AN EVALUATION OF THE USE OF SEGMENTATION, TARGETING AND POSITIONING STRATEGIES BY SELECTED SMALL AND MEDIUM ENGINEERING MANUFACTURING ENTERPRISES (SMME) TO SUSTAIN AND GROW CUSTOMER BASE BY THOMAS MOYO Paper presented partial fulfillment of the requirements for the MAGISTER IN BUSINESS ADMINISTRATION at the Port Elizabeth Technikon. PROMOTER: Dr John Burger DATE: January 2005
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AN EVALUATION OF THE USE OF SEGMENTATION, TARGETING AND
POSITIONING STRATEGIES BY SELECTED SMALL AND MEDIUM
ENGINEERING MANUFACTURING ENTERPRISES (SMME) TO SUSTAIN
AND GROW CUSTOMER BASE
BY
THOMAS MOYO
Paper presented partial fulfillment of the requirements for the MAGISTER
IN BUSINESS ADMINISTRATION at the Port Elizabeth Technikon.
PROMOTER: Dr John Burger
DATE: January 2005
DECLARATION "I Mmoloki Thomas Moyo hereby declare that:
• the work in this research paper is my own original work;
• all sources used or referred to have been documented and recognised; and
• this research paper has not been previously submitted in full or partial
fulfillment of the requirements for an equivalent or higher qualification at any
other recognised education institution."
M. T. Moyo January 2005
i
ACKNOWLEDGEMENTS The completion and success of this study would have not been possible without
the advice, assistance, encouragement and support of the interested parties.
Most and above all I would like to thank in particularly the following:
• Lord Almighty for giving me life and the strength.
• My mother Margaret Moyo, for the support and prayers.
• My girl friend Babalwa for being there for me.
• My friends, Eric, Muzi and Thai for standing by me.
• My study group, Dumisani, Nyanisa, Pravina and Wellman for the
motivation.
• My employer, Eastern Cape Manufacturing Advisory Centre, for allowing
me to use the database.
• My promoter, Dr John Burger, for the assistance and guidance given for
me to perform the research.
• The library personnel at the Port Elizabeth Technikon for their help.
• All engineering companies that agreed to sit for the interview during the
survey.
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ABSTRACT In this study the small engineering firms were surveyed to establish if the firms
apply segmenting, targeting and positioning concepts in order to grow and
sustain its customer base. The evaluation would indicate whether the
engineering firms do apply the above-mentioned concepts wholly or partially or
not. It was therefore intended to highlight what engineering do to sustain and
grow their customer base in the absence of the marketing concepts application.
The literature survey was aimed at providing the guideline for application of
these concepts. Based on the literature study and survey of engineering firms it
can be concluded that firms do apply the segmenting, targeting and positioning
concepts. However the application of these concepts was partially.
The objective of the empirical study was to evaluate if the engineering
companies do apply the segmenting, targeting and positioning concepts.
Samples of forty engineering companies were surveyed. Target people for the
interview were the owner-managers and the managers of the engineering firms.
The response from the respondents were analysed and compared with the
literature study. Conclusions and recommendations were formulated for
engineering firm’s application of segmenting, targeting and positioning
concepts. The empirical study results were satisfactory and informative. Close
customer relationship appeared as a means of securing business by
engineering firms.
iii
TABLE OF CONTENT
DECLARATION i
ACKNOWLEDGEMENTS ii
ABSTRACT iii
TABLE OF CONTENT iv
LIST OF DIAGRAMS viii
LIST OF FIGURES xi
LIST OF ANNEXTURES xi
CHAPTER 1
THE BACKGROUND AND METHODS OF THE STUDY
1.1 INTRODUCTION 1
1.2 PROBLEM STATEMENT 2
1.3 SUB-PROBLEMS 4
1.4 DEMARCATION OF RESEARCH 4
1.4.1 Managerial or Owner level 4
1.4.2 Size of organisation 4
1.4.3 Geographical demarcation 5
1.4.4 Marketing 5
1.4.5 Subject evaluation 5
1.4.6 Basis for the tool 5
1.5 DEFINITION OF CONCEPTS 5
1.5.1 Marketing 5
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1.5.2 Market Segmentation and Targeting 6
1.5.3 Positioning 6
1.5.4 Small and Medium Manufacturing Enterprises (SMME) 7
1.6 ASSUMPTIONS 7
1.7 THE SIGNIFICANCE OF RESEARCH 7
1.8 AN OVERVIEW OF RELATED LITERATURE 9
1.8.1 Customers Needs, Wants, and Demands 9
1.8.2 Segment and target markets 10
1.8.3 Competition 10
1.8.4 Marketing Mix 11
1.9 RESEARCH DESIGN 12
1.9.1 Literature survey 12
1.9.2 Empirical study 13
1.9.3 Comparisons of and the development of a better method 14
1.10 PROPOSED PROGRAMME OF STUDY 14
CHAPTER 2
SEGMENTING AND TARGETING THE MARKETS
2.1 INTRODUCTION 15
2.2 SEGMENTATION 16
2.2.1 Definition 16
2.2.2 Reasons for segmenting a market 17
2.2.3 Segmenting criteria 20
2.2.4 Types of Markets 21
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2.2.5 Identify a target market 22
2.2.6 Segment the Overall Market 22
2.2.7 Steps in segmenting a market 25
2.2.8 Market Segmentation Strategies 26
2.3 TARGETING 28
2.3.1 Market targeting strategies 29
2.3.2 Patterns of segmenting a market 32
2.4 SUMMARY 34
CHAPTER 3
POSITIONING
3.1 INTRODUCTION 35
3.2 DIFFERENTIATION 36
3.2.1 The bases for differentiation 38
3.3 POSITIONING 44
3.3.1 Bases to position products 44
3.3.2 Process of positioning 46
3.3.3 Positioning methods 48
3.3.4 Positioning errors 49
3.4 SUMMARY 50
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CHAPTER 4
THE EMPERICAL STUDY
4.1 INTRODUCTION 51
4.2 RESEARCH DESIGN 51
4.3 RESEARCH METHODOLOGY 52
4.4 QUESTIONNAIRE CONSTRUCTION 54
4.4.1 Design of the questionnaires 54
4.4.2 Administration of the questionnaires 55
4.4.3 Measuring instrument 56
4.4.4 Identification of respondents 56
4.4.5 Pilot study 56
4.4.6 Validity and reliability 57
4.5 SUMMARY 58
CHAPTER 5
ANALYSIS AND INTERPRETATION OF THE EMPERICAL STUDY
5.1 INTRODUCTION 59
5.2 RESPONSE RATE 59
5.3 ANALYSIS OF THE RESULTS 59
5.3.1 The background of the person in authority 60
5.3.2 The firms background 62
5.3.3 Segmenting and targeting of markets 64
5.3.4 Positioning 80
5.4 SUMMARY 94
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CHAPTER 6
SUMMARY AND RECOMMENDATION
6.1 INTRODUCTION 95
6.2 SUMMARY 95
6.3 SUMMARY OF EMPERICAL SURVEY AND
RECOMMENDATIONS 97
6.3.1 Segmenting and targeting of markets concept 97
6.3.2 Positioning of companies or products concepts 100
6.4 AREAS FOR FURTHER RESEARCH 101
REFERENCE LIST 102
LIST OF DIAGRAMS
DIAGRAM DESCRIPTION
PAGE
Diagram 5.1 Statement 1: Title of respondent 60
Diagram 5.2 Statement 2: Qualification 61
Diagram 5.3 Statement 3: Age of the business 62
Diagram 5.4 Statement 4: Turnover of the business 63
Diagram 5.5 Statement 5: Number of employees 64
Diagram 5.6 Statement 6: How do you pick/select your
customer? 65
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Diagram 5.7 Statement 7: What criteria do you apply? 66
Diagram 5.8 Statement 8: Do you quantify how many potential
customers exist in the nearby area? 67
Diagram 5.9 Statement 9: On what basis do you group or
segment your market? 68
Diagram 5.10 Statement 10: Do you try to establish if the
segment you select will be sustainable? 69
Diagram 5.11 Statement 11: What do your customers buy? 70
Diagram 5.12 Statement 12: Which product do you supply? 71
Diagram 5.13 Statement 13: Which service do you provide? 72
Diagram 5.14 Statement 14: What determines which products or
services you provide? 73
Diagram 5.15 Statement 15: Do you ever contact a customer to
establish if they need new or modified products? 74
Diagram 5.16 Statement 16: Do you tend to supply the same
product or service to your customers? 75
Diagram 5.17 Statement 17: Do you tend to supply the new
product to your customers? 76
Diagram 5.18 Statement 18: Do you specialise in a specific field
of product offerings? 77
Diagram 5.19 Statement 19: If yes, in which field? 78
Diagram 5.20 Statement 20: Is your company dependant on
one or limited customers? 79
Diagram 5.21 Statement 21: Do most of your sales come from
one product? 80
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Diagram 5.22 Statement 22: Do you feel that you have a
competitive advantage? 81
Diagram 5.23 Statement 23: Do you specifically regard any of
the following items as a competitive advantage? 82
Diagram 5.24 Statement 24: Is the item you selected in 1.3
consistence with what the customer want? 83
Diagram 5.25 Statement 25: Is your competitive advantage cost
effective? 84
Diagram 5.26 Statement 26: Is your competitive advantage
sustainable? 85
Diagram 5.27 Statement 27: Is your competitive advantage
profitable? 86
Diagram 5.28 Statement 28: Is your product differentiated from
that of your competitors? 87
Diagram 5.29 Statement 29: Rank the order of importance of the
following criteria to your target market? 88
Diagram 5.30 Statement 30: Do you have direct competitors? 89
Diagram 5.31 Statement 30: Do you have indirect competitors? 90
Diagram 5.32 Statement 32: What do you regard as your
competitors’ core two strength and weakness? 91
Diagram 5.33 Statement 33: What do you regard as your
company’s’ core two strength and weakness? 92
Diagram 5.34 Statement 34: Is customer relationship important
to your business? 93
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LIST OF FIGURES
Figure 2.1 Target marketing 16
Figure 2.2 Market segments and the strategic options 29
LIST OF ANNEXTURES
ANNEXTURE DESCRIPTION
ANNEXTURE A Small Engineering segmenting, targeting and
positioning questionnaire
xi
CHAPTER 1
THE BACKGROUND AND METHODS OF THE STUDY 1.1 INTRODUCTION
The South African Government white paper states that the government realized
that the way to boost the economy of the country is through the development
and sustainability of Small, Micro and Medium Enterprises (SMME).
Government’s white paper on SMME intends to address the following
(Government papers, 2003):
• The creation of new SMME
• The development and growth of existing SMME
• Targeted support to manufacturing SMME (new and existing)
• Enhance productivity and competitiveness.
SMME’s form 97.5 per cent of all businesses in South Africa, generate 34.8 per
cent of the gross domestic product (GDP) and contribute 42.7 per cent of the
total value of salaries and wages paid in South Africa. Hence, they employ 54.5
per cent of all formal private sector employees (Kroon, 1998:64).
The above information shows that development of SMME is important for the
alleviation of hunger and unemployment. However, Statistics South Africa
shows the statistics of SMME registration in SA being higher than other
countries. The statistics also indicates the high number of voluntary liquidations
of SMME in South Africa. For example, 2164 companies were liquidated in the
first eight months of 2003 (Statistics South Africa, 2003).
The table below is the snapshot from Statistics South Africa and it depicts the
number of liquidated companies at the end of August 2003.
1
Key figures as at the end of August 2003 regarding the number of liquidations
Actual
estimates
August
2003
June 2003
to
August 2003
% change
between
August 2002
and
August 2003
% change
between
March 2003 to
May 2003
and
June 2003 to
August 2003
% change
between
January 2002 to
August 2002
and
January 2003 to
August 2003
Number of
Liquidations
406
1 090
+19,8
+17,0
-1,2
Statistical release P0043 October 2, 2003
It is also substantiated by reports that venture failure vary and range between
30 and 80 per cent of all new enterprise within the first two years after
establishment. SMME’s fail in first two years of their existence because of
mismanagement of cash flow problems (DTI, 2000).
1.2 PROBLEM STATEMENT
According to Nieman (2003:32), challenges facing SMMEs include access to:
• Start up and expansion finance
• Markets
• Appropriate technology
• Resources (especially human resources).
As indicated above, one of the major challenges facing SMMEs is the lack of
sustainable markets for their products and services. They tend to produce and
offer services that do not have a ready market (Kroon, 1998:33).
Few entrepreneurs start with an original concept or plan to achieve a
sustainable competitive advantage through proprietary technology or a product.
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These entrepreneurs tend to follow “the group”, hoping that whatever has
worked for the others will work for them as well. A major cause of this
constraint is that SMMEs do not give priority to marketing in their overall
business approach. Most of them do not probe and segment their markets,
analyze customer demand, know their competition or interpret trends, says
Nieman (2003:33).
Nieman (2003:10) also says that small businesses should usually set
themselves strategic objectives in relation to:
• Market targets
• Market development
• Market share
• Market position
As entrepreneurs, SMME’s should determine their competitive advantage by
finding out why clients prefer their products or services. To ensure a
competitive advantage, successful entrepreneurs ensure that they offer
something better and/or different to their competitors, that is positioning (Oates,
1990:38).
Successful entrepreneurs are market oriented. They know who their target
market is, what the target market’s requirements and needs are and how to
meet these profitably. Their products and services are developed to meet the
needs of the clients. Hence, they position the business in such a way as to
differentiate it from competitors to ensure profitability and a competitive
advantage (Kroon, 1998:18).
Therefore failure of the SMME is not directly linked to marketing, it can be due
to mismanagement of the business, but marketing is the underlying factor. Most
SMME fail due to lack of finance, which is directly linked to lack of customers
and/or markets. Thus the effective of segmentation and targeting of the market
as well as positioning and promotion of SMME is questioned (Pattern, 1985:
51).
3
This leads to the problem statement, which is:
Can market segmentation, targeting and positioning assist an Engineering SMME to position itself in the market place?
1.3 SUB-PROBLEMS
To assist in answering the problem statement, sub-problems have been
formulated.
The sub-problems are as follows:
• How do small businesses segment, target and position themselves?
• What is the best way to segment, target and position an Engineering SMME in a competitive market?
1.4 DEMARCATION OF RESEARCH
According to Leedy (2001:61), all irrelevancies to the problem must be firmly
ruled out in the statement of delimitation.
