eLearning Session

After completing this chapter, you should be able to:

1. Explain why effective marketing strategy depends on understanding consumer behavior.
2. Identify the keys to adopting a market orientation and a consumer focus.
3. Understand the importance of marketing imagination to business success and know some keys to being an imaginative company.
4. Describe market segmentation and identify a process for segmenting markets.
5. Identify useful segmentation variables and criteria for effective market segmentation.
6. Describe different kinds of market segmentation strategies and when they are appropriate.
7. Understand the leadership between positioning and targeting.
8. Describe different product positioning strategies.

• Strategy can be defined simply as the actions managers take to attain the goals of the firm.Marketing strategy concerns the actions managers take to improve the likelihood marketplace exchanges will occur between a firm and its target market(s).
• Over the foreseeable future we can expect that more buyer-seller transactions will occur in an information-defined arena coined marketspace. B2B online commerce or e-commerce is expected to grow from $43 billion in 1998 to $1 trillion in 2003.
• In marketspace transactions, the contents of the transactions, the contexts in which the transactions occur and the support activities that enable the transactions are all likely to be very different from those same kind of exchanges in the physical marketplace.
• Like ATMs in consumer markets, business' auctions have created a new marketspace interface between customers and companies that has dramatically changed the competitive dynamics of their respective industries.
• Companies with marketingimaginationgo beyond what consumers are able to tell researchers to find new ways to create value for them.
• Although every successful marketing strategy is built on important skills and resources, none is more critical than the ability to sense the market. Effectively sensing the market produces knowledge, not just information.
• Listening carefully to customers and remaining market-focused leads to market offerings that are different from competitors' products and to improved profit margins.
• Organizations need to understand consumer behavior in order to segment markets, choose market segments to serve, and develop and position products and services to attract current and potential customers.
• Developing and positioning products and services involves not just deciding on the product or service form but also communications and promotions, distribution systems, and pricing techniques.

• One of the most important applications of consumer research is to improve marketing strategies.
• In general, customer-oriented marketing strategies improve the value customers derive from products or decrease the costs of products to customers.
• One useful categorization of strategies identifies four strategy types:

Defenders are firms with a narrow product market, a stable customer group, and an established organization structure typically managed by older executives.

Prospectors have a changing product market, a focus on innovation and change, and a flexible organizational structure headed by younger managers. A differentiation strategyemphasizing a product that is unique in the industry, provides a distinct advantage, or is otherwise set apart from competitors' brands in some way is a more specific example of a Prospector Strategy.

The Analyzer strategy falls between Defenders and Prospectors on the continuum. Firms that follow a price leadership strategy, alsocalled a low-cost/low price strategy, are examples of Analyzers.

Reactors do not really have a consistent strategy. Reactors tend not to be very customer-oriented and adopt a "me-too" approach to marketing.

1. Market Focused and Customer Oriented
• The Marketing Concept is a business philosophy, an ideal and a policy statement. The essence of the marketing concept is a market-focused,customer-oriented, coordinated marketing effort aimed at generating customer satisfaction as the key to satisfying organizational needs.
• Customer focus is the central element of a market orientation. Organizations with a customer focus constantly look for ways to deliver greater value to current and prospective customers through mutually beneficial exchanges.
• Sensing the market refers to a manager's ability to empathize with andgain insights from customers. This is the single most important skill a manager can use to mobilize new technologies, develop product and service offerings, and design communications programs. All the elements of a company's strategic posture depend on this skill.
• Effectively sensing the market produces knowledge not just information.
• By listening carefully to customers and remaining market focused, a company can develop products that are fundamentally different from those of its competitors, which can result in increased profit margin.
• Differentiation means offering customers something they value and that competitors don't have.
• Differentiation can occur at any point in the consumption chain-from how and when the product is acquired to when consumers decide they no longer want it and decide to dispose of it.
• Market Intelligence includes knowledge of environmental factors thataffect customers' needs and preferences and emphasizes current as well as future needs of customers. The concern for future needs drives companies like Xerox, 3M, Toyota, and Proctor and Gamble, for example, to invest heavily in new-product development and The Coca-Cola Company to invest heavily in trends research provided by companies like Yankelovich Partners. The idea that market intelligence includes anticipated customer needs is important because it often takes years for an organization to develop new product offerings.

www.yankelovich.com

• Managers emphasized the need for coordinated marketing, stressing that a market orientation is not just the responsibility of a marketing department. This means that market intelligence must be distributed across the organization.

