segmentation has proved popular among advertising agencies, which have attempted to relate brands (e.g. Hugo Boss) to a particular lifestyle (e.g. aspirational). Personality characteristics• are more difficult to measure than demographics or socioeconomics. They are generally inferred from large sets of questions often involving detailed computational (multivariate) analysis techniques. Although the idea that brand choice may be related to personality is intuitively appealing, the usefulness of personality as a segmentation variable is likely to depend on the product category. Buyer and brand personalities are likely to match where brand choice is a direct mani festation of personal values but for the majority of fast-moving consumers goods, such as detergents and tea, the reality is that people buy a repertoire of different brands (Lannon, 1991). The approaches to consumer market segmentation that have been described so far have all been associative segmentation. That is to say, they are used where differences in purchasing behaviour/customer are perceived as being associated with them. If a company uses social class, for example, to segment a market it is assuming that purchasing behaviour is a function of social class. Most of the problems with using such associative bases tend to be related to the issue of the extent to which they are in fact associated with, or are a reflection of, actual purchasing behaviour. Because of this, numerous marketers believe that it is more sensible to use direct bases for segmenting markets. Such bases take actual consumer behaviour as the starting point for identifying different segments. They are often referred to as behavioural segmentation bases and shall be described in more detail now. Kapitel_3.indd 146 03.08.2010 12:48:00 Uhr 3.2 Market Segmentation, Targeting and Positioning 147 Behavioural Segmentation The key behavioural bases for segmenting consumer markets are benefits sought, purchase occasion, purchase behaviour, usage, and perceptions, beliefs and values. Each will now be discussed: Benefits sought • A powerful form of segmentation is to group buyers according to the different benefits that they seek from the product or service. Benefit segmentation takes the basis of segmentation right back to the underlying reasons why customers are attracted to various product offerings. As such it is perhaps the closest means yet to identifying segments on bases directly relevant to marketing decisions. Developments in techniques such as conjoint analysis make them particularly suitable for identifying benefit segments. The total market for a product or service is broken down into segments distinguished by the principal benefits sought by each segment. Based upon psychological research across Europe, Sampson (1992) has shown how the benefits sought from a car can predict car and motor accessory/Consumables buying: Pleasure seekers – : driving is about pleasure (freedom, enjoyment) Image seekers – : driving is about self-image (power, prestige, self-enhancement) Functionality seekers – : driving is only a means from getting from A to B. A ‘benefits sought’ basis for segmentation can provide useful insights into the nature and extent of competition and the possible existence of gaps in the market. Purchase occasion• Customers can be distinguished according to the occasions when they purchase a product. Attitudinal characteristics attempt to draw a causal link between customer characteristics and marketing behaviour and occasion segmentation can help companies build up product usage. For example, orange juice is most often consumed at breakfast, but orange growers have promoted drinking orange juice as a cool and refreshing drink at other times during the day. In contrast, Coca-Cola’s ‘Coke in the Morning’ campaign attempts to increase Coke consumption by promoting the beverage as an early morning pick-me-up (Kotler and Armstrong, 2009). Purchase behaviour• The most direct method of segmenting markets is on the basis of the behaviour of the consumers in those markets. Study of purchasing behaviour has centred on such issues as the time of purchase (early or late in the product’s overall life cycle) and patterns of purchase (the identification of brand-loyal customers). Differences in purchase behaviour can be based on the time of purchase relative to the launch of the product. When a product is launched, a key task is to identify the innovator segment which consists of customers who purchase a product when it is still new. Evidently during the launch of new products isolation of innovators as the initial target segment Example 6: Nivea has successfully targeted men with sensitive skin with its product range Kapitel_3.indd 147 03.08.2010 12:48:00 Uhr 3. Strategy Formulation in the Marketing Planning Process148 could significantly improve the product’s or service’s chances of acceptance on\the market. However, attempts to seek out generalized innovators have been less successful than looking separately for innovators in a specific field. Generalizations seem most relevant when the fields of study are of similar interest. Opinion leaders can be particularly influential in the early stages of the product life cycle. Recording companies, for example, recognize the influence that disc jockeys have on the record-buying public and attempt to influence them with free records and other inducements to play their records. While innovators are concerned with initial purchase, loyalty patterns are concerned with repeat purchase, As such they are more applicable to repeat purchase goods than to consumer durables, though they have been used in durables markets. This direct approach is based on be extent to which different consumers are loyal to certain brands (brand loyalty) or possibly to definite retail outlets (store loyalty). Identifying segments with different degrees of loyalty enables a company to determine which of its customers or prospective customers may be brand- or store-loyal prone. Such a market segment is a very attractive one upon which to concentrate future marketing efforts. Once they are convinced of the relative merits of a brand or supplier, such customers are unlikely to transfer their allegiances (Hollensen, 2006). Volkswagen, the German automobile manufacturer, has used loyalty as a major method for segmenting its customer markets. It divided its customers into the following categories: first-time buyers, replacement buyers (model-loyal replacers, company-loyal replacers) and switch replacers. These segments were used to analyse performance and market trends, and for forecasting purposes (Hooley et al., 2004). Usage• Customers may also be segmented on the basis of being ‘heavy’, ‘light’ and ‘nonusers’ of a product or service category. The profiling of heavy users allows this group to receive most marketing focus on the assumption that creating brand loyalty among these people will pay large dividends. Consequently, brands are sometimes developed to target heavy users. For example, Orange has designed its Premier brand specifically with the heavy mobile phone users in mind, with extra services such as access to a specialist customer services team (Bainbridge, 2005). Noticeably, the usage segmentation concept is more useful in some markets than in others. In the soap market, heavy users of soap account for 75 percent of purchases. However, heavy users account for nearly half the population and constitute a very diverse group. By contrast bourbon whiskey is consumed by around 20 per cent of adults only, and the heavy users account for 95 per cent of consumption, making