1.4.1 Managerial or Owner level
The study level will be limited to owners or managing members and managers
of the business.
1.4.2 Size of organisation
Organisations employing more than three but less than 200 employees with a
maximum of R10 000 000 annual turnover will be used. This delimitation is in
line with what the Department of Trade and Industries (DTI) defines an SMME..
Companies with turnover of more than R10 000 000 can argue that marketing
is not a necessity for them.
4
1.4.3 Geographical demarcation
The empirical component of this study will be limited to organisations lying
within the Eastern Cape region, which includes Port Elizabeth, Uitenhage and
East London.
1.4.4 Marketing
This research will be limited to the Engineering SMME marketing through
market segmentation, targeting and positioning of SMME and its products in
order to sustain and grow its customer base. The subject of this study will be
limited to market segmenting, targeting and positioning of small manufacturing
businesses.
1.4.5 Subject evaluation
The field of focus on the small businesses will be:
• Segmentation
• Targeting
• Positioning
1.4.6 Basis for the tool
The aim of the study is to evaluate the use of the theoretical best practice for
segmentation, targeting and positioning of the Engineering SMME in a
competitive market with what the owners or managers are doing.
1.5 DEFINITION OF CONCEPTS 1.5.1 Marketing
According to Kotler (2000: 3), marketing is typically seen as the task of
creating, promoting, and delivering goods and services to consumers and
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businesses. In fact, marketing people are involved in marketing 10 types of
entities: goods, services, experiences, events, persons, places, properties,
organizations, information, and ideas. In this study marketing will be defined as
the task of creating, promoting, and delivering goods and services to
consumers and businesses.
1.5.2 Market Segmentation and Targeting
Targeting your market is simply defining who your primary customer will be.
The market should be measurable, sufficiently large and reachable (Minett,
2002: 35).
Once the target market is defined, based upon the knowledge of product
appeals and market analysis, and can be measured, should determine whether
the target audience is large enough to sustain the business on an ongoing
basis. In addition, your target market needs to be reachable. There must be
ways of talking to your target audience (MaGee, 2003).
In this study target markets and segments will be defined as who primary
customers will be and the grouping of customers or consumers with similar
needs. 1.5.3 Positioning
According to Kotler (2000: 298), positioning is the act of designing the
company’s offering and image to occupy a distinctive place in the target
market’s mind. The term positioning refers to developing a specific marketing
mix to influence potential customers’ overall perception of a firm, product, or
brand. Differentiation is a basis on which a positioning strategy is built. This
entails offering consumers something they value that competitors do not have.
Thus, positioning is the process of identifying “something” that is different about
a firm or its products (Boshoff et al, 2002: 154).
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In this study positioning will be defined as the act of designing the company’s
offering and image to occupy a meaningful and distinct competitive position in
the target customer’s mind.
1.5.4 Small and Medium Manufacturing Enterprises (SMME)
According to the Department of Trade and Industry (DTI), Small and Medium
Manufacturing Enterprises (SMME) are organisations, which employ between
three and 200 employees. This organisation must be manufacturing a
component or a full product, which is sold to other businesses or directly to
consumers. All automotive related small businesses are also treated as SMME
in the DTI’s eyes (Government papers, 2003).
In this study SMME will be defined as organisations employing more than three
but less than 200 employees with maximum of R10 000 000 as an annual
turnover. SMME will also be referred to as small engineering companies during
the study.
1.6 ASSUMPTIONS
It is assumed that all SMME use the same marketing principles (market
segmentation, targeting and positioning) irrespective of their size.
1.7 THE SIGNIFICANCE OF RESEARCH
According to Buss and Day (1995: 2), an organisation makes a profit when it
transfers the ownership of goods and services to a customer and gets paid for
them. To make profit customers are needed.
Since no business has the skills and resources to be all things to all people,
companies must identify which customer needs and wants can and should be
met. Therefore a company must target a market. According to Cartwright
(2002:69) a market is a group of existing or potential customers within a
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particular product market toward which the business directs its marketing
efforts.
After targeting the markets, the business must persuade the customer
decisions to buy their product. Persuasive messages as well as the goods on
offer influence customer decisions. These persuasive messages are trying to
convince customers to do something: buy a product. These messages are
expensive to send, but they do the job. In today’s market place, a competitive,
persuasive message is needed to sell a competitive product or service (Buss
and Day, 1995: 2).
These persuasive messages not only need to be sent, they have to be
received, understood and accepted by those you wish to influence (Gorton and
Carr, 1983: 42). Malan (2003: 14) holds that if one is engaged in business,
sales and marketing are the most important functions in such an organisation.
However, changing growth rates, inflation, high interest rates, rapid
technological change, recession and new aggressive rivals challenge firms to
adapt and respond for survival and prosperity. Success means finding ways of
achieving maximum effectiveness in the deployment of resources to meet client
needs (O’Reilly and Gibas, 1995: 56).
Firms are obliged to scrutinise every area of expenditure to minimise waste and
maximise returns. Perhaps the clearest and most specific of these is the central
role of marketing in determining the health of a firm and the entire economy
(Cannon, 1998: 1).
Statistics South Africa shows the statistics of SMME registration in South Africa
being higher than other countries. It also shows the high number of voluntary
liquidation of SMME in South Africa. For example 2164 companies were
liquidated in the first eight months of 2003 (Statistics South Africa, 2003).
It then appears that there are many good ideas and business that are not
supported and funded because they are not market correctly. These ideas are
8
stillborn because they are not presented in a form that will gain support for
them.
1.8 AN OVERVIEW OF RELATED LITERATURE
Marketing is typically seen as the task of creating, promoting, and delivering
goods and services to consumers and business. Marketing is a societal
process by which individuals and groups obtain what they need and want
through creating, offering, and freely exchanging products and services of
value with others (Rangan and Shapiro, 1995: 102).
1.8.1 Customers Needs, Wants, and Demands
The marketer must try to understand the target market’s needs, wants, and
demands. Needs describe basic human requirements. People need food, air,
water, clothing, and entertainment. These needs become wants when they are
directed to specific objects that might satisfy the need. An American needs food
but wants hamburger, French fries and a soft drink. Wants are shaped by one’s
society (Kotler, 2000: 11). Cartwright (2002: 113) is of the opinion that need is
something that people cannot do without; a want is the method by which people
would like the need to be satisfied. Demands are wants for specific products
backed by an ability to pay (Kotler, 2000: 8).
These distinctions shed light on the frequent criticism that “marketers create
needs” or “marketers get people to buy things they do not want.” Marketers do
not create needs: Needs pre-exist marketers. The marketer, along with other
societal factors, influence wants (Oates, 1990: 28 and Kroon, 1998: 78).
In this study; needs, wants and demands will be defined as:
A need is something that people cannot do without; a want is the method by
which people would like the need to be satisfied and demands are wants for
specific products backed by an ability to pay.
9
1.8.2 Segment and target markets
Segmentation is the process of dividing the market into groups of customers or
consumers with similar needs. The more closely the needs match up, the
smaller the segment tends to be, but the higher the premium customers are
likely to be prepared to pay to have a product that more exactly meets their
needs (Blythe, 2003: 106).
Having divided the market into segments, managers must decide which
segment to target to reach the organisation’s overall objectives. Organisations
do not necessarily choose the most profitable segment: an organisation may
decide to aim for a particular segment of the market which is currently
neglected, perhaps because it has high growth potential or low competitive
pressures (Blythe, 2003: 110).
1.8.3 Competition
Kotler (2000: 14) contends that competition includes all the actual and potential
rival offerings and substitutes that a buyer might consider. There are four
distinguishable levels of competition, based on degree of product
substitutability. These are:
• Brand competition: A company sees its competitors as other companies
offering a similar product and services to the same customers at similar
prices.
• Industry competition: A company sees its competitors as all companies
making the same product or class of products.
• Form competition: A company sees its competitors as all companies
manufacturing products that supply the same service.
• Generic competition: A company sees its competitors as all companies that
compete for the same consumer rand.
10
In this study, competition will be defined as all rivals that offer the same product
or substitute product to buyers.
1.8.4 Marketing Mix
According to Kotler (2000: 15), the marketing mix is the set of marketing tools
that the firm uses to pursue its marketing objectives in the target market. These
tools are classified into four groups that are called the four Ps of marketing:
product, price, place and promotion.
• Products or Offering Kotler (2000: 395) describe a product as anything that can be offered to a
market to satisfy a want or need. A product is anything desired by a target
market. In a consumer market it usually has physical characteristics or
attributes that constitute the major reason people buy it.
Products posses extrinsic symbolic attributes that can satisfy the consumer’s
need for recognition and status (Buss and Day, 1995: 149). Cannon (1998:
293) suggests that a product can be divided into quality levels, special features,
styling, branding, product range or mix, service back up, warranty, durability
and packaging.
In a producer market the product is processed for sale to other producers or
resellers. Reseller markets purchase products for sale (Reeder and Brierty,
1991: 210). Products can include physical objects, services, persons, places,
organisations and ideas (Buss and Day, 1995: 149).
In this study a product will be defined, as anything desired by a target market.
• Price Price is the mechanism of exchange between the firm and a customer (Cannon
1998: 294). Cannon is of the viewpoint that price incorporates level(s), credit
(terms and sources), discounts, margins, resources, financial services (e.g.
advice), allowances or trade-ins and strategy tactics. One firm might have high
11
premium price but offers generous credit terms, while another might have a far
lower price but give virtually no credit (Clark and Huston, 1993: 294).
• Promotion According to Cannon (1998: 294), promotion encompasses the two broad
areas of advertising (including below-the-line); merchandising (promotional
support for the retailer); personal selling (salesman’s special discounts); and
publicity (press and public relations).
• Place Cannon states that place makes the product physically available. Place falls
into two broad areas – channels and physical distribution – and covers channel
strategy, intermediary systems, outlet, warehouse and factory location, service
levels, documentation, coverage, stocks, freight and insurance (Cannon, 1998:
294).
Although there is a tendency to think of the marketing mix in terms of a
permutation of four factors, in reality the offering is made up of a series of sub-
mixes of all of the variables listed above (Gross, 2003:120).
Decisions taken in one area have effects, which go far beyond their immediate
context. For example, a decision to adopt a penetration-pricing stance calls for
extensive distribution, probably high stocks, high customer awareness (perhaps
from media advertising) and high volume production capacity (Pino, 1994: 152).
1.9 RESEARCH DESIGN
The following procedure will be adopted to solve the main and sub-problems:
1.9.1 Literature survey
Segmenting, targeting and positioning strategies of Engineering SMME will be
benchmarked against a literature review.
12
1.9.2 Empirical study
• Interview survey A quantitative survey through a structured interview will be conducted among
the sampled owners/managing members of the selected Engineering SMME.
The purpose will be to establish the methods used by SMME’s to market
themselves. The reason for choosing owners/managing members is that they
are the ones who run the entire business activities and therefore are in a
position to know which methods are used to market the business.
• Measuring instrument The researcher will develop a comprehensive structured questionnaire for this
research project to determine the marketing methods for SMME’s.
• Sample The computerised database of Eastern Cape Manufacturing Advisory Centre
will be used to gain the names and addresses of all organisations within the
manufacturing sector including the engineering. A statistically significant
random sample of those which employs more than three but less than 200
employees with maximum of R7 000 000 as an annual turnover will be
selected.
The reason for selecting organisations which employs between three and 200
employees are that Department of Trade and Industry (DTI) defines an SMME
as such. Companies with a turnover of more than R7 000 000 can argue that
marketing is not a necessity for them.
• Statistical analysis of data The statistical procedures to be used in interpreting and analysing the data will
be determined in consultation with a statistician/ statistics tools at the time the
questionnaire is compiled.
13
1.9.3 Comparisons of and the development of a better method
The results of literature survey and the empirical results will be compared
premised upon these findings a better method will be developed for SMME’s to
effectively market the company and products.
1.10 PROPOSED PROGRAMME OF STUDY
The research has been planned to include the following chapters:
CHAPTER 1: THE BACKGROUND AND METHODS OF THE STUDY
CHAPTER 2: SEGMENTING AND TARGETING THE MARKETS
CHAPTER 3: POSITIONING
CHAPTER 4: THE EMPERICAL STUDY
CHAPTER 5: ANALYSIS AND INTERPRETATION OF THE EMPERICAL
STUDY
CHAPTER 6: SUMMARY AND RECOMMENDATION
14
CHAPTER 2
SEGMENTING AND TARGETING THE MARKETS 2.1 INTRODUCTION In this chapter the elaboration and literature review of segmenting and targeting
markets commences. Authors vary in the sequence and components in the way
in which they postulate their finding and comments pertaining to market
segmentation and targeting. The researcher extracted the common elements of
the procedures that are embraced by a spectrum of authors to form the
cornerstone upon which he proposes this framework.
If all consumers were alike, if they all had the same needs, wants, and desires,
and the same background, education, and experience, mass (undifferentiated)
marketing would be a logical strategy. One advertising campaign is all that is
needed, one marketing strategy is all that is developed, and one standardised
product is all that is offered (Kanuk and Schiffman, 1994: 46).
To market the product or service, it is imperative that marketing and sales
efforts are tailored to specifically reach the segment of population that will most
likely buy the product or service. It is critical that the first thing is to determine or
clearly identify the primary market. Energies and funds can be spent more
efficiently (Boshoff, Hair, Lamb, McDaniel and Terblanche, 2002:20).
According to Kotler (2000:257), most companies instead of scattering their
marketing effort, can focus on the buyers whose needs they have the greatest
chance of satisfying. The notion of target marketing occurs when sellers
distinguish the major market segments, target one or more of those segments,
and develop products and programs tailored to each. Target marketing requires
three major steps to be taken as illustrated in figure 2.1:
• Identify and profile distinct groups of buyers who might require separate
products or marketing mixes (market segmentation),
• Select one or more market segments to enter (market targeting), and
15
• Establish and communicate the products’ key distinctive benefits in the
market (market positioning). The latter stage will be dealt with in following
chapter, after which a marketing plan is developed.
Figure 2.1 Target marketing
Adapted from Kotler (2000:255)
2.2 SEGMENTATION If companies don't know who their customers are, how will they be able to
assess whether they are meeting their needs? Since success depends on them
being able to meet customers' needs and desires, they must know who their
customers are, what they want, where they live and what they can afford
(Kotler, 2000:8).
