Transcript
From Market Segments to Strategic SegmentsNirmalya Kumar
Marketing’s basic mission: create a differencebetween a company’s offering and that of its competitors on an attribute important to customers.
To create differentiation, marketers usesegmentation, targeting, positioning (STP).
Segmentation: process of dividing the market intohomogeneous groups of customers who respond
similarly to a particular marketing mix of the four Ps
Problem: inability to create perceived differentiation
...too much reliance on mkt.g mix / 4Ps (tactical tool)
Differentiation is achieved by building the firm’s source of competitive advantage into the value network (=value chain) that serves a particular strategic segment.
Differentiation beyond marketing…to encompass- R&D- operations- service
MOVE FROM MARKET TO STRATEGIC SEGMENTSIN TERMS OF
VALUED CUSTOMER
VALUE PROPOSITION
VALUE NETWORK
3 Vs
1. How does a firm create sustainable differentiation?2. What are the cross-functional implicationsof serving a particular segment?3. What positive or negative synergies exist in serving combinations of different segments?4. Where should the value network be sliced to serve different segments?5. How unique is our marketing concept?6. What are sources of our differential advantage in terms of competences, processes and assets?
Segment C
Segment A Segment
B
Segmentation process: identify variables that will
TRADITIONAL PROCESS- identify market segments- select the appropriate segment(s) to target- position the company’s offer within the targeted segment(s)
using the four Ps
maximize differences between segments AND
minimize differences within each segment
Creative segmentation can help a company get closer to its customers
Mass customization:each customer is a distinct segment.
MOST COMPANIES
must TRADE OFF
COMPANYLOGIC CUSTOME
R LOGICEc. of scale = larger segments
Unique needs
Goal: ACTIONABLE SEGMENTS(1) distinctiveness i.e. different segments respond differentially to the marketing mix
(2) identity that is, the ability to reasonably profile which customers fall within which segment
(3) adequate size, so that the development of tailored marketing programs for individual segments is economically viable for the firm.
a priori segmentation:large medium small post hoc segmentation
XeroxXerox
TARGETINGdeciding which segments to actively pursue to generate sales
UNDIFFERENTIATEDOK if it lowers the cost of delivering the value proposition and opens up the industry to large numbers of new customers
DIFFERENTIATEDsimultaneously targets several market segments, each with a unique marketing mix.(Ford: Aston Martin, Ford, Jaguar, Land Rover, Lincoln, Volvo)
CONCENTRATED (one segment): PORSCHESubsegments (Psychographics):Top Guns - Elitists - Fantasists - Proud Patrons - Bon Vivants
Power - ctrl
Power - ctrl
Old money
Old money
Escape n feel guilty
Escape n feel guilty
Ownership - trophy
Ownership - trophy
Jet setters - thrill - excitement
Jet setters - thrill - excitement
Positioning is developing a USP for the target segment
A well articulated USP should be capable of being briefly communicated by completing the sentence: “You should buy my product or service because . . .”
EXPRESSED WITH BENEFITSNOT FEATURES OR ADVANTAGES
inability to do so results in either a price negotiation with the customer or a loss of
the sale.
younger, more educated, more affluent demographic, adventurous, confidentpsychographic of customers who enjoy driving and even disobey speed limits
U.S.
A) Positioned rationally
“affordable and German engineered,”
B) Positioned emotionally
a “different driving experience more connected to the road and world.”
customers perceive VW to be more drivable, more substantial, more individual, and more spirited.
Compared to
VW is more approachable, more likeable,a better value, and more human.