this a much tighter target market (Hollensen, 2006). Perceptions, beliefs and values• The final behavioural base for segmenting consumer markets is by studying perceptions, beliefs and values. This is categorized as a behaviour variable because perceptions, beliefs Example 7: The Economist targets professionals who wish to be perceived as knowledgeable and smart Kapitel_3.indd 148 03.08.2010 12:48:01 Uhr 3.2 Market Segmentation, Targeting and Positioning 149 and values are often linked to behaviour. Customers are grouped by identifying those people who view the products in a market in a similar way (perceptual segmentation) and have similar beliefs (belief segmentation). Car manufacturers use belief segmentation to segment the market and target specific groups. For example, Mazda targets car buyers who believe their car is their friend, with which they can have fun and enjoy new experiences (Bruce, 2005). Combining Segmentation Variables As stated above, marketers rarely limit their segmentation analysis to only one of a few variables. Rather, they are increasingly using multiple segmentation bases in an effort to identify smaller, yet better defined target groups (Kotler and Armstrong, 2009). For example, Research Services Ltd, a UK marketing research company, has developed ‘SAGACITY’, a market segmentation scheme based upon a combination of occupation, life cycle and income. 12 distinct customer groupings are formed with different aspirations and behaviour patterns (Jobber, 2010). 3.2.4 Segmenting the Business Markets (B2B) The imperative to divide the market into different segments in order to offer products that match differing needs is at the very heart of both B2B and B2C marketing. The strength, width and depth of the segmentation demands will vary from industry to industry and from country to country depending on factors that often change, which will be discussed later in the section. Only if the varying and diverse benefits demanded by different industries and organisations are known can products and services be offered with benefits that will satisfy these many disparate needs. The basic approach to segmentation, targeting and positioning does not differ greatly between consumer and organisational markets. As one might expect, segmenting industrial product markets introduces a number of additional bases for segmentation, whilst precluding some of the more frequently used ones in consumer product markets. The Hierarchical Approach to B2B Segmentation The organisational market can be segmented on several factors broadly classified into two major categories: macro segmentation and micro segmentation. This approach was developed by Wind and Cardozo (1974) and is illustrated in Figure 3.9. Basically, the approach is that industrial markets be segmented in two stages. The first stage includes formation of macro segments, based on characteristics of the organisation. The second stage involves dividing those macro segments into micro segments, based on the characteristics of the decision-making units (DMUs). This hierarchical approach enables an initial screening of organisations and selection of these macro segments, which on the basis of organisational characteristics provide potentially attractive market opportunities. Organisations which may have no use for the given product can be eliminated. Starting with the grouping of organisations into homogeneous macro segments also provides a reduction in total research effort and consequently cost. Instead of examining detailed buying patterns and attempting to identify the characteristics of the DMU in each organisation individually, such analysis is incomplete only to those macro segments, which passed the initial screening. Kapitel_3.indd 149 03.08.2010 12:48:01 Uhr 3. Strategy Formulation in the Marketing Planning Process150 Once a set of acceptable macro segments has been formed, the marketer may divide each of them into micro segments, or small groups of firms, on the basis of similarities and differences among DMUs within each macro segment. Information for this second stage will come primarily from the sales force, based on salespeople’s analysis of situations in particular firms or from specially designed market segmentation studies (Hollensen, 2006). This concept of successively combining industrial market segmentation bases giving, hopefully, more and more precise and hence meaningful segments are taken even further in the model developed by Shapiro and Bonoma (1984). Their ‘nested’ approach is shown in Figure 3.10. This approach identifies five general segmentation bases, which are arranged in the ‘nested’ hierarchy shown, moving from the outer nests towards the inner. The segmentation bases (criteria) also move from macro to micro criteria. The bases are: demographics, operating variables, purchasing approach, situational factors and personal characteristics of the buyer. We shall now examine each of these in more detail. Figure 3.9: The hierarchical approach to segmentation of B2B markets Source: Adapted from Wind and Cardozo, 1974 and Dibb, 1998 Given a generic product/service Identify macro-segments based on key organizational characteristics such as: ? Size ? Usage rate ? Application of product ? Organization structure ? Location ? New vs. repeat purchase START Select a set of “acceptable” macro-segments Evaluate each of the selected macro-segments on whether it exhibits distinct responses to the firm’s marketing stimuli Identify the complete profile of the segment based on the organizational and DMU characteristics Select the desired target micro-segments based on the costs and Benefits associated with teaching the segment If It does not, identify within each acceptable macro-segment, the relevant micro-segments (i.e. with homogeneous response) based on the key DMU characteristics. This characteristic can be the criterion used in choosing among alternative suppliers or any other DMU characteristic, such as: ? Position in authority and communications networks of firm ? Personal characteristics: demographic, personality ? Perceived importance of specific determinants of buying decision ? Attitudes towards vendors ? Decision rules Corporate objectives and resources If it does, stop and use the macro-segment as the target segment Macrosegmentation Microsegmentation Kapitel_3.indd 150 03.08.2010 12:48:01 Uhr 3.2 Market Segmentation, Targeting and Positioning 151 Demographics This category represents the outermost nest, which contains the most universal segmentation criteria. These variables give a broad depiction of the segments in the market and relate to general customer needs and usage patterns. They can be determined without visiting the customer and include industry and company size and customer location. Demographic characteristics of companies can be a useful starting point for business segmentation; indeed they characterize the approaches most commonly used by business marketing companies. Factors that can be considered here include demographics such as industry type, customer size and location, but also operating variables such as customer technology and capabilities, different pur chasing policies and situational factors including product application. Factors such as the Standard Industry Classification (SIC) provide a first stage of analysis, both for identifying target industries and subdividing them into groups of companies with different needs or approaches to buying. This may be the basis for vertical marketing to industry sectors. Retailers and hospitals, for example, both buy computers, but they have dissimilar applications and