2.2.1 Definition
Market segmentation can be defined as the process of dividing a potential
market into distinct subsets of consumers with common needs or
characteristics and selecting one or more segment to target with a distinct
marketing mix (Kanuk and Schiffman, 1994: 46). Another definition states that
market segmentation is the segmentation of markets into homogenous groups
of customers, each of them reacting differently to promotion, communication,
16
pricing and other variables of the marketing mix. Market segments should be
formed such that those differences between buyers within each segment are as
small as possible. Thus, every segment can be addressed with an individually
targeted marketing mix (The Manager: 2004). Market segmentation is the
process of breaking down a larger target market into smaller segments with
specific characteristics. Each group requires different promotional strategies
and marketing mixes because each group has different wants and needs
(Boshoff et al, 2002:142).
Boshoff, et al (2002:131) state that, markets are segmented for three important
reasons:
• First, segmentation enables companies to identify groups of customers with
similar needs and to analyse the characteristics and buying behaviour of
these groups.
• Second, segmentation provides companies with information to help them
design marketing mixes specifically matched with the characteristics and
desires of one or more segments.
• Third, segmentation is consistent with the marketing concept: satisfying
customer wants and needs while meeting the firm’s objectives.
For the company to segment a market, a justification is needed to motivate why
the company has decided to follow that path.
2.2.2 Reasons for segmenting a market According to The Manager (2004), a segment-orientated marketing approach
generally offers a range of advantages for both businesses and customers.
Examples of the advantages are now addressed.
• Better serving customers needs and wants It is possible to satisfy a variety of customer needs with a limited product range
by using different forms, bundles, incentives and promotional activities. The
computer manufacturer Dell, for instance, does not organize its website by
17
product groups (desktops, notebooks, servers, printers and so on), but by
customer groups such as privates, small businesses, large businesses,
public/state organizations. They offer the same products to all customer
groups. Nevertheless, they suggest product bundles and supporting services
that are individually tailored for the needs of each particular group. As an
example, Dell offers to take on all IT-administration for companies. This service
provides a huge potential for savings for corporate customers. However, it
would be absolutely useless for private customers. Thus, segment-specific
product bundles increase chances for cross selling (The Manager, 2004).
• Higher Profits It is often difficult to increase prices for the whole market. Nevertheless, it is
possible to develop premium segments in which customers accept a higher
price level. Such segments could be distinguished from the mass market by
features like additional services, exclusive points of sale, product variations and
the like. A typical segment-based price variation is by region. The generally
higher price level in big cities is evidence for this. When differentiating prices by
segments, organizations have to take care that there is no chance for
cannibalization between high-priced products with high margins and budget
offers in different segments. The less distinguished the segments are the
higher the risk (The Manager, 2004).
• Opportunities for Growth Target marketing plans for particular segments to allow for individually
approached customer groups that otherwise would look out for specialized
niche players. By segmenting markets, organizations can create their own
‘niche products’ and thus attract additional customer groups. Moreover, a
segmentation strategy that is based on customer loyalty offers the chance to
attract new customers with starter products and to move these customers on to
premium products (The Manager, 2004).
18
• Sustainable customer relationships in all phases of the customer life cycle
Customers change their preferences and patterns of behavior over time.
Organizations that serve different segments along a customer’s life cycle can
guide their customers from stage to stage by always offering them a special
solution for their particular needs. For example, many car manufacturers offer a
product range that caters for the needs of all phases of a customer life cycle:
first car for early twenties, fun-car for young professionals, family car for young
families, and so on. Skin care cosmetics brands often offer special series for
babies, teens, normal skin, and elder skin (The Manager, 2004).
• Targeted communication It is necessary to communicate in a segment-specific way even if product
features and brand identity are identical in all market segments. Such a
targeted communications allows the company to stress those criteria that are
most relevant for each particular segment (e.g. price vs. reliability vs. prestige)
(The Manager, 2004).
• Stimulating Innovation An undifferentiated marketing strategy that targets all customers in the total
market necessarily reduces customers’ preferences to the smallest common
basis. Segmentation provides information about smaller units in the total
market that share particular needs. Only the identification of these needs
enables a planned development of new or improved products that better meet
the wishes of these customer groups. If a product meets and exceeds a
customer’s expectations by adding superior value, the customers normally is
willing to pay a higher price for that product. Thus, profit margins and
profitability of the innovating organizations increase (The Manager, 2004).
• Higher Market Shares In contrast to an undifferentiated marketing strategy, segmentation supports the
development of niche strategies. Thus marketing activities can be targeted at
highly attractive market segments in the beginning. Market leadership in
19
selected segments improves the competitive position of the whole organization
in its relationship with suppliers, channel partners and customers. It
strengthens the brand and ensures profitability. On that basis, organizations
have better chances to increase their market shares in the overall market (The
Manager, 2004).
How does a company segment a market? There are criteria that need to be
followed to segment a market. These criteria are now explained.
2.2.3 Segmenting criteria
According to Boshoff et al (2002:233) a useful segmentation scheme must
produce segments that meet the four basic criteria explained below:
• Substantiality
A market must be large enough to warrant developing and maintaining a
special marketing mix. This criterion does not necessarily mean that a segment
must have many potential customers but that companies must develop
marketing strategies tailored to each potential customer’s needs. It has to be
possible to approach each segment with a particular marketing program and to
draw advantages from it (The Manager, 2004).
• Identifiability and measurability
Segments must be identifiable and their size measurable. The Manager (2004)
states that it has to be possible to determine the values of the variables used
for segmentation with justifiable efforts. This is important especially for
demographic and geographic variables. For an organization with direct sales
(without intermediaries), the own customer database could deliver valuable
information on buying behavior such as frequency, volume, product groups and
the mode of payment.
20
• Accessibility
The company must be able to reach members of targeted segments with
customised marketing mixes. The segment has to be accessible and servable
for the organization. That means, for instance, that there are target-group
specific advertising media such as magazines or websites the target audience
like to use (The Manager:2004).
• Responsiveness
Markets can be segmented using any criteria that seem logical. However,
unless one market segment responds to a marketing mix differently from other
segments, that segment need not be treated separately. For instance, if all
customers are equally price-conscious about a product, there is no need to
offer high-, medium-, and low-priced versions to different segments (The
Manager: 2004).
Before the company can segment a market the types of markets existing need
to be understood in relation to the product the company sells.
2.2.4 Types of Markets
A market is simply any group of actual or potential buyers of a product. There
are three major types of markets (Kanuk and Schiffman, 1994:48). The market
types are:
• The consumer market Individuals and households who buy goods for their own use or benefit are part
of the consumer market. Drug and grocery items are the most common types of
consumer products.
• The industrial market These are individuals, groups or organizations that purchase a firm’s product or
service for direct use in producing other products or for use in their day-to-day
operations.
21
• The reseller market Middlemen or intermediaries, such as wholesalers and retailers, who buy
finished goods and resell them for a profit.
Once the company has established the market type, the target market can be
identified (Kanuk and Schiffman, 1994:48).
2.2.5 Identify a target market
Boshoff et al (2002:140), state that the first step in identifying the company
target market is through understanding what products/services the firm have to
offer to a group of people or businesses. To do this, the company has to
identify their product or service's features and benefits. A feature is a
characteristic of a product/service that automatically comes with it. While
features are valuable and can enhance the product, benefits motivate people to
buy. By knowing what the product/service has to offer and what will make
customers buy, the company can begin to identify common characteristics of
their potential market. For example, there are many different consumers who
desire safety as a benefit when purchasing a car. Rather than targeting
everyone in the promotional strategy, a car manufacturer may opt to target a
specific group of consumers with similar characteristics, such as families with
young children. This is an example of market segmentation (Smith, 2003:30).
2.2.6 Segment the Overall Market
It is a natural instinct for business to want to target as many people and groups
as possible. However, by doing this their promotional strategy will never talk
specifically to any one group, and they will most likely turn many potential
customers off. Their promotional budget will be much more cost effective if they
promote to one type of customer and speak directly to that audience. This
activity allows the firm to create a highly focused campaign that will directly
meet the needs and desires of a specific group. This is called market
segmentation (Kotler, 2000:255).
22
Segmentation will help companies customize a product/service or other parts of
a marketing mix, such as advertising to reach and meet the specific needs of a
narrowly defined customer group. Another example of market segmentation is
the athletic shoe industry. Major manufactures of athletic shoes have several
segmented markets. One segment is based on gender and the other segment
is based on the type of sport or activity. They have different promotional
campaigns for each segmented market (Boshoff et al, 2002:142).
According to Kotler (2000:257), larger markets are most typically divided into
smaller target market segments on the basis of the following characteristics:
• Geographic
Potential customers or organizations are segmented in a local, state, regional
or national marketplace. If companies are selling a product such as farm
equipment, geographic location will remain a major factor in segmenting their
target markets since their customers are located in particular rural areas. Or, if
they own a retail store, geographic location of the store is one of the most
important considerations.
Climate is a commonly used geographic segmentation variable that affects
industries such as heating and air conditioning, sporting equipment, lawn
equipment and building materials. The firm must decide if they are going to do
business on a local, regional, national or international level. Further, the firm
must identify specific boundaries as to which they will do business and identify
the geographic region where their market is located (Kotler, 2000:257).
• Demographic
Potential customers are identified by criteria such as age, race, religion,
gender, income level, family size, occupation, education level and marital
status. The business must choose those characteristics of the demographic
target market that relates to the interest, need and ability of the customer to
purchase the product or service. A demographic variable for a business would
include such factors as customer size, number of employees, type of products, 23
and annual revenue. If a firm operates a business-to-business marketer for
example, it may want to consider segmenting according to their target market's
size. A printing company may decide to target only magazine publishers that
publish more than one magazine because they need high volume accounts to
make a profit (Kotler, 2000:257).
• Psychographic
Many businesses offer products based on the attitudes, beliefs and emotions of
their target market. The desire for status, enhanced appearance and more
money are examples of psychographic variables. The above are the factors
that influence your customers' purchasing decision. A seller of luxury items
would appeal to an individual's desire for status symbols.
Business customers, as well as consumers in general can be described in
psychographic terms. Some companies view themselves as cutting edge or
high tech, while others consider themselves as socially responsible, stable and
strong. Still others see themselves as innovative and creative. These
distinctions help in determining how the company is positioned and how
decision makers can use the company's position as a marketing tactic (Kotler,
2000:257).
• Behaviouristic
Products and services are purchased for a variety of reasons. Business owners
must determine what those reasons are. Examples would be: brand, loyalty,
cost, how frequently they use and consume products, and time of the year. It is
important to understand the buying habits and patterns of the customers.
Consumers do not rush and buy the first car they see, or the first sofa they sit
on. A Fortune 500 company doesn't typically make quick purchasing decisions
(Kotler, 2000:257).
Most businesses use a combination of the above characteristics to segment
their markets. Demographic and geographic criteria will usually qualify their
target markets because they need to establish if segment members have
24
enough money to purchase their offering or if they are in a location that is
accessible to the product. Most businesses then use the psychographic and
behaviouristic factors to construct a promotional campaign that will appeal to
the target market (Kotler, 2000:257). The purpose of market segmentation is to
identify marketing opportunities. This involves a segmented process, which is
now described.
2.2.7 Steps in segmenting a market
As outlined by Boshoff et al (2002:141), there are seven steps to follow in
segmenting the market:
Step 1: Select a market or product category for study Define the overall market or product category to be studied, either new or old.
Step 2: List potential needs A brainstorming session is used to identify needs. Through this, reasons why
consumers buy the product are identified. The list must emphasise needs,
benefits and satisfaction.
Step 3: Choose a basis or bases for segmenting the market There are no scientific procedures for selecting segmentation variables.
However, a successful segmentation scheme must produce segments that
meet the four basic criteria namely: substantial, identifiable, accessible and
responsive.
Step 4: Select segmentation descriptors Descriptors identify the specific segmentation variables to use. For example,
demographics can be used as a basis of segmentation. Examples may be age,
occupation and income.
25
Step 5: Profile and analyse homogeneous segments The profile of individual segments should include the segments’ size, expected
growth, purchase frequency, current brand usage, brand loyalty, and long-term
sales and profit potential.
Step 6: Identify the determining dimension A determining dimension is related to the seller’s competitive advantage. A
determining dimension must be identified for each potential segment, because
it will eventually determine a consumer’s decision to buy or not to buy.
Step 7: Name and select target markets The last step in the segmentation process is to name individual segments. This
may not be regarded as part of the segmentation, but it is a natural outcome.
To get to the last step of segmenting the market, the company must have
thought of which strategy there are going to follow. In this respect there are two
different strategies from which to choose. These are addressed below.
2.2.8 Market Segmentation Strategies
A market segment consists of individuals, groups or organizations with one or
more characteristics that cause them to have relatively similar product needs
(Kotler, 2000:257). There are two ways of segmenting the market;
concentration and multi-segment strategies (Boshoff, 2002: 146).
• Concentration strategies A concentration strategy is when a single segment is targeted with a one
marketing mix. The marketing mix consist of:
• Pricing strategy,
• Promotional program aimed at everybody,
• Type of product with little/no variation, and
• Distribution system aimed at entire segment.
26
As each strategy has advantages and disadvantages. The concentration
strategy are addressed below:
• Advantages include: - It allows a firm to specialize in a specific market,
- A firm can focus all energies on satisfying one group's needs, and
- A firm with limited resources can compete with larger organizations.
• Disadvantages include: - The firm puts all of its eggs into one basket,
- Small shift in the population or consumer tastes can greatly affect the
firm, and
- The firm may have trouble expanding into new markets (especially up-
market).
The objective of adopting a concentration strategy is not to maximize sales,
rather it is efficiency, attracting a large portion of one section while controlling
costs (Porter, 1985: 60).
• Multi-segment strategy A multi-segment strategy is when two or more segments are sought with a
marketing mix for each segment and a different marketing plan for each
segment. This approach combines the best attributes of undifferentiated
marketing and concentrated marketing. Undifferentiated marketing is when a
single marketing mix is used for the entire market.
There are also advantages as well as disadvantage for this strategy. These are
now addressed.
• Advantages include: - To shift excess production capacity, to amplify it,
- The firm achieve same market coverage as with mass marketing,
- Price differentials among different brands can be maintained,
- Consumers in each segment may be willing to pay a premium for the
tailor-made product, and 27
- There is less risk thus the firm does not rely on one market.
• Disadvantages include: - Demands a greater number of production processes.
