Customer-Driven Marketing Strategy Creating Value for Target Customers

Customer-Driven Marketing Strategy Creating Value for Target Customers Chapter 6

Rest Stop: Previewing the Concepts 1. 2. 3. 4. Define the major steps in designing a customer-driven marketing strategy: market segmentation, targeting, differentiation, and positioning. List and discuss the major bases for segmenting consumer and business markets. Explain how firms identify attractive market segments and choose a market-targeting strategy. Discuss how companies differentiate and position their products for maximum competitive advantage. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 -2

First Stop Best Buy – Serving the “Right” Customers • • At Issue History: Increased competition from Wal-Mart and online retailers forced Best Buy to reexamine segmentation strategy and positioning strategies. Customer Centricity: Adoption of this strategy forced Best Buy’s task force to ID profitable “Angel” and costly “Demon” customers. Angels accounted for 20% of customers generating bulk of profits. Demons were extreme bargain hunters. • • Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall Implementation Ditching Demons: Deleted demons from marketing lists, reduced promotions that tended to attract them, instituted 15% restocking fee. Embracing Angels: Stocked more items, developed better service of interest to them. Established Reward Zone loyalty program. Remodeled stores to reflect core customer segments, trained clerks to ID and cater to Angels’ shopping preferences. Overall sales have doubled; early customer centric stores outsold traditional. 6 -3

Designing a Customer-Driven Marketing Strategy • Designing a true customer-driven marketing strategy involves: Segmentation Targeting Differentiation Positioning Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 -4

Market Segmentation • Segmentation: Dividing a market into smaller segments with distinct needs, characteristics, or behaviors that might require separate marketing strategies or mixes. • Key variables: Geographic Demographic Psychographic Behavioral • No single way to segment is best. Variables are often combined to better define segments. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 -5

Market Segmentation • Geographic: Nations Region of country States Counties Cities Neighborhoods Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 -6

Market Segmentation • Demographic: Age, gender, family size, family life cycle, income, occupation, education, race, religion, generation, nationality. The most popular bases for segmenting customer groups as needs, wants, and usage often vary by demographics. Easier to measure than most other types of variables. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 -7

Market Segmentation • Age and life-cycle stage addresses the fact that consumer needs and wants change with age. Avoid stereotypes in promotions based on age. Promote positive messages when marketing to mature consumers. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 -8

Market Segmentation • Gender: Neglected gender segments can offer new opportunities (Harley Davidson & women). • Income: Identifies and targets the affluent for luxury goods. People with low annual incomes can be a lucrative market. Troubled economy makes marketing to all income groups a challenge. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 -9

Market Segmentation • Psychographic segmentation: • Behavioral Dividing a market into different groups based on social class, lifestyle, or personality characteristics. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall segmentation: Dividing buyers into groups based on consumer knowledge, attitudes, uses, or responses to a product. 6 - 10

Market Segmentation • Behavioral segmentation: Occasion segmentation: • Special promotions and labels for holidays. • Special products for special occasions. Benefits sought: • Different segments desire different benefits from products. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 11

Market Segmentation • Behavioral segmentation: User status: • Nonusers, ex-users, potential users, firsttime users, regular users. Usage rate: • Light, medium, heavy. Loyalty status: • Brands, stores, companies. • Divide into groups by degree of loyalty. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 12

Market Segmentation • Best to use multiple segmentation bases in order to identify smaller, better-defined target groups. Start with a single base and then expand to other bases. Multivariable segmentation systems such as PRIZM NE are becoming more common. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 13

Market Segmentation • PRIZM NE: Multivariable segmentation systems developed by Claritas, Inc. Potential Rating Index for Zip Markets (PRIZM NE). Based on U. S. census data. Classifies U. S. households into 66 clusters or segments within 14 different social groups. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 14

Segmenting Business Markets • Consumer and business markets use many of the same variables for segmentation. • Business marketers can also use: Operating characteristics. Purchasing approaches. Situational factors. Personal characteristics. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 15