Be very specific in terms of the intended positioning or unique
selling proposition
MIDAS(1) age of the car: (older car, more likely will need Midas(2) size of the car: bigger car = higher value of the sale / margin(3) sex of the driver:women more likely to buy additional services
4) car lovers - 5) utilitarianssame basic value propositionfast, reliable, one-time repair
- Additional services
- phone call after 6 mnths
- smalltalk- newspaper- videogame- guarantee
Market and service segments as the abv onlyrequire changes in the marketing mix
Strategic segments require distinct value networks
A) “fast mechanical repair”
B) “guaranteed repair” (factory-authorized dlr)
C) “specialty repair” (independent workshops)
D) “heavy-duty accidental repair” (body shops)
E) “do-it-yourself repair”
unique
KSF
develop two unique value networks
three Vsvalued customer - value proposition - value network
London - Glasgow 29£
I. valued customer: who to serve? Leisure, small bsnss, entrepr.
II. value proposition: what to offer?
- bsnss travel: seat comfort + selection - bsnss class, newspaper, freq. flyer, travel agency, flexible schedule
- leisure travel: ABV IS OK BUT LOW PRICE IS BETTER
-
-
-
III. value network
Southwest airlinesSouthwest airlines
four key questions to four key questions to chalchallenge an lenge an industry's strategic logic and business industry's strategic logic and business model:model:
EliminateEliminateWhich of the Which of the
factorsfactorsthat the that the industryindustrytakes for takes for grantedgranted
should be should be eliminated?eliminated?
NEWNEWVALUE CURVEVALUE CURVE
ReduceReduceWhich factors shouldWhich factors should
be reduced wellbe reduced wellbelow the industry'sbelow the industry's
standard? standard?
RaiseRaiseWhich factors shouldWhich factors should
be raised wellbe raised wellabove the industry'sabove the industry's
standard?standard?
CreateCreateWhich factors Which factors
shouldshouldbe created be created
thatthatthe industry the industry
hashasnever never
offered?offered?
CXL: free meals (sell snacks) - travel agents (95% tickets thru the Internet or call center 5%)(attributes really create value?)
REDUCE: flexibility in flight changes (all fares non-refundable - switchable with penalty) - seat selection (first-come/first-served and group boarding)(factors overdesigned by industry)
RAISE: lower prices, greater punctuality, younger fleet of planes(understand the compromises that the industry currently forcesits customers to make)
CREATE: one-way fares, refunds for delays abv 4 hrs, ticketless travel.(new sources of value creation)
EASYJET STRATEGY CANVASS
0
0.5
1
1.5
2
2.5
3
3.5
traditional carriers
easyjet
EasyJet strategy canvass (modified)
0
0.5
1
1.5
2
2.5
3
3.5
worldwide netw
ork
wide choice in distri
bution
seat selectio
n
availabilit
y of bsnss class
frequent fl
yer meals
refund fo
r missed fli
ghts
seat spacing
in flight m
eals
flexibilit
y to change fli
ght
punctuality
refunds fo
r late planes
price attr
activeness
new planes
traditional carriers
easyjet
Intangible benefit
Tangible benefit
Refunds abv 4 hrs: unlikely for short hauls
Perceived benefit
VALUE PROPOSITION STRIPPED TO THE BONE
III. value network - How to deliver
20 to 25% savings - 10% bgt mkt.g
Reinventing the Value Network.5 cost principles to build easyJet’s value network:
1. Avoid fixed costs whenever possible: no secretaries!2. Make fixed costs work harder than the rest of the industry: EasyJet planes fligh 11 hrs/day, VS 6.5-hr avg3. Eliminate generally accepted variable costs as travel agents.4. Keep variable costs to a min., such as airport fees.5. Convert variable costs associated with services into revenue generators, as selling snacks on the plane.
British airways
IS IT GOOD TO LOOK FOR SYNERGIES?
different strategic segments require divergent value networks
synergies = shared portions of the value network
NOT OPTIMIZED FOR
FULL SERVICE - LOW COST
OPTIMIZING THE VALUE NETWORK
(1) To what extent does our marketing concept differ from others in the industry?(2) To what extent do elements of our marketing conceptmutually reinforce each other?
‘82 - ‘90 UK grocery sales of branded products: 52% to 33%PRIVATE LABELS: 33% TO 46%EATING OUT: 15% TO 21%
private labels and branded businesses are strategic segments?