- The process involves more costs and resources and increased
marketing costs due to selling through different channels and promoting
more brands, using different packaging.
- The firm must be careful to maintain the product distinctiveness in each
consumer group and guard its overall image.
Once the company has identified its market-segment opportunities, it has to
decide how many and which ones to target. To do that, the firm must first
evaluate segments against two factors; the segment’s overall attractiveness
and the company’s objectives and resources. The firm must first determine
whether a segment has potential characteristics that make it generally
attractive. This includes size, growth, profitability, scale economies, and low
risk. After the above have been determined, the company must now consider
whether investing in that segment makes a business sense given the
company’s objectives and resources. The aforementioned process represents
market targeting (Kotler, 1999: 275).
2.3 TARGETING
Targeting the market is simply defining who the primary customer will be. The
market should be measurable, sufficiently large and reachable (The Manager:
2004). Market targeting involves evaluating each market segment's
attractiveness and selecting one or more segments to enter. An organization
should target segments in which it can generate the greatest customer value
and sustain it over time. An organization with limited resources might decide to
serve only one or a few special segments. Or, an organization might choose to
serve several related segments - perhaps those with different kinds of
consumers but with the same basic wants. Alternatively a larger organization
28
might decide to offer a complete range of services and memberships to serve
all market segments (Kanuk and Schiffman, 1994:46). According to Solomon
and Stuart (1997:277), the decision process involved in evaluating whether it is
worthwhile entering a market is more complex than simply quantifying demand
and estimating market share.
When it comes to customers, organisation should keep in mind the importance
of target marketing. The reason this is important is that only a proportion of the
population is likely to purchase any products or service. By focusing the sales
and marketing efforts to the correct niche market the organisation will be more
productive and not waste efforts or time (Small Business Marketing: 2004).
The following strategies are used to target a market:
2.3.1 Market targeting strategies
Boshoff et al (2002:143), say that there are three general strategies to select
the target market. These are undifferentiated, concentrated, and multi-
segment/differentiated targeting strategy, illustrated by figure 2.2 and amplified
below:
Figure 2.2 Market segments and the strategic options
A B
B B B
C B
D B
Undifferentiated strategy Differentiated strategy Concentrated strategy
29Source: Adapted from Croft, 1994: 54
• Undifferentiated targeting strategy Undifferentiated targeting strategy is when a company adopts a mass-market
philosophy, viewing the market as one big market with no individual segments.
One marketing mix is used for the entire market. This strategy assumes that
individual customers have similar needs that can be met with a common
marketing mix (Boshoff et al, 2002:143). Undifferentiated marketing means
making a single offering to the whole market; the offering is directed towards
what most people want and what is common to the majority (Randall,
2001:124). Kotler (1999:275) states that with this strategy, the company
ignores market-segment differences and goes after the whole market with one
market offer. The focus is on the basic buyer need rather than on differences
among buyers. Kotler further confirms that the product and marketing program
are designed to appeal to the broadest number of buyers. One of the major
advantages of such a strategy is the economies of scale that can be achieved
with a standardised product and marketing strategy. Mass distribution and
mass advertising are largely relied on. Henry Ford’s first mass-produced car,
the Model T, is a famous example of undifferentiated targeting strategy (Cant,
Strydom and Jooste, 2002:187).
Many major companies adopt an undifferentiated a strategy at certain stages of
a market’s development, since that is the way to achieve high sales and brand
share. The strategy usually demands high investment in manufacturing and
marketing support (Randall, 2001:124).
However, according to both authors (Boshoff et al, 2002:143 and Kotler,
1999:276), undifferentiated targeting emerges by default rather than by design,
reflecting a failure to consider the advantages of a segmented approach.
According to Boshoff et al (2002:143) such a strategy makes the company
more susceptible to competitive inroads.
30
• Concentrated targeting strategy Boshoff et al (2002:143) are of the opinion that, with the concentrated targeting
strategy, a niche market (one segment of a market) is selected to target market
efforts. Appealing to a single segment presents the opportunity of concentrating
on understanding the needs, motives and satisfactions of that segment’s
members and on developing and maintaining a highly specialised marketing
mix. A strong knowledge of the segment’s needs knowledge is gained and a
strong market presence is achieved. The company can also enjoy operating
economies through specialising its production, distribution, and promotion.
Because the product offering is aimed at one market segment only, it could be
fair to argue that the enterprise will also be able to achieve greater customer
satisfaction in this singular market segment (Cant et al, 2002:187). A high
return on investment can be earned if a firm captures segment leadership. For
example Dunhill operates only at the high-priced, luxury end of its markets
(Kotler, 1999:275).
A concentrated strategy can also be disastrous for a firm that is not successful
in its narrowly defined target market. It also carries a very significant risk in that
the market niche may dry up or be attacked (Boshoff et al, 2002:145). Cant et
al (2002: 187) hold that the big disadvantage is that all efforts are then
concentrated on one source. This means that the risk of product failure and
non-acceptance of the product is thus concentrated in a single target market.
Should the preference of the target market change, or should competitors enter
the market with improved product, the company may lose the business.
• Multi-segment strategy Multi-segment targeting strategy transpires when a company chooses to serve
two or more well defined market segments and develops a distinct marketing
mix for each. Different promotional appeals, rather than completely different
marketing mix, as the basis for a multi-segment strategy are used. The basic
marketing strategy (e.g. for the soft drink manufacturer-the shape of the bottle,
the distribution strategy, the price strategy) remains the same. The basic
product may be similar, but the names and product attributes are designed to
31
meet different wants. Some of the benefits that can be gained from this strategy
are greater sales volumes, higher profits, larger market share, and economies
of scale in manufacturing and marketing. However, the strategy implementation
involves high costs (Boshoff et al, 2002: 145).
The multi-segmented strategy is similar to the differentiated strategy, which
means that the company offers different things to different segments (Randall,
2003:124). This strategy allows the company to cater for the diverse needs of
the different segments. It is, however, a costly strategy. An example is the Ford
Motor Company, which today has a model for almost every segment in the
market. Such an approach can produce higher total sales than an
undifferentiated strategy, but there are risks of eating away the sales
(cannibalisation) and reducing profitability (Cant et al, 2002: 187).
According to Kotler (1999:275), there are also patterns of targeting market
selection that companies can use. These are mentioned below.
2.3.2 Patterns of segmenting a market
Patterns for segmenting a market are as follows:
• Single-Segment Concentration This single-segment concentration targeting is the same as the concentration
strategy mentioned above.
• Selective Specialisation This pattern is also similar to multi-segment strategy, whereby a number of
segments are selected. Each would be objectively attractive and appropriate.
Selective specialisation is choosing a few segments unrelated to each other.
• Product Specialisation In this pattern, the company specialises in making a certain product that it sells
to several segments. For example, the company makes different microscopes
for different customer groups but does not manufacture other instruments that
32
laboratories might use. Through a product specialisation strategy, the firm
builds a strong reputation in the specific product area. Product specialisation
means marketing a particular type of product or service that all segments want.
• Market Specialisation
With this pattern the company concentrates on serving many needs of a
particular customer group. An example would be a company selling all the
laboratory instruments and equipments to university laboratories. The company
gains a strong reputation in serving this customer group and becomes a
channel for further products that the customer could use. The downside is the
risk that the customer may have its budget cut. Market specialisation is
focusing on a segment and offering the entire product or services that is
required by that market.
• Full Market Coverage
This pattern is the same as the undifferentiated targeting strategy, whereby the
company attempts to serve all customer groups with all the products they might
need. Full market coverage involves offering a product in every market.
Which strategy a company chooses will depend partly on its strengths and
weaknesses. Smaller companies are more likely to be able to implement a
concentrated strategy. While companies, which are, flexible and innovative may
be better able to cover many segments with a differentiated strategy in a
manner superior to the monolithic and rigid companies (Randall, 2001:125).
The degree of differentiation, which is actually possible in the products, the
product life cycle, and the nature of the market will too affect the market
coverage decision. Large, established companies will want to be in the big
segments, and will have the resources to cover a number of segments. Small
companies with limited resources will opt for segments more suited to their size
and capabilities, and preferably which are undefended by the big companies
(Smith, 2003:33)
33
2.4 SUMMARY
In this chapter the researcher introduced and defined the concept of market
segmentation. The rationale underpinning segmentation and the criteria to do
so were expanded. The discussion also included the characteristics and steps
involved in segmenting markets. The different kinds of segmentation and
targeting strategies, al. The above information enabled a firm to define and
measure its chosen market segment and establish if it would be sustainable on
an ongoing basis.
Having isolated its potential and established its financial worthwhileness, the
next challenge for the firm would be to differentiate its offerings from those of its
competitors and to position itself strategically. This topic is addressed in the
following chapter.
34
CHAPTER 3
POSITIONING
3.1 INTRODUCTION In chapter two the researcher elaborated on how companies can divide their
markets into subsets (segmenting) and how to define their primary customers
(targeting). The aim of this chapter is to outline how firms can position
themselves or their product in the minds of customers.
Once the organisation has decided which market segments to enter, they must
decide what position they want to occupy in those segments. The organisations
position is the place it occupies relative to its competitors in the mind of
customers. Ultimately it is the consumer who dictates whether to support a firm
or not. If an organization offers services or attractions exactly like another in the
market, consumers would have no reason to support it (Campagne Associates,
2004).
Positioning is all about how a brand or company is positioned or perceived in
the minds of a target group of customers (Smith, 2003: 34). Buss and Day
(1995:77) say that positioning is used to describe the way a service, product or
organisation is compared to its competition in the market place. According to
Randall (2001:131), positioning is not what the company does to the product, is
what the company does to the prospect. The positioning of the product thus
involves entering the mindset of the prospect.
There are two types of positioning, namely market and product positioning:
• Market positioning
Market positioning is arranging for an organization or its services to occupy
a clear, distinctive, and desirable place in the minds of target consumers
relative to competing organizations. Thus, firms should plan positions that
35
distinguish their organisation from competitors and which give them a
strategic advantage (Croft, 1994: 58).
• Product positioning Product positioning refers to the way customers perceive a product in terms
of its characteristics and advantages and its competitive positioning. It
involves the creation, in the minds of the targeted buyers, of a distinctive
position with regard to the organisation’s product relative to the products of
competing organisation (Cant et al, 2002: 188).
There is a difference between the operational effectiveness and strategic
positioning. Operational effectiveness means simply that the firm performs the
same activities better than their competitors. This can be a source of short-run
competitive advantage, but in the long run it is nowhere near sufficient. Instead
the firm must position it self by finding a point of differentiation unique and
meaningful in their industry (Trout, 2000: 33). Therefore, before the company
can start thinking about positioning itself or what to offer, it must differentiate
itself from its competitors.
3.2 DIFFERENTIATION
Kotler (2003:286) define differentiation as the act of designing a set of
meaningful differences to distinguish the company’s offering from competitors’
offerings. While Boshoff et al (2002: 154), says that differentiation is the
process of identifying “something” that is different about a company or its
products. The differentiation variable (whether price, quality, product attribute,
image or whatever) is not a competitive advantage.
Differentiation variables, according to Boshoff et al (2002: 155) have to be
evaluated against at least four criteria:
• Desirability
Do consumers desire that differentiating variable? If not, it is not a
competitive advantage.
36
• Sustainability
Can the company sustain the advantage over an extended period of time? If
not, it is not competitive advantage.
• Cost effective
Can the company manufacture and market the product at a price a
consumer will be prepared to pay? If not, it is not a competitive advantage.
• Profitability
Is it profitable? If not it is not a competitive advantage.
If the answers to these questions are yes the differentiating variable can be
described as a competitive advantage and it can form the basis of the
subsequent positioning strategy. Normally consumers opt for those products
that provide them with the most value to maximise their need satisfaction. It is
therefore important that the company understands the needs and shopping
processes of the potential buyers (Boshoff et al, 2002: 155).
The number of differentiation opportunities varies with the type of industry, says
Kotler (2003:286) as well as Boshoff et al (2002: 155). There are four basic
types of industries, which are:
• Volume industry
In volume industry, companies can gain only a few, but rather large,
competitive advantages. This is where the company strives for a low-cost
position or a highly differentiated position and benefits largely on either
basis. Profitability is correlated with company size and market share.
• Stalemated industry
There are few potential competitive advantages and each is small. For
example in the steel industry, it is hard to differentiate the product or
decrease manufacturing cost. Profitability is unrelated to company market
share.
• Fragmented industry
In this instance where companies face many opportunities for differentiation,
but each opportunity for competitive advantage is small. As an example
both large and small restaurants can be profitable or unprofitable.
37
• Specialised industry
In this situation one in which companies face many differentiation
opportunities, and each differentiation can have a high payoff. Among
companies making specialised machinery for selected market segments,
some small companies can be as profitable as large companies.
Competitive advantages can unfortunately have a limited lifespan for any firm.
Some differential advantages are quickly copied or limited by competing
companies. For a company to retain the initiative that flows from its competitive
advantage it is necessary to continue identifying new potential advantages for
consumers and then introduce them one by one to keep competitors off
balance. The intention is thus to introduce a series of advantages that will
enhance a company’s position; and hopefully market share, over time (Boshoff
et al, 2002: 155).
Randall (2001:131) says a company gains competitive advantage if it succeeds
in positioning itself as providing a superior value to selected target markets.
The competitive advantage can result from various sources, such as lower
prices in comparison with competitors, or superior benefits that justify higher
prices. It is, however a prerequisite that if a company positions its products as
offering the best quality and service, it must deliver the promised quality and
service (Boshoff et al, 2002: 155).
3.2.1 The bases for differentiation Boshoff et al (2002: 155) says that a company can differentiate its product from
that of its competitors in a number of ways. The typical bases available to a
company for differentiation are related to the product’s features or attributes,
accompanying services, personnel and image.
3.2.1.1 Product differentiation Product differentiation, according to both Kotler (2003:286) and Boshoff et al
(2002: 155), is a positioning strategy that some companies use to distinguish
38
their products from those of competitors. The distinctions can be either real or
perceived. A company has the choice to offer either a standardised product or
a product that is highly differentiated. Although standardised products such as
steel are difficult to differentiate, some companies manage to differentiate
successfully. There are products that can be differentiated along a range of
characteristics. Boshoff et al (2002: 157) state that major characteristics utilised
for product differentiation are as follows:
• Features Features are product characteristics that enhance the product’s basic
functioning. For example motor vehicle manufacturer can offer automatic
transmission or air conditioning as a feature. Features are competitive tools
that can be employed to differentiate a firm’s product. To add features to the
product there are two steps that a company need to do:
- Firstly the company must find out from the recent buyers how they like
their products and what need to be added to improve the consumer’s
satisfaction, with the product, and
- Then decide which features they will add to their products (Kotler, 2003:
289).