different buying strategies. Size may also be highly significant if, for instance, small companies have needs or buying preferences that are distinctly different from those of larger companies. Typical measures would be variables such as number of employees and sales turnover. Size may be significant because it impacts on issues such as volume requirements, average order size, sales and distribution coverage costs and customer bargaining power, which may alter the attractiveness of different segments as targets. Company size may be analyzed alongside other demographics. Operating Variables The second segmentation nest contains a variety of segmentation criteria called ‘operating variables’. These enable a more specific identification of existing and potential customers within demographic categories. Figure 3.10: The ‘nested’ approach to B2B market segmentation Source: Adapted from Shapiro and Bonoma, 1984 Demographics Operating variables Purchasing approach Situational factors Personal characteristics Macro criteria Micro criteria Kapitel_3.indd 151 03.08.2010 12:48:02 Uhr 3. Strategy Formulation in the Marketing Planning Process152 Operating variables are generally stable and include technology, user/non-user status (by product and brand), and customer capabilities (operating, technical and financial). The customer’s stage of technology development will impact directly on its manufacturing and product technology, and hence on its demand for diverse types of product. Traditional factories operating mixed technologies and assembly methods require different product and subassembly inputs (e.g. test equipment, tooling, components) compared to the automated production unit. High-technology businesses may require very different distribution methods – e.g. Marks & Spencer requires suppliers to have the capability to co-operate in electronic stock control and cross-docking to avoid retail stockholding. Increasingly, high-technology companies require that their suppliers are integrated to their computer systems for all stages of the purchase process (Hollensen, 2006). Purchasing Approaches One of the most neglected but valuable methods of segmenting an industrial market involves customers’ purchasing approaches and company philosophy. The factors in this midpoint segmentation nest include the formal organisation of the purchasing function, the power structure, the nature of the buyer/seller relationship, purchasing policies and purchasing criteria. How customers organize purchasing may also identify important differences between customers. For example, centralized purchasing may require suppliers to have the capability to operate national or international account management, while decentralized purchasing may require more extensive field sales operations. Depending on a supplier’s own strengths and weaknesses, the purchasing organisation type may be a significant way of segmenting the market. Situational Factors Up to this point the model has focused on the alignment of customer firms. Now it moves to consider the tactical role of the purchasing situation. Situational factors resemble operating variables, but are temporary and require a more detailed knowledge of the customer. They include the urgency of order fulfilment, product application and the size of order. Customers might divide, for example, into those who want single supply sources versus those who want to dual source important supplies; public sector and similar organisations where bidding is obligatory versus those preferring to negotiate price; those actively pursuing reductions in their supplier base compared to others. Indeed the model proposed above of the customer’s relationship requirements as a basis for segmenting may be even more useful in the business market, where the demand for partnership between suppliers and customers characterizes many large companies’ approaches to purchasing. The product application can have a major influence on the purchase process and criteria and hence supplier choices. The requirements for a small motor used in intermittent service for a minor application in an oil refinery will differ from the requirements for a small motor in continuous use for a critical process. An added complication in business markets, however, is the decision-making unit. For many business purchases decisions are made or influenced by a group of individuals rather than a single purchaser. Different members of the DMU will often have different perceptions of what the benefits are, both to their organisation and to themselves. Kapitel_3.indd 152 03.08.2010 12:48:02 Uhr 3.2 Market Segmentation, Targeting and Positioning 153 Buyers’ Personal Characteristics People, not companies, make purchase decisions, although the organisational framework in which they work and company policies and needs may limit their choices. Marketers for industrial goods, like those for consumer products, can segment markets according to the individuals involved in a purchase in terms of buyer/seller similarity, buyer motivation, individual perceptions, and risk management strategies. Business goods markets can be segmented by issues such as the following (Hollensen, 2006): Buyer-seller similarity• : compatibility in technology, corporate culture or even company size may be a useful way of distinguishing between customers; Buyer motivation• : purchasing officers may differ in the degree to which they shop around and look at numerous alternative suppliers, and dual source important products and services, as opposed to relying on informal contacts for information and remaining loyal to existing personal contracts; Buyer risk perceptions• : the personal style of the individual, intolerance of ambiguity, self-confidence and status within the company may also provide significant leverage. The Notion of Segments and of Sophisticated Segmentation Technically speaking, segmentation means grouping together comparable customers. The results of segmentation performed by a given company depend on the quality of the information available and on the company’s own characteristics (in particular, technological and organisational abilities), and the type of decisions it wishes to make. Thus, market segmentation can vary according to how the company assesses the market. In fact, two competitors in the same market can pursue two different market segmentations. Above all, segmentation helps to recognize closely related (similar) customer groups. Statistically speaking, the aim is to minimize intra-group variance (to create sufficiently homogeneous groups) and to maximize inter-group variance (to create groups which are different from each other). This implies it is also an intellectual process (and/ or statistical, if statistical data analysis techniques are used), which aims to give the company a cut down representation of its market, by incorporating the aspects of customer behaviour and the market dynamics that can affect it. Such a representation is always a generalization. This is necessary to make the market comprehensible and the segmentation usable. Therefore, the process must lead to a well thought-out and controlled summary of the initial information. Thus, the segment is by convention a group of ‘customer units’, although a market – a population – can be divided into an almost infinite number of segments. Each segment must have an operational ‘reality’ for the company, meaning that the company can define a suitable, autonomous and sound marketing strategy for each group. The process depends on the market in question. The complexity of the segmentation is proportional to market volume, value and heterogeneity which command the number of variables taken into consideration by the process. In other words, the quality depends on the work performed and how this complexity was managed and ‘condensed’. To put it into a nutshell, we can talk of ‘sophisticated segmentation’ as having led to the creation of homogenous segments, all different between themselves, with a specific and recognized competition, large enough to be profitable and operational. It thus justifies Kapitel_3.indd 153 03.08.2010 12:48:03 Uhr 3. Strategy Formulation in the Marketing Planning Process154 a tailored marketing mix and affects both the supply strategy and customer approach, making it the key to the marketing process. 