Segmenting International Markets • Factors used: Geographic location. Economic factors. Political and legal factors. Cultural factors. • Intermarket segmentation: Forming segments of consumers who have similar needs and buying behavior even though they are located in different countries. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 16

Requirements for Effective Segmentation • To be useful, market segments must be: Measurable Accessible Substantial Differentiable Actionable Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 17

Market Targeting • Market targeting involves: Evaluating marketing segments. • Segment size, segment structural attractiveness, and company objectives and resources are considered. Selecting target market segments. • Alternatives range from undifferentiated marketing to micromarketing. Being socially responsible. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 18

Selecting Target Market Segments • Targeting strategies include: Undifferentiated (mass) marketing: • Ignores segmentation opportunities. Differentiated (segmented) marketing: • Targets several segments and designs separate offers for each. Concentrated (niche) marketing: • Targets one or a couple small segments. Micromarketing (local or individual marketing) Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 19

Micromarketing • Tailoring products and marketing programs to suit the tastes of specific individuals and locations. Local marketing: Tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, specific stores. Individual marketing: Tailoring products and marketing programs to the needs and preferences of individual customers. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 20

Choosing a Targeting Strategy • Factors to consider: Company resources Product variability Product’s life-cycle stage Market variability Competitors’ marketing strategies Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 21

Socially Responsible Targeting • Smart targeting helps both companies • and consumers. Marketing sometimes generates controversy and concern when targeting: Vulnerable, minority or disadvantaged populations Children and teens • Controversy arises when an attempt is made to profit at the expense of segments. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 22

Differentiation and Positioning • A product’s position is: The way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products. Perceptual positioning maps can help define a brand’s position relative to competitors. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 23

Differentiation and Positioning • Choosing a differentiation and positioning strategy involves: Identifying a set of differentiating competitive advantages on which to build a position. Choosing the right competitive advantages. Selecting an overall positioning strategy. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 24

Differentiation and Positioning • Competitive advantage: An advantage over competitors gained by offering greater customer value, either through lower prices or by providing more benefits that justify higher prices. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 25

Differentiation and Positioning • Identifying possible value differences and competitive advantages: Key to winning target customers is to understand their needs better than competitors do and to deliver more value. Finding points of differentiation requires that marketers examine the entire customer experience. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 26

Differentiation and Positioning • Types of differentiation: Product differentiation Services differentiation Channels differentiation People differentiation Image differentiation Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 27

Differentiation and Positioning • Choosing the right competitive advantage requires selecting how many and which differences to promote. Unique selling proposition is often preferred. Promoting multiple differences is possible. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 28

Differentiation and Positioning • Worthwhile differences that could be promoted are: Important Distinctive Superior Communicable Preemptive Affordable Profitable Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 29

Differentiation and Positioning • Overall or full positioning of the brand is • called the brand’s value proposition. Potential value propositions include: More for more: More benefits for higher price. More for same: More benefits for the same price. More for less: More benefits for a lower price. Same for less: Same benefits for a lower price. Less for much less: Fewer benefits for much lower price. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 30

Perceptual Map

Differentiation and Positioning • Developing a positioning statement: Format: “To (target segment and need) our (brand) is (a concept) that (point of difference). ” Example: “To busy mobile professionals who need to always be in the loop, Black. Berry is a wireless connectivity solution that gives you an easier, more reliable way to stay connected to data, people, and resources while on the go. ” Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 32

Communicating and Delivering the Chosen Position • Company must take strong steps to deliver and communicate the desired position to target consumers. The marketing mix efforts must deliver the positioning strategy. • Firm must also monitor and adapt the position over time to match changes in consumer needs and competitors’ strategies. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 33

Rest Stop: Reviewing the Concepts 1. 2. 3. 4. Define the major steps in designing a customerdriven marketing strategy: market segmentation, targeting, differentiation, and positioning. List and discuss the major bases for segmenting consumer and business markets. Explain how firms identify attractive market segments and choose a market-targeting strategy. Discuss how companies differentiate and position their products for maximum competitive advantage. Copyright 2011, Pearson Education Inc. Publishing as Prentice-Hall 6 - 34