Share logistics, marketing, sales forcePRIVATE LABEL COPYCAT
CHEAPERRAW MAT. FEW SKUs KAM Σ
REVERSEENGINEER BIDDING
LONGERLEADTIME
COPYPACKAGE
OP.PROFIT
RESELLERGPM
AVG.PRICE
0 12 9.5 6 4.5 32.5 65
BRANDED PRODUCT
NEW PRODUCTS
JOINT DEVELOPMENT
OF PROPRIETARY
MATERIALS
WIDE RANGE
OF SKUs
EXTENSIVEBRAND
INVESTMENT
NEW FUNCTIONALITY
QUICK RESPONSE
LARGE SALESFORCE
2 15 14 20 9 40 100
ABS. $ 4.5/32.5=13.8 9/40= 22.5
Ret margin 32.5/65 vs 40/100
In continuous process industries such as toilet paper or aluminum foil, value network separation at the level of purchasing and manufacturing would severely compromise productionefficiencies.
1. Concentrate exclusively on being either a branded or aprivate label player.2. Become primarily a branded player, but accept privatelabel manufacturing only under very strict criteria: meeta hurdle rate of return on sales, use only excess plantcapacity, and do not “borrow” packaging or recentlyintroduced innovative features of the company’s brandedproduct.3. Completely separate the private label business fromthe branded business and let each optimize its ownvalue network.
Drive Marketing Innovation Using the Three Vs
1. Are there customers who are either unhappy with all of the industry’s offerings or are not being served at all?
E.G. cheap HIV drugs mfrs
2. Can we offer a value proposition that delivers dramaticallyhigher benefits or lower prices, compared with others in the industry?
3.Can we radically redefine the value network for theindustry with much lower costs?
Exploit the Three Vs–Related Growth Opportunities
Understanding where customers are not being served helps determine which markets and industries thefirm should operate in or “who to serve.”
Clarity in the winning formula and economic logic create the potential to offer dramatically different value propositions and help determine “what to offer.”
The value network, or “how to deliver,” explicates the timing (when to move into which markets) and vehicles(how to get there)
Checklist for Marketers on the Three Vs
Valued Customer• Who are our valued customers?• Are there customers who are unhappy with all the currentofferings of the industry?• Are there customers who have a need but are not being currentlyserved by the industry?• Are we trying to reach customers who are unaware that theyneed our product? If so, how are we going to create the need?• Who is the user? The buyer? The influencer? The payer? What are the preferred criteria of each and their power in the buying decision?• Is the target segment large enough to meet our salesobjectives?• What is the growth rate of the target segment?
Value Proposition• What are the core needs we are trying to address with our valueproposition?• Does the value proposition fit the needs of our valuedcustomers?
• What benefits are we actually delivering to the customers?• Is our value proposition differentiated from the competitors or are we positioning in a crowded space?• Are our value proposition claims reinforced by underlying product and service features?• Are we positioning on attributes that we can defend against competitive attacks?• Are we positioning on too many benefits to be credible?
Value Network• Can we serve the valued customers with the value proposition at a profit?• Do we have the necessary capabilities to deliver the value proposition? If not, could we acquire or partner with them?• Would serving the valued customers have negative consequences on our existing customers or businesses? If so, how are we going to control for this?• Which high-cost or low-value-added activities could be eliminated, reduced, or outsourced in our value network?• Where are the advantages of scale in our value network? Can we maintain scale while not losing flexibility?• How different is our value network from the rest of the industry?• What is our break-even point? Could we lower it by slightly varying the value network?
CONCLUSIONAs companies enter and operate in related segments of businesses, are they facing strategic segments or market segments?
How far back in the value network should they separate the two businesses?
Is it enough to separate marketing, or should marketing and distribution be segregated?
Or does one need a completely distinct value network for the newsegment?
How can marketing be used to generate innovation and growth in the industry?
Using the three Vs lens to answer these questions, a companycan find new strategic segments, build deep differentiation,
and drive innovation and growth
top related