3.2.5 Segmenting International Markets and Countries Few companies have either the resources or the inclination to operate in all, or even most, of the countries in the world. Although some large organisations, such as Coca- Cola or Sony, sell products in more than 200 countries, most international firms focus on a smaller set. Operating in many countries presents new challenges as different countries may vary greatly in their economic, cultural, and political form. Thus, just as they do within their domestic markets, international companies need to group their world markets into segments with distinct buying need and behaviours and select appropriate target countries. Selecting Target Countries The assessment of international marketing opportunities usually begins with a screening process that involves gathering relevant information on each country and filtering out the less desirable countries. Hollensen (2004) describes a ‘top down’ model for selecting foreign markets. The model includes a series of four filters to screen out countries. The vast number of market opportunities makes it necessary to break the process down into a series of steps. Although a firm does not want to miss a potential opportunity, it cannot conduct extensive market research studies in every country of the world. The screening process is used to identify superior prospects. Two common errors of country screening are (1) ignoring countries that offer good potential for the company’s products and (2) spending too much time investigating countries that are poor prospects. Thus, the screening process allows an international company to focus efforts quickly on a few of the most promising market opportunities by using published secondary sources available. The first stage of the selection process uses macro-level factors to discriminate between regions and countries that represent basic opportunities and countries with little or no opportunity or with excessive risk. Macro-variables describe the total market in terms of economic, social, geographic, and political information. Often macroeconomic statistics indicate that the country is too small, as described by the gross national (or domestic) product. Possibly the gross national product seems large enough, but the personal disposable income per house hold may be too low. Political instability can also be used to remove a country from the set of possible opportunities. In the second stage of the selection process, variables are used that indicate the potential market size and acceptance of the product or similar goods. Often proxy variables are used in this screening process. A proxy variable is a similar or related product that indicates a demand for your product. The third stage of the screening process focuses on micro-level factors such as competitors, ease of entry, cost of entry, and profit potential. Micro-level factors influence the success or the failure of a specific product in a specific market. At this stage of the process, marketers may be considering only a small number of countries, so it is feasible to get more detailed, up-to-date information achieved though primary data collection Kapitel_3.indd 154 03.08.2010 12:48:03 Uhr 3.2 Market Segmentation, Targeting and Positioning 155 methods, like specific potential customers. During the screening process the focus switches from potential market, to actual market and finally to company profitability. The market screening process requires a significant amount of effort. After the target country is selected, there is a tendency to focus on the selected markets and ignore the rejected countries. However, the world market is continually changing, and countries that were re jected last year may provide significant opportunities just one year later. Selecting Global Segments Rising numbers of industries are global. To succeed in this environment companies have to shift from a domestic perspective to considering the world as the arena of operations both with respect to the consumer markets for products and services as well as for the resources markets for raw material, R&D, manufacturing, human and capital resources. The globalization of industries is also accompanied by trends towards regional economic integration – the European Union, NAFTA and the various other efforts for regional integration in Asia and Latin America. The implication of these developments for segmentation is that management has to consider portfolios of segments that include: global segments;• regional segments;• segments within specific countries.• In addition to this is the need to consider as the unit of analysis not just countries as such but countries by mode of entry, since the risk and attractiveness of a country depend on the mode of entry. The selection and implementation of a portfolio of segments which includes global segments, regional segments and segments within countries (by mode of entry) requires a significant amount of information on all relevant markets around the world. The creation and continuation of such a data/knowledge base is not a minor undertaking and one of the major obstacles to the development of global segmentation strategies. Creation of processes for the development and maintenance of country, regional and world databases is a high priority undertaking for all global firms. Yet the development of effective segmentation can take place even without such databases if the firm will proceed in an iterative bottom-up and top-down segmentation. This process involves three bottom-up steps – contrary to the previous ‘top-down’ model of country selection (Hollensen, 2006): 1. Segmentation of the market in each country (by mode of entry). 2. Examination of the resulting segments in all the selected countries to identify common segments across countries – clustering of country segments. 