Prospector Strategy The Toyota Hybrid Energy Vehicle (50.0K)

• Effectively sharing intelligence is important because it provides a basis for joint action by different departments.
• Managers stress that certain kinds of environmentalconditions may take a market orientation more or less important to overall business performance.
• Managers also stress that the degree of competition in an industry affects the importance of a market orientation.
• We define market orientation as the organization-wide generation ofmarket intelligence, pertaining to current and future consumer needs, dissemination of the intelligence across departments, and organization-wide responsiveness to it.
• For organizations to become more market oriented they often must acknowledge gaps between their current orientation and a market orientation.
2. The Context of Strategy Development
• The cornerstone of market orientation is a customer focus. Marketing and organizational strategies must be designed around an understanding of consumers' thoughts, feelings and behaviors. Exhibit 2.1 summarizes the crucial relationship between marketing strategies and understanding consumers. Companies must avoid a narrow focus when trying to understand consumers.

Exhibit 2.1: Marketing Strategy and Consumers (50.0K)

• Global consumer marketing usually requires firms to tailor their strategies in response to variations in their environment.
• Typical sources of pressure to respond to local conditions include: a) differences in consumer tastes and preferences, b) differences in infrastructure and customary marketing practices, c) differences in distribution channels, and d) host government rules and regulations.
• Differences in distribution channels include such things as channel penetration and retail concentration.
• In international consumer marketing, in addition to capital, expertise in marketing strategy is one of the most universally sought capabilities.
3. Consumers' Thoughts, Feelings and Behaviors
• Within a particular context, a person may have conflicting thoughts, feelings and behaviors toward a product or service.
• By digging into the conflicts between feelings, thoughts, and behavior, managers can not only better satisfy existing customers but also develop differentiated products that appeal to un-served portions of the market.
• By examining both what consumers feel and what they do, marketers will have a better chance of developing a marketing mix that delivers superior value to a chosen target market segment.

Exhibit 2.2: Strategic Analysis of Consumers (50.0K)

• Exhibit 2.2 illustrates a strategic analysis of consumers that involves an examination of both their purchase behaviors and their thoughts and feelings about a brand.
• Analyzing both consumer attitudes and behaviors can help you pinpoint consumer segments that are not worth trying to develop.
4. Marketing Imagination
• The connection between understanding customers and designing effective marketing strategies requires creativity and imagination.
• Marketing intelligence attempts to find out what problems customers are trying to solve, and marketing imagination offers solutions.

We Want You - an Imaginative Company: Benetton (50.0K)

• Marketing imagination doesn't just involve finding solutions to consumers problems; sometimes it involves a different type of matching of consumer problems and solutions. Many companies develop new technologies and then attempt to determine what consumer problems these technologies can solve. When the goal is truly innovative products and markets, being customer-led 0 is not enough. Kodak offers an example. The company searched explicitly for markets that combined its traditional competence in chemicals (film) and electronic imagining (copying). What emerged was an idea for a new kind of film and camera system. The result was the Advantix system.

www.kodak.com/global/en/consumer/aps/index.shtml

• Companies with marketing imagination are able to lead customers where they want to go before customers know it themselves.
• From a consumer behavior standpoint, the core of marketing strategy concerns market segmentation, targeting, and product positioning.

• Market segmentation is based on a simple idea - in general, not everyone wants the same things. From this idea comes market segmentation, which is the process of dividing a market into identifiable groups of similar consumers.
• The marketing mix refers to those basic understanding blocks of marketing strategy - a product, its price, promotional communications, and its place of purchase and delivery.
• Soon market segmentation may give way to mass customization. A growing number of manufacturers are adopting mass customization. Customization means manufacturing a product or delivering a service in response to a particular customer's needs, and mass customization means doing it in a cost-effective way.
• With the growth of the Internet, mass customization is likely to be a significant force in the next few decades as more companies try to cultivate learning relationships with their customers. By learning about the customer during each exchange, companies can more precisely tailor products and services to the particular needs of that customer.
• The firm achieves a competitive advantage when it is able to deliver to consumers a bundle of benefits or values that they perceive to be unique to the product. If this happens, the firm is in a position to benefit from repeated exchange relationships with product- or brand loyal consumers, those who purchase the product repeatedly and feel positively about it. An approach to segmenting markets is illustrated in Exhibit 2.3. This process begins with a thorough investigation of consumer-product relationships.