• Performance
Performance refers to the levels at which a product’s primary characteristics
function/operate. An example is the personal computer where-by one firm
will position its products through having faster processing capabilities and a
larger memory than the counter-part. Here the firm must establish if offering
a product with greater performance will produce higher profit. If the market
allows them a higher premium due to high product performance than
competitors then this will be the way to go. This simply means the firm must
design a performance level appropriate to the target market and
competitors’ performance level (Kotler, 2003: 289).
• Durability Durability is a measure of a product’s expected operating life under natural
or stressful conditions. This is valued attribute to certain products. An
example is the Volvo car manufacturer that claims that its cars have a long
lifespan. Similarly, the Duracell battery manufacturer claims that their
39
products have a long lifespan. Customers are most of the time willing to pay
more for such products (Kotler, 2003: 289)
• Reliability Reliability is a measure of the probability that a product will not malfunction
or fail within a specified time period. Buyers will normally pay a premium for
more reliable products. An example is a Mercedes-Benz, which will be more
reliable when compared to Daewoo as perceived by most customers
(Kotler, 2003: 289).
• Repairability Repairability is a measure of the probability of fixing a product that
malfunctions or fails. Ideal repairability refers to a situation where users
could fix the product themselves with little or no cost or time lost. This
situation is whereby a user can simply remove the defective part and
replace it with a new part (Kotler, 2003: 289).
• Style Style is a subjective measure, which describes how the product looks and
feels to the buyer. Car buyers are normally prepared to pay a premium for
products that are attractively styled. Some products are yawn producing
rather than eye-catching. Exceptional styling has the advantage of creating
product distinctiveness that makes it hard for competitors to copy.
Packaging is also a component of the style of consumer products (Kotler,
2003: 289).
• Reseller brands Marketing an own brand has the advantage of being able to establish a
label that ensures continuity at a specific quality level. An example is a
Woolworth that offers the consumer a fashionable assortment of
merchandise at a consistent value-for-money price. Pep Stores on the other
hand supplies the lower part of the market (Boshoff et al, 2002: 158).
• Product range The product range offered by the company is an important source of
differentiation. In retailing the company can offer a product range that is
basic and low in fashion content as is done by Pep Stores (Boshoff et al,
2002: 158).
40
3.2.1.2 Accompanying services differentiation When the physical product cannot easily be differentiated, the key to
competitive success may lie in adding valued services and improving their
quality. Those services that accompany a product can also be used to
differentiate the product offering (Buss and Day, 1995: 149). The major service
variables are described below:
• Delivery Delivery refers to how well a service or product is delivered to the customer. It
includes speed, accuracy and care attending the delivery process. An example
would be a guaranteed fast delivery service as a basis of differentiation for
bigger household appliances (Kotler, 2003: 289).
• Installation Installation refers to the work done to make a product operational in its planned
location. It includes all the activities that have to be undertaken to make a
product function. An example would be the assembly for a product that need to
be installed properly before it can function. This would present an opportunity
for differentiation (Buss and Day, 1995: 149).
• Customer training Customer training refers to the training of the customer or customers’
employees to use the firm’s equipment properly and efficiently. This type of
training can used as a differentiation mechanism for a company (Kotler, 2003:
289).
• Consulting service Customer consulting is advice, data, and information systems offered to buyers
of a product for free or at a low price. This consulting can be done prior or after
the buying of the product (Boshoff et al, 2002: 158).
• Maintenance and Repairs Maintenance and Repair refers to the quality and variety of maintenance and
repair services available to the buyers of the firm’s product. For motor vehicle
manufacturers and various other products manufacturers, maintenance and
repairs are offered as a part of the product guarantee (Kotler, 2003: 289).
41
3.2.1.3 Personnel differentiation Companies can gain a strong competitive advantage by carefully selecting and
training people to be more competent than the staff of the competitors. Most
well known firms invest a lot in their staff to ensure that they are customer-
orientated and courteous. Boshoff et al (2002: 158) state that according to
research, better-trained people exhibit the following six characteristics:
• Competence Competence is the possession of the required skill and knowledge by the
employee.
• Courtesy
Courtesy is when employees show friendliness, respect and consideration
when talking to customers.
• Credibility
Credibility is when employees are trustworthy to the company and
customers.
• Reliability
Reliability is when employees show consistency and accuracy in the
performance of the service they perform.
• Responsiveness
Responsiveness is when employees respond quickly to customer’s requests
and problems.
• Communication
This is when the employees make the effort to understand and
communicate clearly with the customer.
3.2.1.4 Image differentiation Buyers respond differently to company and brand images. Although buyers
might regard competing products and their accompanying services as similar,
they often perceive a difference between firms, products, brands or brand
images. Identity and image need to distinguishable from each other. Identity
comprises the ways that a company aims to identify or position itself or its
product. Image is the way the public perceives the company or its products.
Image is affected by many factors beyond the company’s control. Ideally an
42
image should fulfil various roles. In the first instances, it must convey a single
message in a distinctive way that establishes a brand’s major characteristic and
positioning. A good image sets a brand or a firm apart from competitors’
images. An image must further deliver emotional power that appeals to both the
heart and the mind of the buyer (Boshoff et al, 2002: 158).
All firms therefore need to identify their image’s strengths and weaknesses and
take action to improve these images because image represents to the
customer a composite picture of the firm. It is one of the most powerful tools in
attracting and satisfying customers/consumers. An image has to be actively
managed and adapted in the long run because markets and customers’
perceptions are not static, but change over time (Boshoff et al, 2002: 158).
Typical elements, media and occasions that a firm has at its disposal to
develop and build an image are the following:
• Symbols
Images can be amplified by strong symbols. When a firm or a brand has a
strong and well-known image, it is immediately recognised by the audience
or people exposed to it. Firms endeavour to design their company and
brand logos specifically for instant recognition (Kotler, 2003: 289).
• Written and audio/visual media
The chosen image must be worked into advertisements and media that
convey a storey, a mood, a claim or something distinctive. All
advertisements, promotions, publications, including websites, stationery and
the business cards of a firm must communicate the personality of the firm or
the brand (Buss and Day, 1995: 149).
• Events
The sponsoring of events can result in a very positive image for a firm. An
excellent example is Castle Lager that is well known for the sponsoring of
cricket and soccer in South Africa (Kotler, 2003: 289).
• Atmosphere
The physical space occupied by the company is another powerful image
generator. It includes the physical facilities in which a firm manufactures or
delivers its products or services. These physical facilities in which a product
is produced and consumed is known as the service space and includes
43
exterior attributes such as signage, parking and land-scaping as well as
interior attributes such as layout, décor, equipment and lightning (Kotler,
2003: 289).
3.3 POSITIONING
Differentiating the company’s product to such an extent that it will give
consumers more value than the products of competitors, forms the foundation
on which a firm can build its positioning. It is important to realise, however that
a product should not only be different, it should be different in a way that is
important to consumers (Boshoff et al, 2002: 155).
For the positioning of the company to be effective it must concentrate on the
consumer’s perceptions of the brand. The reason being that those perceptions
cover all aspects of the brand – physical, functional attributes, name,
packaging, price, advertising and psychological dimension to mention the few
(Randall, 2001:131).
3.3.1 Bases to position products Usually, however, firms are restricted in respect of the number of options
available to them for differentiating a product. Over time certain bases, such as
the following, have been favoured for positioning depending on the firm or
product’s differential/competitive advantage (Boshoff et al, 2002: 163).
• Attribute
A product is normally associated with an attribute or product feature. Windhoek
is positioned as the natural beer without any additives or preservatives. This for
example is a product attribute according to which the product is positioned in a
market, relative to its competitors.
• Benefit A consumer benefit is something a consumer gains as a result of a product
attribute or product feature. For example the hush puppies will keep your feet
dry in “driving rain, pounding hail and anything nature unleashes”.
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• Price and quality
This positioning base can focus on high price as a signal of quality or
emphasise low price as an indication of value. Alfa Romeo and Michel Herbelin
watches are all positioned as expensive but high quality products.
• Use of application
Stressing the uses or the application can be an effective means of positioning a
product. Orange juice, for example is often positioned as a breakfast drink.
• Product user This positioning base focuses on a personality or type of user. For example
Sport and Surf is a retailer where the real surfer shops.
• Product class
The objective here is to position the product as being associated with a
particular category of products. An example is to position a margarine brand
relative to butter.
• Competitor Positioning against competitors is part of any positioning strategy. An example
is the Avis car rental, which has positioned itself against its competitors.
• Origin
Some firms want to be associated with a certain geographical region or origin.
An example is the Scotch whisky.
According to Smith (2003:38), when the company attempts to position itself
there are several questions that arise. Questions such as; what does the
market want? Then, what do target customers want? What is their ideal brand?
These questions provide answers that help to identify the ideal positioning. But
can the company fulfil the ideal positioning? Has it got the resources? Is it
capable of continually delivering a suitable marketing mix? For example, can
the company deliver an upmarket product? Can the company manufacture
high-quality products in the first place? To answer all these questions there is a
process that is normally followed by the company to position itself.
45
Once the base has been clearly established by the company, there is a process
that is normally followed to position a product. The process will be discussed in
a following section.
3.3.2 Process of positioning
According to Cant et al (2002: 191) there is a seven-step approach that can be
adopted when positioning a brand.
Step 1: Identify the relevant set of competitive brands It essential that the company identify all relevant competing brands in order to
make the positioning effort worthwhile. This will enables the company to identify
the strengths and weaknesses of its own against the competing brand. It also
helps the company to decide whether to reposition the brand to strengthen its
position in the market (Cant et al, 2002: 191). Step 2: Identify relevant determinant or differentiation variables Product positioning, in essence, has to do with competitive differentiation and
the effective communication of this to customers. There are variable that can
be used to differentiate a company or product. The most common different
dimensions are product, services, personnel and image. Each company must
decide which one of the differentiation variables should be used in developing a
position map. The company must select those variables that play a major role
in helping customers to differentiate among alternative brands in the market
(Kotler, 2000:286).
Step 3: Determine consumers’ perception The company must establish how the consumers perceive the various brands
in terms of the determinant variables selected in the previous step. This step
involves collection of the primary data from a sample of consumers using a
structured questionnaire. The data is then analysed, using a several statistical
techniques (Cant et al, 2002: 191).
46
Step 4: Analyse the intensity of a brand’s current position When a consumer is unaware of a brand, such a brand cannot occupy a
position in the mind of the consumer. Therefore brand awareness must first be
established. However, when a consumer is aware of a brand, the intensity of
awareness may vary. When there are more than 20 brands in the product
class, the awareness set for that product class might be as little as three or
fewer brands. This simply means that the company with a lesser-known brand
must increase the intensity of awareness by developing a strong relationship
between the brand and a limited number of variables. It is not advisable to
compete directly with dominant brands, instead the company must target a
market that is not dominated by strong brands (Cant et al, 2002: 191).
Step 5: Analyse the brand’s current position From the data collected from the consumers or customers about their
perceptions of the various brands in the market, the company can establish
how strongly a particular brand is associated with a variety of determinant
variables. These results are analysed or can be plotted on a positioning map
(Cant et al, 2002: 191).
Step 6: Determine customers’ most preferred combination of attributes To determine this, a survey is conducted by asking respondents to rate their
ideal product and existing products on a number of determinant variables.
These results are analysed or can be plotted on a positioning map (Cant et al,
2002: 191).
Step 7: Select positioning strategies For the company to decide where to position a new brand or where to
reposition an existing one depends on market targeting as well as the market
positioning analysis. The position chosen must reflect customer preferences
and the positions of competitive brands. The decision must also reflect the
expected future attractiveness of the target market and relative strengths and
weaknesses of competitors as well as the company’s own capabilities (Cant et
al, 2002: 191).
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When the process of positioning has been followed to or the methods that will
be used need to be considered as well. These will now be addressed.
3.3.3 Positioning methods/strategies
There are seven distinguishable positioning methods (Cant et al, 2002: 191):
• Attribute positioning The firm can position itself in terms of one or more attributes or features.
Benson and Hedges has chosen to position its cigarettes in terms of lightness
and taste.
• Benefit positioning
This positioning method emphasises the unique benefits that the firm or
product offers its customers. Gillette Contour blades promise a closer shave.
• Use/application positioning
A firm can position itself or its products in terms of the product use or
application possibility. Graca wine is positioned as a wine to be enjoyed at all
kinds of fun occasions.
• User positioning The firm may position their products with their users in mind. Marketers of
bungee jumping can position their market offering to appeal to thrill-seekers.
• Competitor positioning
Some products can best be positioned against competitive offerings. BMW
finds it useful to position their cars directly against that of Mercedes-Benz.
• Product category positioning A firm can position itself in a product category not traditionally associated with
it, thereby expanding business opportunities. A museum may position itself as
a tourist attraction.
• Quality/price positioning
The firm may claim their product is of exceptional quality, or the lowest price.
Edgars might be known for high quality garments while Pep Stores is known for
unbeatable prices.
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3.3.4 Positioning errors
As companies increase the claims for their brand, they risk disbelief and a loss
of clear positioning. In general, a company must avoid four major positioning
errors (Kotler, 2000:300). These are briefly mentioned below:
• Under positioning Under positioning is when buyers have only a vague idea of the brand. They
see the brand as just another entry in the market place. Buyers cannot relate
the positioning method with the benefit they gain from the product .
• Over positioning Over positioning is when buyers have too narrow an image of the brand. That
means buyers may think diamond rings at Tiffany start at R5 000 when they
actually start at R1 000.
• Confused positioning With confused positioning, buyers have a confused image of the brand
resulting from the company’s making too many claims or changing the brand’s
positioning strategy. Therefore the company needs to confines the number of
strategies they use.
• Doubtful positioning
Doubtful positioning is when the buyers find it hard to believe the brand claims
in view of the product’s features, price, or manufacturer. What the company
claims about the product must be in line with the manufacturer capability, price
and the product attributes/features.
3.3.5 Communication of the company positioning strategy
Once the company has clearly established the positioning strategy that it will
adopt, that positioning must be effectively communicate to buyers/consumers.