3. The creation of a global portfolio based on various clusters of segments. The resulting portfolio of segments should be compared to a desired (top-down) conceptual portfolio of segments. The comparison and contrast of the two portfolios should be driven by the concept of global operation which balances the need to develop strategies that best meet the needs of the local markets (given the idiosyncratic market, competitive and environmental conditions), while at the same time try ing to achieve economies of scale and scope by focusing on cross-country segments in a number of markets. Kapitel_3.indd 155 03.08.2010 12:48:03 Uhr 3. Strategy Formulation in the Marketing Planning Process156 3.2.6 Target Marketing Market segmentation reveals the company’s market segment opportunities. The firm now has to evaluate the various segments and decide how many and which segments it can serve and apply distinct and appropriate marketing mix strategies. In evaluating different market segments, a company must look at three basic factors: segment size, segment growth, segment structural attractiveness, and company objectives and resources (Kotler and Armstrong, 2009). The organisation must first collect and analyze data on current segment sales, growth rates, and expected profitability for various segments. In general, large-sized segments are more attractive than small ones since sales potential is greater, and the chance of achieving economies of scale is improved. However, the ‘right size and growth’ of segments is a relative matter as the largest, fastest-growing segments are not necessarily the most attractive ones for every company. Smaller companies, as already mentioned above, may lack the skills and resources needed to serve the larger segments or they may find these segments too competitive. Such enterprises may select segments that are smaller and less attractive, in an absolute dimension, but that are potentially more profitable for them. The company also needs to examine the structural factors that affect long-term segment attractiveness. Michael Porter’s five forces model (Porter, 1985) provides a useful tool in this context. For example, a segment is less attractive if it already contains many strong and aggressive competitors. The existence of many actual or potential substitutes (products or services) may limit prices and the profits that can be gained in a specific segment. In addition, the threat of new entrants is another factor to be taken into account: a segment may seem superficially attractive because of the lack of current competition, but care must be taken to assess the dynamics of the market. A judgement must be made regarding the likelihood of new entrants, possibly with new technology, which might change the rules of the competitive game. The relative power of buyers also 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 – all the expense of seller profitability. Finally, a segment may be less attractive if the bargaining power of suppliers is strong as they are in a position to control prices or reduce the quality or quantity of ordered goods and services. Even if a segment has the right size and growth and is structurally attractive, the company must consider its own objectives and resources. Some attractive segments can be dismissed instantly because they do not mesh with the company’s long-run goals. Or the company may lack the skills and resources as discussed above. The company should only enter segments in which it can offer superior value and gain advantages over competitors. Having evaluated the relative attractiveness of different market segment the company is then in a position to select a targeting strategy. A company can select from three generic strategies with respect to targeting. These three strategies are undifferentiated target marketing, differentiated target marketing, concentrated target marketing and micro marketing, each of which shall be discussed now: Undifferentiated Marketing • Using an undifferentiated marketing or mass marketing strategy, a company decides to ignore market segment differences and go after the whole market with one of- Kapitel_3.indd 156 03.08.2010 12:48:03 Uhr 3.2 Market Segmentation, Targeting and Positioning 157 fer. This strategy focuses on what is common in the needs of consumers rather than on what is different. The company designs a product and a marketing strategy that will appeal to the largest number of potential buyers. This is only feasible, if a market analysis will show now strong differences in customer characteristics that have implications for marketing strategy. Alternatively, the cost in developing a separate marketing mix for separate segments may outweigh the potential gains of meeting customer needs more accurately. Most modern marketers have strong doubts about this strategy. Difficulties arise in developing a product, brand or service that will satisfy all consumers. Moreover, mass marketers often have trouble competing with more focused companies that better satisfy the needs of specific segments and niches (Kotler and Armstrong, 2009). Differentiated Marketing • Using a differentiated marketing or segmented marketing strategy, a company decides to target several market segments and designs distinct offers for each. This is a powerful strategy when market segmentation reveals several potential targets and specific marketing mixes can be developed to appeal to all or some of the segments. For example, airlines design different marketing mixes for first-class and economy passengers, including varying prices, service levels, quality of food, in-cabin comfort and waiting areas at airports (Jobber, 2010). By tailoring the marketing mix to segments, companies strive for higher sales and a stronger position within each market segment. The key disadvantage, however, is the loss of cost economies as developing separate marketing plans for the different segments requires extra marketing research, forecasting, sales analysis, promotion planning and channel management. Thus, the firm must weigh increased sales against increased costs when deciding on a differentiated marketing strategy. Concentrated Marketing • A third market-coverage strategy, concentrated marketing or niche marketing or focused marketing, is especially viable when company resources are limited. Instead of going after a small share of a large market, the company goes after a large share of just one or a few segments or niches. Focused marketing allows research and devel- Example 8: Sky has differentiated its product offering to target specific segments as exemplified in this ad for Sky Sports addressing sports enthusiasts Kapitel_3.indd 157 03.08.2010 12:48:03 Uhr 3. Strategy Formulation in the Marketing Planning Process158 opment expenditure to be concentrated on meeting the needs of one set of customers, and managerial activities can be devoted to understanding their specific needs. Large organisations may not be interested in serving the needs of this one segment, or their energies may be so dispatched across the whole market that they pay insufficient attention to their requirements (Jobber, 2010). An example of focused marketing in the consumer market is provided by Bang & Olufsen, the Danish audio electronics firm. It targets upmarket customers who value self-development and pleasure with its stylish television and music systems. The company places emphasis on distinctive design, good quality and simplicity of use (Gapper, 2005). Customized Marketing • In some markets the requirements of individual customers are unique and their purchasing power sufficient to make designing a separate marketing mix for each customer viable. Segmentation at this disaggregated level leads to the use of customized marketing (also labelled individual marketing, one-to-one marketing, mass customization and markets-of-one marketing). Many service providers, such as advertising and marketing research agencies, architects and solicitors, vary their offerings on a customer-to-customer basis. Customized marketing is often associated with close relationships between supplier and buyer because the value of the order justifies large marketing and sales efforts being focused on each customer. The move toward individual marketing mirrors the trend in consumer self-marketing which implies that individual customers are taking more responsibility for determining which products and brands to buy. As the trend toward more interactive dialogue and less advertising monologue continues, selfmarketing will grow in importance. Moreover, as more buyers look up consumer reports, join Internet product discussion forums, and place orders via phone or online, marketers will have to influence the buying process in innovative ways. They will need to involve customers more in all phases of the product development and buying processes (Kotler and Armstrong, 2009). 