Exhibit 2.3: The Market Segmentation Process (50.0K)

1. Investigating Consumer/Product Relationships
• From our perspective, the first step in developing a useful understanding of market segments is investigating consumer/product relationships.
• At the most general level, organizations need to ask what kind of environmental factors are involved in the purchase/consumption process for the market.
• People do develop complex relationships with some products and brands they use.
• At the extreme, some brands become the focus of brand communities,groups of people that share a consciousness of a kind, share moral responsibility for other members of the community and perpetuate rituals and traditions associated with the brand.
2. Investigation of Alternative Segmentation Approaches
• Usually segmentation of consumer markets is based on one or more of three basic criteria: consumer needs as related to 1) some geographic or demographic criteria, 2) psychographic variables, or 3) behavioral variables. The major segmentation variables for consumer markets are illustrated in Exhibit 2.4. Ultimately, the segmentation bases for a firm's customers are determined by continual refinement of market offerings as consumers respond to them through purchase and use.

Exhibit 2.4: Major Segmentation Bases (50.0K)

Geographic segmentationdivides the market into different geographical units such as nations, states, regions, counties, cities, or neighborhoods.

Demographic segmentation consists of dividing the market into groups on the basis of variables such as age, sex, income, occupation, education, religion, family size, family life cycle and ethnicity. Demographic variables are the most popular bases for distinguishing customer groups.

Psychographic segmentation divides buyers into groups on the basis of differences in consumer lifestyle. We can think of lifestyle as how people live. This includes their activities, interests and opinions. Lifestyles are certainly related to demographics such as income, occupation, gender, family life cycle, ethnicity and so on, but they also reflect a complex composite of a person's self and experiences.

• Increasingly hybrid approaches to segmentation that combine demographic, geographics, and psychographics, are employed to more precisely segment markets.
• With behavioral segmentation, buyers are divided into groups on the basis of differences in their knowledge, attitude, use or response to a product.
• Benefit segmentation divides buyers based on the different benefits they seek from the product.
• Marketers have tried to explore the sorts of benefits that are desired by different groups of consumers and which of these benefits leads to the greatest amount of consumer satisfaction.
• Not only do consumers different types of benefits from products in general, but also different consumers may derive different benefits from the same product.
• Often markets can be segmented into light, medium, and heavy user groups. This makes usage rate segmentation, segmenting the market byamount of the product purchased or consumed, valuable.
• Occasion segmentationdivides buyers according to when they acquire and/or use a product. Occasion segmentation can help firms expand product usage.
• Buyer readiness refers to the fact that at any time people are in different stages of willingness to buy a product.
• Whichever segmentation criteria an organization chooses, four general rules of good segmentation can be identified. They are summarized in Good Practices 2.5.

First, in selecting market segments, a firm should assess whethera segment is measurable. Can the segment be clearly identified on the basis of measurable criteria?

A second important criterion is that of substantiality. The market segment needs to be of sufficient size to warrant the expense of developing a market offering to meet its needs.

Does the segment exhibit adequate market potential? Ideally a segment should be growing.

A third criterion for effective market segmentation is accessibility. Accessibly refers both to the ability of an organization to communicate with its customers and to its ability to deliver products and services to its customers reliably.

The final criterion of effective market segmentation is responsiveness. Responsiveness refers to the fact that a segment reacts differently than others to the elements of the marketing mix.

Good Practice 2.5: Effective Segmentation Criteria (50.0K)

• From a consumer behavior perspective, the next task in developing marketing strategy is selecting the most appropriate group or groups for the firm to serve. In choosing whom to serve, a firm may adopt three basic strategies.