How it is communicated will depend on the strategy adopted. For example,
quality is communicated by choosing those physical signs and cues that people
normally use to judge quality (Kotler, 2000:300).
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3.4 SUMMARY
In this chapter, the researcher emphasised how the company can differentiate
itself or its product offerings from that of competitors. Once the company has
identified its competitive advantage it then needs to position itself or its product
in the mind of the consumers or buyers.
In positioning the organisation, they firstly have to identify possible competitive
advantages upon which to build this position. To do this, the firm must offer
greater value to their chosen segments either through price, or quality.
Whatever businesses offer, they have to deliver. Once undertakings have
chosen their desired position in the market, they should take strong steps to
deliver and communicate that position to their target consumers. The entire
marketing program must then support their chosen positioning strategy.
In the next chapter the researcher outlines the empirical study. This includes a
discussion on the research design, methodology used and the construction of
the questionnaire.
50
CHAPTER 4
THE EMPERICAL STUDY
4.1 INTRODUCTION
Our incomplete knowledge leads to unsolved problems that are awaiting
solutions. For us to address the holes in our knowledge and unsolved
problems, we need to ask relevant questions and then seek answers through
systematic research (Leedy, 2001:3).
The objective of this chapter is to survey:
• The format that small engineering companies follow to segment and target
their markets, and
• How they position themselves or products in the minds of the prospect
buyers.
The study was conducted among the owners and the managers of the small
engineering companies.
The information obtained in the empirical study may be applied to similar
manufacturing companies that supply on a large scale a customised product.
The aim of the chapter is to describe the research design, methodology,
questionnaire construction and design, and the measuring method. The chapter
is concluded with a pilot study.
4.2 RESEARCH DESIGN Leedy (2001:5) defines research as the systematic process of collecting and
analysing data to give a thorough understanding of the subject in which there is
interest. The research design forms a key element of the empirical study and
the total success of the study. Design process could be seen as the planning of
the research, the visualisation of the data and the problems experienced with
51
the use of such data in achieving the final outcome of the research project
(Leedy, 2001: 91).
The research design adopted was that of non-experimental research, which is
used in companies to establish the marketing principles applied. The empirical
study was an investigation into the methods, if any, used by companies to
appeal to customers.
The data was collected from the Nelson Mandela Metropolitan, which consists
of Port Elizabeth, Despatch and Uitenhage. The main objective of the study
was to establish if small engineering companies apply the principles of
segmenting and targeting of their markets as well as positioning concepts.
The study focussed on methods or systems followed by small engineering
companies to segregate or group the type of customers they like to sell to as
well as to how they distinguish themselves from the competitors. Personal
interview were conducted with respondents and questionnaire was the primary
data collection instrument used to explore if marketing concepts are used.
4.3 RESEARCH METHODOLOGY
The research method that was followed included a literature study and an
empirical study. These were employed to solve the main and sub-problems as
stated in chapter one. The following broad procedure was followed:
• Literature survey A literature survey was conducted to determine what the marketing gurus are
saying about the methods that companies normally follow to segment and
target the market as well as positioning of the companies. The objective of the
literature survey was to provide a theoretical framework of guidelines that can
serve as a basis for the evaluation of companies.
52
• Literature overview
Guidelines for evaluation of companies were identified from the literature. The
literature study underlined the importance of segmenting and targeting of
markets and the positioning of the company or products.
• Empirical study
The researcher obtained the empirical data by means of personal interviews in
order to measure the extent to which the companies adhere to the theoretical
framework. A personal interview, in the form of a questionnaire, was drawn up
by the researcher and was conducted among owners and mangers of forty
firms. The reason for choosing the above-mentioned owners and managers
was because they are responsible for ensuring that the company gets
customers and prospers. Therefore they are the ones who know what attracts
customers to their company.
• Statistical analysis of data
The researcher used a computer programme, Microsoft Excel, to analyse the
results from the survey. Through the programme, all data for each
questionnaire was tabulated. The results of the questionnaire will be analysed
in chapter five.
• Integration of results
The empirical and the literature findings were integrated into a proposed
guideline for the small engineering companies and other companies supplying
customised products and who are striving to group their target markets and
distinguish themselves from their competitors.
• Conclusions and recommendations The results of the analysis and interpretation of the empirical study is discussed
in chapter five. Chapter six outlines the conclusions and recommendations.
53
4.4 QUESTIONNAIRE CONSTRUCTION
The researcher used a structured questionnaire, which he personally
completed during each interview with managers and owners of small
engineering companies. The researcher found it necessary to identify the title
of the respondent, years of experience and qualification. This information
assisted the researcher to determine the influences and reactions on
statements posed to respondents.
Other information that the researcher found necessary to include was the age
of the business, the number of employees, turnover and the reason for starting
the business. This information assisted in identifying the differences that exist
amongst the companies in the way they operate.
A nominal-scale, ranging from two to five alternatives, was used to determine
the views of the respondents regarding the segmentation and targeting of
markets as well as positioning of companies or products. In some cases
nominal scale were mixed with ordinal-scale to establish how the respondents
felt about a specific point. Comments were also required to justify or explain
certain responses.
The questionnaire was subjected to detailed preliminary scrutiny before being
used to interview the respondents. Two owners and two managers of
engineering companies and the study leader scrutinised the questionnaires.
They found that the questionnaires were suitable for determining the objectives
of the research and that an analysis could be made from the information
requested from the respondents.
4.4.1 Design of the questionnaires The researcher used a format consisting of a combination of closed and open-
ended questions short and simple structured statements were used to
encourage responses. The respondent could choose one of the preferences
54
that suited his /her opinion and in some cases an explanation was needed to
expand the choice. The researcher grouped the questions for the managers
and owners into two specific sequences, namely segmenting and targeting of
markets, and positioning of companies or products. This sequence was
purposefully done to ensure that the managers and owners respond precisely
and completed to the questions. The respondents had to complete a
questionnaire consisting of fifty-four statements.
4.4.2 Administration of the questionnaires The researcher used the Eastern Cape Manufacturing Advisory Centre
(ECMAC) Database to obtain the contact details of the small engineering
companies. Engineering companies registered with ECMAC are one hundred.
Due to the time constraint involved with the interview method used by the
researcher, it was agreed, in consultation with the study leader to settle for forty
percent of the population. The forty companies were chosen randomly. These
forty companies were mostly located in Port Elizabeth and few in Uitenhage.
Most fortunately the companies were a combination of small and big as well as
new and old companies. The researcher telephoned the companies to make
appointments as well as outlining the objective of the interview.
In each meeting the researcher explained in detail the reason for the interview
and the importance of the response by the interviewee. To avoid interference
with the response or any influence that would pre-empt responses, the
researcher adhered strictly to the prepared questionnaire and minimal
expansion/explanation were provided. After completion of the questionnaires
the data was recorded and tabulated on the computer programme, Microsoft
Excel.
55
4.4.3 Measuring instrument
The researcher has developed a comprehensive questionnaire for this research
project to evaluate if small engineering companies segment and target markets
as well as apply positioning concepts. The following areas were covered:
• The influence of the respondent on the application of the above mentioned
concepts;
• The influence of the firm on the application of this concepts;
• The application of the segmenting and targeting of markets;
• The application of the positioning concepts; and the
• The role of the customer relationships.
The researcher then analysed the data according to segmenting and targeting
concepts, and the positioning of companies or products concepts.
4.4.4 Identification of respondents
The researcher targeted the managers or owners running the company. The
decision to target the manager or owners of the companies was based on the
assumption that they were the people with the authority as well as the
knowledge of the company’s environments and performance.
Due to the interview format that was used, the researcher had to document the
name and the title of the respondent. The intention was ensure that the
researcher is able to give feedback to the respective companies that are
interested in the outcome of the study. No pressure or force was used on the
respondent to take part in the empirical study. The companies had a choice to
agree or not to agree to take part in the study.
4.4.5 Pilot study
The aim of the pilot study was to ensure that all questions were understood to
all parties involved and that they were relevant to the research programme. A
56
pilot study ensures clear and unambiguous questions (Calitz, 2001:76). This is
done through administering the questionnaire to a small sample of subjects
drawn from the same group as those that will be administered for the final
version (Gofton & Ness, 1997:110).
Four companies were pilot tested. Two involved interviewing owners and two
surveying managers. After the pilot study the questionnaire was adjusted and
the final questionnaires were prepared and printed.
4.4.6 Validity and reliability The integrity of the research depends on the validity and reliability of the study,
as stated by Leedy (2001:31). Leedy describes the two concepts as follows:
• Validity
Validity measures the extent to which the instrument measures what it is
supposed to measure. There are various types of validity methods used.
Examples are:
- Face validity: This relies on the subjective judgement of the
researcher and refers to whether the statements are appropriate.
- Criterion validity: Validity is determined by relating performance
on one measure to performance on another measure, set as
standard against which to measure the results.
- Content validity: The accuracy with which the instrument
measures the factors in research.
- Internal validity: This validity can be seen freedom from bias in
formulating conclusions, based on the data received.
- External validity: This validity is the degree in generalising the
conclusions reached in research.
• Reliability
Reliability is the consistency with which a measuring instrument yields certain
results when the entity being measured has not changed (Leedy, 2001:31).
57
The researcher (to evaluate the small engineering companies) used
segmentation, targeting and positioning concepts as mentioned earlier, the
questionnaire was drafted from the literature review. For that reason the
researcher believes that the results from this analysis are consistent and
therefore the measuring techniques is reliable.
4.5 SUMMARY
In this chapter the researcher explained the research methodology used. That
includes the construction of the questionnaires, the administration of
questionnaires, the measuring method and the pilot study. The purpose of the
questionnaire was to establish if small engineering companies apply
segmenting, targeting and positioning concepts in their operations.
In the next chapter, detailed analyses of the responses are made and the
findings are tabulated.
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CHAPTER 5
ANALYSIS AND INTERPRETATION OF THE EMPERICAL STUDY 5.1 INTRODUCTION In chapter four the researcher discussed the research methodology, design, the
construction of the questionnaire and concluded with the pilot study.
The aim of this chapter is to analyse and interpret the results of the survey. The
median, average and percentage of the responses were calculated.
The outcome of each statement, as presented to the respondents, is presented
and is followed by an interpretation relating to the theoretical framework
outlined in chapters two and three.
5.2 RESPONSE RATE Forty companies were chosen at random from the Eastern Cape Manufacturing
Advisory Centre (ECMAC) database of the engineering companies for the
interview. Appointments were made by the researcher to meet with the person
running the company. The researcher made appointments by phoning the
company and explaining the purpose of the meeting.
A total of twenty-four companies agreed and honoured the appointment. All
twenty-four companies were successfully interviewed. This represents a
response rate of sixty percent (60%).
5.3 ANALYSIS OF THE RESULTS The researcher first discussed the person in authority’s background (includes
title of the person in authority and their qualification), the firm’s background (the
age of the encompassing business, number of employees, annual turnover and
59
reasons for starting a business). The concepts application (includes
segmenting and targeting of markets as well as positioning of companies and
products) was also discussed.
5.3.1 The background of the person in authority The aim of statement one is to analyse the respondents’ authority in the
running of the company. Diagram 5.1 summarises the respondent’s title of
authority.
Statement 1: Title of respondent Diagram 5.1
Statement 1 Manager Manager/OwnerPercentages 25 75
STATEMENT 1
25
75
01020304050607080
Manager Manager/Owner
Title of respondent
Perc
enta
ges
(%)
From all the respondents, employed managers run 25% of companies while the
owners run 75%. The reason being that most owners are under the
impressions that no one will run their companies better than themselves.
The objective of statement two is to analyse the qualifications the person in
authority hold. Diagram 5.2 summarises the qualifications held by people in
authority.
60
Statement 2: Qualification Diagram 5.2
Statement 2 Manager Both Matric 50 5Diploma 17 28Degree 33 17Other 50
Statement 2
50
1733
5
28
17
50
0
10
20
30
40
50
60
Matric Diploma Degree Other
Qualifications
Perc
enta
ges
(%)
BothManager
The response shows that of all employed managers 50% hold a matric
certificate, 33% hold a degree and 17% hold a diploma. On the other hand,
from owner/managers 50% hold other forms of qualification, which are a trade,
28% hold a diploma in engineering, 17% hold a degree and 5% hold a matric
certificate. These statistics indicate that the managers have to hold a certain
qualification to be employed while most owners are just using their trade
experience to run the business.
61
5.3.2 The firms background
The goal of statement three is to analyse the age of the business. Diagram 5.3
summarises the age of the business in the number of years in existence.
Statement 3: Age of the business Diagram 5.3
Statement 3 Manager Both 11> 83 33(6-10) 0 33(0-5) 17 33
Statement 3
83
017
33
3333
020
406080
100
120140
11> (6-10) (0-5)
Ages
Perc
enta
ges
BothManager
The graph shows that companies ran by managers are equally spread in terms
of the percentages, which are 33% across the board. On the other hand, only
17% percent of companies in the 0-5 years old bracket are run by managers
and 83% of companies above eleven years old. The companies above eleven
years old were initially run by owners but now have ventured into something
different.
The aim of statement four is to analyse the turnover of the businesses run by
managers as opposed to those ran by owners. Diagram 5.4 summarises the
results of the turnovers.
62
Statement 4: Turnover of the business Diagram 5.4
Statement 4 Manager Both (4-7) 100 33(2-3) 0 45(0,5-1) 0 22
Statement 4
100
0 0
33
4522
020
406080
100
120140
(4-7) (2-3) (0,5-1)
Turnover
Perc
enta
ges
(%)
BothManager
The response shows that 100% of companies run by managers are turning
over between R4 and R7 million as opposed to only 33% of companies run by
owners. It also shows that 45% of companies run by owners are turning over
between R2 and R3 million; and 22% are turning over between R0,5 and R1
million. The difference is because companies running at R4 to R7 million
demand a dedicate person to take it forward and also the owner can afford
such a person.
The objective of statement five is to analyse the number of staff employed by
companies ran by managers as opposed to owners. Diagram 5.5 summarises
the employees employed by such companies.
63
Statement 5: Number of employees Diagram 5.5
Statement 5 Manager Both 10+ 83 66(6-10) 17 17(0-5) 0 17
Statement 5
83
17 0
66
17170
20406080
100120140160
10+ (6-10) (0-5)
Employees
Perc
enta
ges
(%)
BothManager
Of all respondents, 83% of companies run by mangers as opposed to 66% of
companies run by owners employ more than ten employees. Companies run by
managers as well as owners both employ between six and ten staff. The
difference is because companies employing more than ten employees need
more than one department head.