3.2.7 Positioning Strategy The final stages of the STP-process involve the development of positioning strategies together with an appropriate marketing mix. Example 9: Lufthansa targets the business travellers of top Indian enterprises with its tailored loyalty program Example 10: Adidas promotes its service to customise trainers Kapitel_3.indd 158 03.08.2010 12:48:03 Uhr 3.2 Market Segmentation, Targeting and Positioning 159 In their seminal work in this area, Ries and Trout (1981) suggested that positioning is essentially ‘a battle for the mind’ of the customer. Consequently, successful positioning is often associated with products possessing favourable associations in the minds of customers. These add up to a differential advantage in the minds – and hearts – of the target customers of the company. Such positioning is hard won and relies on the following key factors (Jobber, 2010): Clarity• : the positioning idea must be clear in terms of both target market and differentia advantage. Complicated positioning statements are unlikely to be recalled. Consistency• : as people are bombarded with messages every day consistent messages are essential. Messages such as L’Oréal’s ‘Because you’re worth it’ receive high recalls because of the consistent use of a simple message over many years. Credibility• : the differential advantage that is selected must be credible in the minds of the target customer. Toyota’s lack of credibility as an upmarket brand caused it to use ‘Lexus’ rather than ‘Toyota Lexus’ as the brand name for its top-of-the-range cars. Competitiveness• : the differential advantage must have competitive edge. It should offer something of value to the consumer that the competition is failing to supply. For example, the success of the iPod was based on the differential advantage of seamless downloading of music from a dedicated music store, iTunes, to a mobile player that produced exceptional sound quality. Perceptual Mapping A useful tool for determining the position of a brand in the marketplace is the perceptual map (also called a brand map or positioning map). This is a visual representation of consumer perceptions of the brand and its competitors using attributes (dimensions) that are important to customers. The key steps in developing a perceptual map are as follows (Jobber, 2010): 1. Identify a set of competing brands 2. Identify important attributes that consumers use when choosing between brands using qualitative research (e.g. group decisions) 3. Conduct qualitative marketing research where consumers score each brand on all key attributes. 4. Plot brand on a two-dimensional map For example, suppose that a company seeks to enter the market for ‘instant coffee’, in which there are already competitors producing brands A, B, C, D, E, F and G. The company must establish what the customers believe to be the appropriate attributes when choosing between brands in this market and the perceived position of existing competitors with respect to these attributes. If we imagine that the important attributes have been found to be ‘price’ and ‘flavour’, a possible positioning map might be drawn as shown in Figure 3.11. With this information, the company must decide where to position its product within this specific market segment. Possibilities are contained within the box, the parameters of which are low to medium price per gram and low to medium in flavour. Perhaps a ‘caffeine free’ product could also be taken into consideration? Such a product would give the new brand distinctiveness, as opposed to positioning the brand next to another and fighting ‘head on’ for market share. What is the most appropriate position for the new coffee brand depends on a number of factors. For example, as outlined earlier, we must assess the relative attractiveness Kapitel_3.indd 159 03.08.2010 12:48:03 Uhr 3. Strategy Formulation in the Marketing Planning Process160 of a particular position in a market for the new brand compared to the resources and competences of the company. Obviously, it is also important to consider if the number of customers in the chosen position is large enough to generate sufficient profit. Similarly, and related to this, we must assess the relative strengths of existing competitive brands in the market and whether we want to tackle this competition head on or not. Finally, we must consider what our objectives for the new product are, particularly with regard to brand image. Once the company has assessed brand positioning in the market and determined where it wants to position its products and brands, the final step in the process of segmenta tion, targeting and positioning involves the design of marketing programmes, which will support the positional strategy in selected target markets. In the ‘instant coffee’ example above the company must therefore determine what price, flavour (product) distribution and promotional strategy will be necessary to achieve the selected position in the market (Hollensen, 2006). Repositioning Although positioning is particularly crucial when developing and launching a new product for a market, it is also relevant to the management of existing products and brands. Because markets evolve and change over time, including for example, changes in customer tastes, competition etc., the marketer must continuously assess the effectiveness of existing positioning strategies for products and brands. Often, existing brands will need to be repositioned to reflect changing market dynamics. Repositioning involves changing the target markets, the differential advantage, or both. A useful framework for analyzing repositioning options is given in figure 3.12. Using product differentiation and target market as key variable, four generic repositioning strategies can be categorized (Jobber, 2010): Image repositioning• : The first option is to keep product and target market the same but to alter the image of the product. In markets where products act as a form of self- Source: Adapted from Lancaster & Massingham, 2001 Low in flavour Brand E High price per gram Low price per gram High in flavour Brand D Brand A Brand B Brand F Brand C Brand G Possible positioning strategy (if sufficient number of consumers have their preferences here) Figure 3.11: Hypothetical positioning map: instant coffee market Kapitel_3.indd 160 03.08.2010 12:48:03 Uhr 3.2 Market Segmentation, Targeting and Positioning 161 expression, the product may be acceptable in functional terms but fail because it lacks the required image. Product repositioning• : With this strategy the product is changed and target market remains the same. For example, IBM has used product repositioning successfully by moving away from the manufacture of computers (IBM sold its PC division to Lenovo) to the provision of software and IT services to basically the same type of business customers. Intangible repositioning• : This strategy encompasses targeting a different market segment with the same product. For example, pharmaceutical companies practice intangible repositioning when patents on their prescription drugs expire. Rather than fight against broad competition by price-cutting in the prescription segment they often switch to the over-the-counter (OTC) sector where they can fight by investing in brand equity. Market leaders benefit claiming ‘the product most often prescribed by doctors’ and thereby leveraging the brand association (Kossoff, 1988). Tangible repositioning• : When both product and target market are changed, a company is practising. For example, Samsung Electronics, which was once an unfocused manufacturer of cheap undifferentiated televisions and microwaves successfully used tangible repositioning and is now a premium-priced flat-screen television and mobile handset brand (Pesola, 2005). 