The first strategy is ignoring differences between groups within a market and offering a single marketing mix to the entire market. We refer to this strategic choice as mass or undifferentiated marketing. Some benefits accrue to a firm using undifferentiated marketing, most notably cost economies in production and marketing.

A second strategic option available is to operate in several segments of the market and design separate marketing mixes for each one. We refer to this as differentiated or multi-segment marketing. The multi-segment option entails both benefits and costs for an organization. On the one hand, by creating special marketing mixes for each segment, the organization hopes to create more total sales, or in the case of non-profits, to obtain more donations. On the other hand, multi-segment marketing is likely to increase the research and development. Production and marketing costs incurred as a result of creating multiple marketing mixes.

The final option available to an organization is to seek a large share of one or a few sub-markets. We call this approach concentrated or nichemarketing. There are a number of benefits enjoyed by organizations that adopt a concentrated marketing strategy. Among them are greater knowledge of their market segment's needs and wants, operation economies of scale, and increased loyalty from grateful customers. Some costs accompany this strategy too. Perhaps the most serious is the vulnerability to rapid and unpredicted changes in the segment's needs and wants. Further, the firm may be vulnerable to competition from larger multi-segment marketing firms who suddenly recognize opportunities in the niche marketer's market.

Choosing Market Segments to Target (50.0K)

• In making decisions about what strategy to adopt, the organization needs to examine a number of questions.

First, the skills and resources available to the organization should be assessed. The more limited the skills and resources, the more likely undifferentiated strategies should be adopted.

Second, the firm should assess market variability as suggested in the section on segmentation. If the market is not composed of identifiable, sizable, accessible, responsive segments, an undifferentiated strategy may be appropriate. Alternatively, if many segments are identified, a differentiated or concentrated strategy is appropriate.

A third, related issue is to ask just how variable is the product? Consumers perceive few differences between varieties. However, if one was marketing potatoes in Peru or Denmark where numerous varieties of potatoes are grown, or mushrooms in France where dozens of mushroom varieties are recognized, differentiated strategies might be required.

A fourth issue concerns the stage of the product life cycle. Differentiated strategies become more common during the growth and maturity phases, and concentrated strategies may become fruitful during the maturity and decline phases.

A final issue that a firm must evaluate in adopting a segmentation strategy is its competitors' strategies. The costs of inattention to competitors' strategies can be great.

• Product positioning means deciding how the organization wants thecompany and its brands to be perceived and evaluated by target markets. In general, product positioning requires organizations to differentiate their market offerings from those of their competitors. However, it's not enough to distinguish their market offerings, they must do so in ways that are meaningful to their target market segments.
• Firms seeking to enter their brands in another country's market may face very large expenditures in order to build brand awareness and a positive brand image. Often a particular kind of co-branding, called a brand alliance, can be used to position the brand by the new market entrant. A brand alliance amounts to renting a brand name known to target consumers from another firm.
• To effectively position products and services for a target segment, the organization often begins by identifying competitors. By analyzing consumers' preferences as compared with competitor positions, the company can determine a profitable, differentiated position for their product/service.
• One technique that is often used to position products and services is perceptual mapping. A perceptual map is a spatial picture of how consumers view products or brands within a market. Exhibit 2.5 illustrates a perceptual map of 12 processed meats (ham, salami, etc.). A nationwide sample of female consumers in the Netherlands was polled to produce this map in a study that employed color photographs of 12 different types of processed meats. It is important to note that the set of competitive products is culturally based. The same study conducted in a different culture would include a different set of processed meats. In the study the two most important dimensions distinguishing perceptions of processed meat were those labeled perceived quality and sensory perception.

Exhibit 2.5: Perceptual Map for Processed Meats (50.0K)

• Once a company knows how it wants to be perceived and evaluated by consumers the next problem is to design a marketing mix strategy that will help them get there or stay there. This includes developing tactics for communicating the position of the product to target consumers. Many elements of the marketing mix associated with the product, its distribution, promotion, and price communicate positioning to the customer.
• Often a company will attempt to change its image and position in the market. Changing the marketing mix is the way this is done.
• It is difficult to maintain a position in the market. Constant monitoring and innovation are required simply to stay in the same place.