5.3.3 Segmenting and targeting of markets
The goal of the statement six is to analyse the rules used by the small
engineering companies to select potential customers. Diagram 5.6 summarises
the results of the rules used.
64
Statement 6: How do you pick/select your customer? Diagram 5.6
Statement 6 Manager Both No rule 33 61Product/service 67 39Market research Other
Statement 6
3367
61
39
0
20
40
60
80
100
120
No rule Product/service Market research Other
Rules
Perc
enta
ges
(%)
BothManager
The response shows that 61% and 33% of companies run by owners and
managers respectively have no rule to select customers. While 39% and 67%
of companies run by owners and managers respectively select customers
based on the product or service they offer. This shows more companies ran by
owners have no selection rules as compared with companies run by managers.
The opposite holds for companies with selection rules. This is because owners
running the company want to cater for all engineering demands.
The aim of the statement seven is to analyse the criteria used to group the
types of customers the firm would like to serve. Diagram 5.7 summarises the
criteria applied.
65
Statement 7: What criteria do you apply? Diagram 5.7
Statement 7 Manager Both Product/ Service 67 44Nothing 33 56Location Company size Other
Statement 7
6733
44
56
0
20
40
60
80
100
120
Product/Service
Nothing Location Companysize
Other
Criteria
Perc
enta
ges
(%)
BothManager
The graph shows that 67% of companies ran by managers use the product or
service offered as a selection criteria for grouping customers as opposed to
44% of companies run by owners. Companies that have no criteria for selecting
customers are represented by 56% of firms run by owners and 33% run by
managers. This shows that more companies run by managers have a selection
criteria as opposed to more companies owned by managers that have no
selection criteria. These findings tend to indicate that companies run by
owners are generalist in terms of product offerings.
The objective of the statement eight is to analyse if companies quantify the
existing types of customers they want to serve. Diagram 5.8 summarises the
results.
66
Statement 8: Do you quantify how many potential customers exist in the nearby area? Diagram 5.8
Statement 8 Manager Both Yes 17 28No 83 72
Statement 8
17 28
83 72
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
NoYes
The analysis shows that in response to the question of quantification of existing
customers, 83% of companies run by managers said no while 72% of
companies run by owners also said no. The difference is not that big because
both see no value in quantifying existing customers. A reason offered for this
response is that their big customers are automotive related companies and
therefore they assume that there is sustainability.
The goal of statement nine is to analyse the basis that companies use to group
or segment their market. Diagram 5.9 summarises the results.
67
Statement 9: On what basis do you group or segment your market?
Diagram 5.9
Statement 9 Manager Both Geographic 50Demographic 17 17Psychographic Behavioristic 83 33
Statement 9
17
8350 17
33
0
20
40
6080
100
120
140
Geographic Demographic Psychographic Behavioristic
Basis
Perc
enta
ges
(%)
BothManager
From the response, it shows that 83% of companies run by employed
managers use behaviouristic segmentation as a basis for grouping customers
as compared to 33% of companies run by owners. Demography as a basis is
used by 17% of companies run by both managers and owners. Only 50% of
companies run by owners use geographic segmentation as a basis for grouping
or segmenting their market. This shows that companies run by mangers use
behaviour segmentation as a basis as compared to companies run by owners,
which tend to use geographic location as a basis.
The aim of statement ten is to analyse if companies establish the sustainability
of segments. Diagram 5.10 summarise the response.
68
Statement 10: Do you try to establish if the segment you select will be sustainable?
Diagram 5.10
Statement 10 Manager Both Yes 33 39No 67 61
Statement 10
33 39
67 61
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
NoYes
Responses shows that 67% of companies run by employed managers and 61%
of companies run by owners do not establish the sustainability of segments.
This means only 33% of companies run by managers as well as 39% of
companies run by owners try to establish the segment sustainability. This data
could be interpreted that both companies run by managers and owners supply
automotive related companies and the assumption is that their market is
sustainable.
The objective of statement eleven is to analyse what customers buy from the
small engineering companies, whether it is product or service. Diagram 5.11
summarise the results.
69
Statement 11: What do your customers buy?
Diagram 5.11
Statement 11 Manager Both Product 83 83Service Both 17 17
Statement 11
83
17
83
170
20406080
100120140160180
Product Service Both
Offerings
Perc
enta
ges
(%)
BothManager
The result shows that customers of 83% of both companies run by managers
and owners buy products. While 17% of both companies run by managers and
owners sell combined product and service to customers. These findings imply
that they offer same type of products and services to customers.
Statement twelve’s objective is to analyse which type of products these
companies supply their customers. Diagram 5.12 summarise the results.
70
Statement 12: Which product do you supply?
Diagram 5.12
Statement 12 Manager Both Customised 100 100General Other
Statement 12
100 100
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
OtherGeneralCustomised
The graph shows that 100% of both companies run by managers and owners
supply customised products. There is no difference because engineering
companies serve same type of customer base.
The goal of objective thirteen is to analyse the type of service offered by
companies. Diagram 5.13 summarise the results.
71
Statement 13: Which service do you provide?
Diagram 5.13
Statement 12 Manager Both Customised 100 100General Other
Statement 13
100 100
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
OtherGeneralCustomised
This result also shows that both companies run by managers and owners offer
customised services. There is no difference again because engineering
companies serve the same type of customer base.
The aim of statement fourteen is to analyse what determines what the
companies offer to customers. Diagram 5.14 illustrates the results in summary.
72
Statement 14: What determines which products or services you provide?
Diagram 5.14
Statement 14 Manager Both Market needs Customer requests 100 100Competitor Combination Other
Statement 14
100
100
050
100150200250
Mar
ket
need
s
Cus
tom
erre
ques
ts
Com
petit
or
Com
bina
tion
Oth
er
Determinants
Perc
enta
ges
(%)
BothManager
The results shows that 100% both of companies run by managers and owners
offer products according to customer request. There is no difference because
they both serve same type of products to same types of customers.
The objective of statement fifteen is to analyse if the companies do offer
product development. Diagram 5.15 summarise the results.
73
Statement 15: Do you ever contact a customer to establish if they need new or modified products?
Diagram 5.15
Statement 15 Manager Both Yes 17 22No 83 78
Statement 15
17 22
83 78
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
NoYes
The results show that 83% of companies run by managers and 78% of
companies run by owners do not offer product development to customers. The
response indicates that they offer customised products and services to
customers.
The goal of statement sixteen is to analyse if the companies supply the same
product or service to customers. Diagram 5.16 summarise the results.
74
Statement 16: Do you tend to supply the same product or service to your customers?
Diagram 5.16
Statement 16 Manager Both Yes 100 100No
Statement 16
100 100
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
YesNo
The result shows that 100% of companies run by both managers and owners
supply the same products to customers. This is because they both supply
customised products.
The aim of statement seventeen is analyse if the companies tend to supply new
products. Diagram 5.17 summarise the results.
75
Statement 17: Do you tend to supply the new product to your customers?
Diagram 5.17
Statement 17 Manager Both Yes 17 6No 83 94
Statement 17
17 6
83 94
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
NoYes
The results summarised in the graph show that 83% of companies run by
managers as well as 94% of companies run by owners do not supply new
products. It is only a minority that does. This reinforces the fact that companies
supply customised products.
The objective of statement eighteen is to analyse if companies specialise in a
certain field. Diagram 5.18 summarise the results.
76
Statement 18: Do you specialise in a specific field of product offerings?
Diagram 5.18
Statement 18 Manager Both Yes 100 100No
Statement 18
100 100
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
YesNo
The results show that 100% of both companies run by managers or owners do
specialise in certain field. This is due to the type of trade or technology the
company possesses as an asset.
The objective of statement nineteen is to analyse the field the companies
specialise in. Diagram 5.19 summarise the results.
77
Statement 19: If yes, in which field?
Diagram 5.19
Statement 19 Manager Both Assembly 15 20Fabrication 15 25Machining 20 25Tooling 20 20Combination 30 10
Statement 19
15 1520 20
30
2025 25
20
10
05
101520253035
Assembly Fabrication Machining Tooling Combination
Fields
Perc
enta
ges
(%)
ManagerBoth
The result shows that the big differences appear only in fabrication and
combination. Fabrication is done by 15% of companies run by managers and
25% of companies run by owners. While combination is done by 30% of
companies run by managers and 10% of companies run by owners. This shows
that companies run by managers offer a combinations of fields to attract
different customers. Owners tend to focus on their speciality.
Statement twenty’s aim is to analyse if companies depend on one or limited
customers. Diagram 5.20 summarise the results.
78
Statement 20: Is your company dependant on one or limited customers?
Diagram 5.20
Statement 20 Manager Both Yes 33 67No 67 33
Statement 20
3367
6733
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
NoYes
The results show that 67% of companies run by managers said no while 67%
of companies run by owners said yes. The difference might be attributed to the
fact that owners started a business focusing on one or limited customers and
therefore maintain that relationship. On the other hand companies run by
employed managers focus on increasing the customer database.
The objective of statement twenty-one is to analyse if the sales of companies
come from one product. Diagram 5.21 summarise the results.
79
Statement 21: Do most of your sales come from one product?
Diagram 5.21
Statement 21 Manager Both Yes 50 44No 50 56
Statement 21
50 44
50 56
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
NoYes
The graph shows that companies run by managers 50% said yes and the other
50% said no. While companies run by owners 56% said no and 44% said yes.
The difference is not large and could be attributed to the fact that they offer
similar types of products to similar customers.
5.3.4 Positioning
The goal of the statement twenty-two is to analyse if the companies have a
competitive advantage. Diagram 5.22 summarises the results of the rules used.
80
Statement 22: Do you feel that you have a competitive advantage?
Diagram 5.22
Statement 21 Manager Both Yes 100 95No 5
Statement 22
100
95
5
9293949596979899
100101
Manager Both
Authorities
Perc
enta
ges
(%)
NoYes
The results shows that 100% of companies run by managers feel that they
have a competitive advantage while 95% of companies ran by owners feelthe
same way. The difference is not large because both companies feel that they
have a competitive advantage.
The aim of statement twenty-three is to analyse what the companies regard as
a competitive advantage. Diagram 5.23 summarise the results.
81
Statement 23: Do you specifically regard any of the following items as a competitive advantage?
Diagram 5.23
Statement 23 Essential ImportantSomewhat important
Not important
Price 55 36 9 0Quality 83 17 0 0Product attributes Services Other
Statement 23
55
83
36
179
00 00
102030405060708090
Price Quality Productattributes
Services Other
Competitive advantages
Perc
enta
ges
(%) Essential
ImportantSomewhat importantNot important
The results show that price and quality are the key determinants of competitive
differentiation. Of the respondents that have chosen price, 55% feels that it is
essential while of the respondents that have chosen quality, 83% feels that
price is essential.
The objective of statement twenty-four is to analyse if the above items are
consistence with what the customer wants. Diagram 5.24 summarise the
results.
82
Statement 24: Is the item you selected in previous statement consistence with what the customer want?
Diagram 5.24
Statement 24 Manager Both Yes 100 100No
Statement 24
100 100
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
YesNo
The response graph shows that 100% of both companies run by managers and
owners feels that the item they selected in previous statement is in consistence
with what the customer want. The selection was based on gut feel and
experience.
The goal of statement twenty-five is to analyse if the competitive advantage
selected by companies is cost effective. Diagram 5.25 summarise the results.
83
Statement 25: Is your competitive advantage cost effective?
Diagram 5.25
Statement 25 Manager Both Yes 100 100No
Statement 25
100 100
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
YesNo
In this analysis the results show that 100% of both companies run by managers
as well as companies run by owners felt that their mode of difference was cost
effective. That is because if the price favours the company then profit can be
made. With quality less rejects and less waste can be achieved.
The aim of statement twenty-six is to analyse if the competitive advantage is
sustainable. Diagram 5.26 summarises the results.
84
Statement 26: Is your competitive advantage sustainable?
Diagram 5.26
Statement 26 Manager Both Yes 100 100No
Statement 26
100 100
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
YesNo
The results shows that 100% of both companies run by managers as well as
companies run by owners felt that their competitive advantage was sustainable.
The reason cited was that with competitive price relevant overheads could be
covered including marketing. When it comes to quality, the ISO 9000 quality
system can be used to sustain the quality of products and services.
The objective of statement twenty-seven is to analyse if the competitive
advantage is profitable. Diagram 5.27 summarise the results.
85
Statement 27: Is your competitive advantage profitable?
Diagram 5.27
Statement 27 Manager Both Yes 100 100No
Statement 27
100 100
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
YesNo
In this analysis the results show that 100% of both companies run by managers
as well as companies run by owners felt that their competitive advantage was
profitable. A good price for a product or service offered means more profit.
Good quality means effective and efficient product and service delivery.
The aim of statement twenty-eight is analyse if the product offered by
companies are differentiated. Diagram 5.28 summarise the results.
86
Statement 28: Is your product differentiated from that of your competitors?
Diagram 5.28
Statement 28 Manager Both Yes 50 22No 50 78
Statement 28
5022
5078
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
NoYes
There was a split vote by companies run by managers. With firms run by
managers, 78% said yes and the remaining 22% reported no. The reason cited
for this difference was that products are differentiated in terms of durability due
to the quality of material used.
The goal of statement twenty-nine is to analyse how the companies rank the
order of importance of stated criteria to their target market. Diagram 5.29
summarise the results.
87
Statement 29: Rank the order of importance of the following criteria to your target market?
Diagram 5.29
Statement 29 Essential ImportantSomewhat important
Not important
Price 67 29 4 0Quality 92 8 0 0Brand name 0 25 33 42Packaging 4 50 42 4After sales 4 16 50 30Location 8 42 30 20Payment terms 20 58 4 18Other
Statement 29
6792
0 4 4 8 20
298
2550
1642
58
4 0
33
42
5030
40 0
424
30 20 18
020406080
100120
Price
Quality
Brand n
ame
Packa
ging
After s
ales
Loca
tion
Paymen
t term
sOthe
r
Criteria
Perc
enta
ges
(%)
Not importantSomewhat importantImportantEssential
Price and quality emerge as essential criteria that are important to target
markets. Payment terms, packaging and location are also seen as important.
After sales service is of lesser significance to customers and brand name
clearly emerges as the least significant.