3.2.8 Difficulties of Implementing Segmentation in the Organisation It is important to preface this review of implementation difficulties by explaining what is meant by seg mentation implementation. For the purposes of this discussion, implementation difficulties arise when the segmentation process has failed to generate a solution that can be put into practice. This means that, for what ever reason, it has not been possible for the business con cerned to use the segmentation scheme to develop suit able and distinct marketing mixes for different customer groups: the developed segmenta- Tangible repositioning Intangible repositioning Product repositioning Image repositioning Different Same Target market Product Same Different Source: Adapted from Jobber, 2010 Figure 3.12: Repositioning strategies Kapitel_3.indd 161 03.08.2010 12:48:04 Uhr 3. Strategy Formulation in the Marketing Planning Process162 tion scheme has not been effectively actioned. According to Dibb and Simkin (2001) the main problems are as follows: Infrastructure Barriers• All aspects of segmentation can suffer when an organisation’s infrastructure is inappropriate or too inflexible to deal with the process. These difficulties encompass anything to do with the corporation’s culture, structure, or resources acting as a segmentation barrier. For example, the marketing function in a business with a particularly entrenched organisational structure may fail in its attempts to implement segmentation if it has not se cured the commitment of senior managers. Similarly, a business lacking the financial resources to collect appropriate market data also will have problems adopting a segmentation approach. Many infrastructure difficulties relate to people issues. Thus, they arise because the business is devoting insufficient people resources to the segmentation process or because the individuals involved lack the required skills and experience to carry it out. Poor communication between functions and inadequate commitment from senior management also can cause problems. Segmentation Process Issues• Despite an extensive segmentation literature, there is surprisingly little practical help for those wishing to apply a market segmentation approach. Whereas many managers are familiar with the STP (segmentation, targeting, and positioning) notion of marketing segmentation, they often express surprise about the shortage of simple, practical advice on how to proceed. Implementation barriers• The underlying assumption of academic segmentation is that new solutions can simply be substituted for existing segmentation schemes. In practice, it is rarely straightforward for a business to make wholesale changes to its segmentation. Even assuming that the necessary resources are available to carry out a segmentation project, the planning and implementation of the process are constrained by a number of practical and operational concerns. What Should be done about the Problems The requirement for appropriate marketing skills does not end with the identification of a segmentation approach. Businesses must continue to allocate appropriate personnel and resources if suitable marketing programs are to be developed. Care must be taken that these programs closely match the segments identified. Dibb & Simkin (2001) show the benefits of a good fit between a segment solution and the marketing program designed to implement it. This view should then be used to build a more appropriate and simpler segmentation structure allowing the business to develop marketing programs that more closely match customer requirements (Hollensen, 2006). Kapitel_3.indd 162 03.08.2010 12:48:04 Uhr 3.2 Market Segmentation, Targeting and Positioning 163 Summary In the process of selecting the right marketing strategies we need to examine past errors and recognize that learning is impeded when the chief concern is to defend past decisions. Of course, nothing can guarantee that a decision, however well made, will turn out right. It is wrong to assume that a bad outcome implies the decision was badly made since it may have been the most rationally defensible answer at the time. In any case, past strategies are seldom absolutely wrong or right but have different degrees of imperfection. A diversified organisation needs to examine its widely different businesses at the corporate level to see how each business fits within the overall corporate purpose and to come to grips with the resource allocation problem. The portfolio approaches described in this chapter help management determine the role that each business plays in the corporation and allocate resources accordingly. The various portfolio techniques, like Boston Consulting Group’s (BCG’s) growth market share matrix, General Electric’s (GE’s) business screen and Porter’s work plus various quantitative techniques, all help to order and bring out the implications of the data collected. These techniques can be useful in offering frameworks, analogies and models that help structure a problem situation and reduce mental overload as well as being a protection from a complete degeneration into ad hoc analysis. Various portfolio approaches were critically examined. The criticisms relate mainly to operational definitions of dimensions used, weighting of variables, and product/market boundary determination. The Ansoff growth matrix suggests that if the company lacks new products with which to generate growth in coming years, investments may be made in new products. If growth is hurt by the early maturity of promising products, the strategic effort may be directed toward extension of their life cycles. The BCG-model suggests locating products or businesses on a matrix with relative market share and growth rate as its dimensions. The four cells in the matrix, whose positions are based on whether growth is high or low and whether relative market share is high or low, are labelled stars, cash cows, question marks, and dogs. The strategy for a product or business in each cell, which is primarily based on the business’s cash flow implications, was outlined. The third approach, the GE-model, again uses two variables (industry attractiveness and business strengths), but these two variables are based on a variety of factors. Here, again, a desired strategy for a product/business in each cell was recommended. The focus of the multifactor matrix approach is on the return-on-investment implications of strategy alternatives rather than on cash flow, as in the growth rate-relative market share matrix approach. Portfolio techniques also tend to ignore interaction or synergy between the different business opportunities being evaluated. Further, these techniques are limited because they rely on imperfect measures, and estimates. Even with relatively simple dimensions such as relative market shat and market growth, the actual estimation of these factors for each alternative being evaluated must rely on incomplete and sometimes incorrect historical information and on estimates by experts whose ‘crystal balls’ may be cloudy. Pessimistic projections can cause companies to ignore high-potential products, and overly optimistic projections can lead companies to make large investments in ventures that are doomed to fail. However, portfolio techniques are attractive to managers for several reasons. First, the techniques make it possible to compare widely diverse alternatives by using the same factors in a relatively consistent manner. They also allow managers to simplify very complex problems to more manageable levels by eliminating hundreds of detail. Reducing the Kapitel_3.indd 163 03.08.2010 12:48:04 Uhr 3. Strategy Formulation in the Marketing Planning Process164 information-processing load of decision makers enables them to understand problems better and to project into the future with more confidence and accuracy. In short, portfolio techniques make the evaluation of strategic alternative simpler and more manageable, and for those reasons alone they are valuable. Segmentation is an operation of classification. It aims to provide management with a representation of the markets that is designed as help to make choices. This representation is the result of a process founded on a simplification of the initial data. The result depends on the variety and quality of available data. In segmentation, targeting and positioning, we are seeking to identify distinct subsets of customers in the total market for a product. Any subset might eventually be selected as a market target, and on that basis a distinctive marketing mix will be developed: a better understanding of customers and their needs and wants – a better understanding of competition and the kind of competitive advantage to pursue – a more effective use of company resources – the development of more effective marketing plans. – In order to secure these advantages, the base(s) used for segmentation should fulfil the following criteria: 1. Measurability/identifiability: The base(s) used to segment a market should ideally lead to ease of identification (who is in each segment) and measurability (how large is each segment). 2. Accessibility: The base(s) used to segment a market should ideally lead to marketers being able to reach selected market targets with their marketing efforts. 3. Substantiality: The base(s) used to segment markets should ideally lead to segments which are sufficiently large to be worthwhile serving as distinct market targets. 4. Meaningfulness: The base(s) used to segment markets must lead to segments, which have different preferences/needs and show clear variations in market behaviour/response to marketing efforts. The overall differences between segmentation in B2B and B2C markets were identified and highlighted. Many variables exist as bases for consumer segmentation (B2C) ranging from behaviour, to attitudes, to background characteristics. The most often used characteristics are product and brand usage and demographics/socio-economics, primarily because of the ease of obtaining this sort of data from secondary sources. Ultimately, however, for a segmentation scheme to be useful to marketing management it should seek not only to describe differences in consumers but also to explain them. In this respect attitudinal segmentation can offer better prospects. Many ways to segment business markets (B2B) can be identified at both the macro and micro level, including by geographical location, industry sector, type of industry, organisation size, products and services sold, the buying situation and culture of the company. Group and individual differences were identified and reasons given for when and how this information should be used in the segmentation process. It is highly probable that more than one way to segment a market will be used, perhaps using geographical location, industry sector, organisational size and types of products marketed. Finally, segmentation is the starting part of the so-called STP-process consisting of: Segmentation –identifying the most productive bases for dividing a market, identifying – the customers in different segments and developing segment descriptions. Targeting markets: evaluating the attractiveness of different market segments, parts of – segments (niches) or groups of segments, and choosing which should be targets for our marketing. Positioning: Identifying the positioning of competitors (in the market and the target – segments or niches), to develop our own positioning strategy. Kapitel_3.indd 164 03.08.2010 12:48:04 Uhr 3.2 Market Segmentation, Targeting and Positioning 165 Questions for discussion 1. What is the main difference on a vision and a mission? 2. How may corporate objectives be derived from the corporate mission? 3. What is the difference between the mission statement and the firm objective? 4. What purpose may a product portfolio serve in the context of marketing strategy? 5. What are the advantages and disadvantages of using portfolio models in strategic market planning? 6. What is the meaning of relative market share in the BCG model? 7. What stages are involved in market segmentation? 8. Under which conditions, if any, might segmentation be unnecessary and unwise? 9. Why should marketers go beyond demographic variables when segmenting consumer and business markets? 10. Can market segmentation be taken too far? What are the potential disadvantages of over-segmenting a market? What strategy might a firm pursue when it believes that the market has been broken into too many small segments? 11. Which variables or descriptors might be most appropriate for segmenting the market for the following products and services? Explain your reasoning. a) DVD players b) Portable computers c) Games for PCs and consoles d) Holidays Segmentation leads to differentiated marketing. How might a company avoid producing too many varieties of a product? 12. Under what circumstances would a marketer want to change a product’s positioning? Kapitel_3.indd 165 03.08.2010 12:48:04 Uhr 3. Strategy Formulation in the Marketing Planning Process166 Case 3 Royal Copenhagen A/S Establishing relationships to international consumers with tableware – Royal Scandinavia A/S is the mother company for the international known silver and porcelain trademarks: George Jensen and Royal Copenhagen. The Porcelain trademark can be dated back to 1775 when the Royal Porcelain Factory was founded, and in 2004 George Jensen celebrated its 100 years anniversary. Today, the Royal Scandinavia Group is separated in independent units/companies based upon their trademarks: Georg Jensen A/S, producing watches and jewellery, is globally represented through a large number of retailers and through 100 of its own shops and has a strong market position in Denmark, Japan, Hong Kong and Taiwan. In Scandinavia and Finland, Georg Jensen A/S is a market leader in the Design/Living segment. Royal Copenhagen A/S’s hand painted porcelain is the market leader in Scandinavia and among the leading brands in Japan and a number of other Asian countries. This case is mainly based on the Royal Copenhagen A/S The Company Royal Copenhagen A/S (RC) has through a number of years shown a negative balance on its accounts, and in the worst period even lost approximately USD 100 mill. each year. A turn-around of the company was achieved partly by changing the productions routines at home in Denmark and partly by moving some of the production to Thailand. (the famous RC ‘Flora Danica’ – see picture to the right: According to Royal Copenhagen, the Blue Fluted design is the company’s oldest and has been produced since 1775. This was the first service to be made at the Royal Danish Porcelain Manufactory, and to this day it is still known as Service No. 1.) In the latter years RC has placed a great emphasis on the Japanese market, which today accounts Kapitel_3.indd 166 03.08.2010 12:48:04 Uhr