The objective of statement thirty is to analyse if companies are aware of direct
competitors. Diagram 5.30 summarises the results.
88
Statement 30: Do you have direct competitors?
Diagram 5.30
Statement 30 Manager Both Yes 83 89No 17 11
Statement 30
83 89
17 11
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
NoYes
The graph shows that 83% of companies run by managers as well as 89% of
companies run by owners report having direct competitors. They only know
about their competitors through word of mouth or during the submission of
quotations or tenders.
The aim of statement thirty-one is analyse if the companies are aware of
indirect competitors. Diagram 5.31 summarise the results.
89
Statement 31: Do you have indirect competitors?
Diagram 5.31
Statement 31 Manager Both Yes 50 83No 50 17
Statement 31
5083
5017
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
NoYes
The results show that firms run by managers are equally split in their idea of
indirect competitors. The majority of owner managers are aware of the indirect
competitors and only a mere 17% claim not to have indirect competitors.
The goal of the statement thirty-two is analyse what companies regard as
competitor strengths and weaknesses. Diagram 5.32 summarise the results.
90
Statement 32: What do you regard as your competitors’ best two strength and weakness?
Diagram 5.32
Statement 32 Strength WeaknessFinance 46 Expertise 25 17Customer base 25 17Recognition 42 17Technology 13 13Other
Statement 32
46
25 25
42
1317 17 17 13
01020
304050
Financ
e
Expert
ise
Custom
er ba
se
Recog
nition
Techn
ology
Other
Strength and weakness
Perc
enta
ges
(%)
StrengthWeakness
According to the results, the best two strengths are finance with 46% and
recognition with 42%. Core weaknesses reported equally significantly are
expertise, customer base and recognition.
The objective of statement thirty-three is to analyse the companies’ core two
strength and weakness. Diagram 5.32 summarise the results.
91
Statement 33: What do you regard as your company’s’ core two strength and weakness?
Diagram 5.33
Statement 33 Strength WeaknessFinance 25 13Expertise 54 17Customer base 25 8Recognition 42 17Technology 38 4Other 38 17
Statement 33
2554
2542 38 38
13
17
8
174 17
01020304050607080
Financ
e
Expert
ise
Custom
er ba
se
Recog
nition
Techn
ology
Other
Strength and weakness
Perc
enta
ges
(%)
WeaknessStrength
From the analysis, the result shows that expertise and recognition are the key
strengths as voted by companies. Expertise, recognition and other (which is
business contact or Black Economic Empowerment (BEE)) all are voted equally
with 17% as major weaknesses. The elements with high ratings are regarded
as important strengths for companies.
The aim of the statement thirty-four is to analyse the importance of customer
relationship to companies. Diagram 5.34 summarise the results.
92
Statement 34: Is customer relationship important to your business?
Diagram 5.34
Statement 34 Manager Both Yes 100 100No
Statement 34
100 100
0
20
40
60
80
100
120
Manager Both
Authorities
Perc
enta
ges
(%)
YesNo
The graph shows that the 100% of both companies run by managers and
owners feel that customer relationships are important to their businesses.
Companies feel that through good customer relationships and a close
collaboration future business can be secured. Issues can also be resolved
before they escalate into problem situation.
93
5.4 SUMMARY
In this chapter the researcher analysed and interpreted the results of the
survey.
The fundamental objective was to evaluate the use of segmentation and
targeting and the positioning strategies adopted by small engineering firms
Each question was analysed, the results tabulated and bar charts drawn.
Chapter six will deal with the recommendations based on findings of the
literature study and the analysis of the data obtained through the survey.
94
CHAPTER 6
SUMMARY AND RECOMMENDATION 6.1 INTRODUCTION In chapter five the empirical study was analysed statement by statement. The
result of each statement was tabulated and bar chart drawn to represents the
results. In this chapter, the researcher makes concluding statements and a
summary of the influence the person in authority’s background; the firm’s
background has in applying concepts and of analysis if small engineering
companies do apply the concepts (includes segmenting and targeting of
markets as well as positioning of companies and products). The chapter
concludes with recommendation for further research in the role customer
relationship play in ensuring continuous business for the small engineering
companies.
6.2 SUMMARY The topic researched in this dissertation was “An evaluation of the use of
segmentation, targeting and positioning strategies by selected small, micro and
medium engineering manufacturing enterprises to sustain and grow customer
base.”
In chapter one the researcher identified and analysed the main and sub-
problems to segment and target the markets as well as to position the
engineering companies. Chapter two and three had a specific purpose, which
was to give an overview of related literature regarding segmenting and
targeting of markets and positioning of a company or products in a market.
Companies cannot meet or satisfy the need of all customers or markets. In the
competitive markets companies must position themselves in such a way that
they are differentiated from the rest of their competitors.
95
The engineering industry is very competitive and large. This simply means that
there are a number of potential customers and there is different product ranges
required. Engineering companies must understand the needs of different
customers and group them accordingly. In chapter two the researcher outlined
the theories about market segmentation and targeting. That simply means
according to the marketing gurus, the engineering companies must somehow
group customers according to similar needs. Once they have done that they
now have to establish which group they can serve based on their company
objectives, capability to meet the demands and the resources required.
One factor that can enable the companies to be able to segment markets is
research, whether formal or informal of the different customer needs has to be
taken. This will help the company to know their customers better. Chapter two
outlines the four basic criteria that the markets must satisfy, which are
sustainability; identifiability and measurability; accessibility and responsiveness.
It further mentioned the seven steps that can be followed to segment the
market.
Once the needs of different customers have been identified and grouped, one
or more groups have to be selected, which the company will focus on. That is
targeting of the market. In chapter two three types of marketing strategies are
discussed, which are undifferentiated, differentiated and concentrated strategy.
The empirical study shows that engineering companies apply undifferentiated
strategy, whereby the company makes a single offering to the entire market.
Through this strategy the company does achieve the economy of scale.
There are more than one companies offering the same product, the challenge
is how does a company win customers over the competitors. The company has
to appeal to customers in a different way, which means position the company
or its product in the mind of the consumers or customers. For the company to
be able to position itself in the mind of the customer, it must differentiate itself
or offerings from the rest of the competitors. Chapter three outlines the basis
that the company can use to differentiate itself. There are four bases, which are
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product features, accompanying service, people and image. In case of a
commodity that a company supply as does the engineering companies,
accompanying services and people are the two recommended basis that
engineering companies can use to position itself. In chapter three the
positioning strategies or methods is discussed as well as the positioning
process. The empirical study shows that engineering companies use price or
quality as differentiation strategies.
The empirical study has indicated that the background of the owner and the
companies play a role in application of the segmenting and targeting of markets
concepts. More companies ran by managers do apply the concepts as opposed
by companies ran by owners. This leaves a question as to how does this
company retain old and attract new customer base.
6.3 SUMMARY OF EMPERICAL SURVEY AND RECOMMENDATIONS Forty companies were selected for interview as highlighted in the chapter five,
only twenty-four companies responded and this represents sixty percent
response rate. The results showed that engineering companies especially
those ran by managers does apply some of the segmenting and targeting
concepts as well as positioning of a company or its products.
6.3.1 Segmenting and targeting of markets concepts
The survey of the application of segmenting and targeting of markets concepts
was done among companies ran by mangers and owners and twenty-four of
this companies responded.
The empirical survey show that 75% of companies are ran by owners, figure
5.1. It also shows that more managers running the company are more qualified
than owners running the company see figure 5.2.
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Survey also reveals that managers are running the company with a turnover
between R4 and R7 million, figure 5.4. Managers are mostly also running
companies with more than ten employees.
6.3.1.1 Responses
• Selection of customers: Response shows that 39% and 67% of companies ran by owners and
managers respectively select customers based on product or service they offer.
On the other hand 61% and 33% of companies ran by owners and managers
respectively have no rule to select customers. However this means that more
companies are using basic rules to select customers as compared to others,
which are less when combined. The literature stipulates that consumers are not
alike and they do not have same needs. This simply means that companies use
a one standardised marketing strategy for all segments. It is therefore difficult
to assess whether they satisfy them or not. It is therefore necessary to segment
a market with a particular rule. In the diagram 5.7 the results shows that 67% of
companies ran by managers and 44% of companies ran by owners use product
or service offered as a selection criteria for grouping customers. This can be an
indication that owners use a gut feel to select customers as opposed to formal
marketing principle as implemented by managers. However there are 56% of
companies, ran by owners and 33% of companies ran by managers that do not
apply any criteria. However this can be debated as an undifferentiated
marketing strategy.
• Quantification of existing customers and sustainability of a segment: As illustrated by diagram 5.8, 83% of companies ran managers said do not
quantify the existing customers in the nearby area as well as 72% of
companies ran by owners. It is not necessary as the market they are serving
which is automotive is a stable market once the company has penetrated. The
same goes for the establishment of sustainability of a segment. The diagram
5.10 shows that 67% of companies ran by employed managers and 61% of
companies ran by owners do not establish the sustainability of segments.
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• What do customers buy: The diagram 5.11 shows that customers are buying from majority of companies
a product and only few are offering a service. This simply means not much can
be done through the after sales service to enhance the product the company is
selling to a customer. Diagrams 5.12 and 5.13 illustrate that companies are
supplying a customised product and service to customers. This simply means
that product differentiation is not possible for these companies.
• Determinant of which products or services to provide: All companies are supplying products according to customer request as
indicated in diagram 5.14. Customer request limit companies to develop a
product as companies deem necessary and therefore continue to supply same
product as illustrated in 5.16. Although few of the companies attempt to perform
product development, in most cases it also needs to be initiated by customers.
• Specialisation The diagram 5.18 shows that all companies run by managers or owners do
specialise in a certain field. As discussed in chapter five the graph shows that
more companies run by owners tend to focus more on one speciality, which in
most cases is the trade possessed by the owner. These range from machining,
fabrication, tooling, assembly and combination of any two or more speciality.
• Customer base and sales
In the diagram 5.20, 67% of companies run by managers are dependant on
more than one customer, while 67% of companies run by owners is dependant
on one or limited customers. This highlight that companies run by owners are
somehow customer focussed and this might be due to the fact that the
company was formed to supply that one or limited customers.
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6.3.2 Positioning of companies or products concepts
• Differentiation Differentiation as defined by Kotler (2003:286) is the act of designing a set of
meaningful differences to distinguish the companies offering from competitors’
offerings. Diagram 5.22 shows that 100% of companies run by managers as
well as 95% of companies run by owners feel that they have a competitive
advantage. Quality received 85% and price followed with 55% of vote as an
essential item (see Diagram 5.23) that gives a company an edge over the
competitors. Diagram 5.28 shows that 78% companies run by owners and 50%
of companies run by managers feels that product are differentiated from that of
competitors. Company authorities feel that quality and price are more essential
while payment terms is important to the targeted market. This indicates that
companies do differentiate either by company image or product.
Companies regard expertise and recognition as the two core strengths as can
be seen in diagram 5.33. Other items such as customer base, finance and
technology follows with lower votes. Expertise, recognition and other that are
black economic empowerment (BEE) received 17% of votes each as a core
weakness. However companies used gut feel to votes for the strengths and
weaknesses while some companies does not have a clue, a more formal
company evaluation should be done to determine the company strengths and
weaknesses.
• Competitors
The diagram 5.30 illustrate that companies are aware of the direct competitors.
However when it comes to indirect competitors, managers running the
company split in to two halves, whereby the one half are aware while the other
half is not aware. There is no formal research done to establish the existence of
this competitors, it is mostly through the word of mouth or during the quotation
or tendering process. This indicates that more formal research is maybe
needed to clearly establish how many competitors do exist in the market.
100
The diagram 5.32 shows that companies feel that finance and recognition are
the two-core competitor’s strengths. While expertise, customer base and
recognition received equal votes of 17% each as a core weakness. The above-
mentioned recommendation still applies to competitors for more formal
research to be performed.
• Customer relationship
All companies feel that customer relationship gives preference over competitors
by customers, secure future business and ensures that potential problems are
discussed and solved in advance. This indicates that customer relationship is
important to companies.
6.4 AREAS FOR FURTHER RESEARCH The following are areas identified for further research.
• Investigation into how does engineering companies manage to sustain their
business without a sound marketing principles.
• The benefit of customer relationship to companies.
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ANNEXTURE A SECTION A BIOGRAPHICAL INFORMATION 1. Name of business: _ 2. Name of respondent: _ 3. Address of business: __ 4. Title of respondent: (tick √) Owner Manager Both 5. If manager, name of owner: _ 6. Number of years of experience (tick √): 0-5 6-10 11> 7. Age of business (tick √): 0-5 6-10 11> 8. Qualification (tick √): Matric Diploma Degree Other 9. No of employees (tick √): 0-5 6-10 10+ 10. Annual turnover in millions (tick √): R0,5 –R1 R2-R3 R4-R7 11. Reason for starting the business (tick √): Identified an opportunity in the market Family business Have the skill (tradesman) Access to equipment Self employment Outsource Other
1
12. How the business started (tick √): (What approach did you take to start your business?) Start from scratch Bought an existing business Joint venture SECTION B SEGMENTATION AND TARGETING: 1. Your main customers: 1.1How do you pick/select your customers? (tick √) No rule What they supply (product/service) Market research Other 1.2What criteria do you apply? (tick √) Product/service Location Size of the company Nothing Other 1.3Do you quantify how many potential customers exist in the nearby area? (tick √) Yes No 2. On what basis do you group or segment your market? (tick √) Location that is local or regional etc (Geographic)
Demographic (income level/end) Factors that influence your customers' purchasing decision (Psychographic)
Brand, loyalty, cost, frequency of use (Behavioristic)
3.1 Do you try to establish if the segment you select will be sustainable? (tick √) Yes No 3.2 If yes: How do you establish sustainability? _ _
2
4. Services or product: 4.1 What do your customers buy? (tick √) Product Service Both 4.2 Which product do you supply? (tick √) Customized General (off shelf) Other 4.3 Which service do you provide? (tick √) Customized General (off shelf) Other 5. What determines which products or services you provide? (tick √) Market needs Customer request Competitor Combination Other 6. Do you ever contact a customer to establish if they need new or modified products? (tick √) Yes No 7. Do you tend to: 7.1 Supply the same product/service to your customers? (tick √) Yes No 7.2 Supply new products? (tick √) Yes No 8. Do you specialize in a specific field of product offerings? (tick √) Yes No 8.1 If yes, in which field? (tick √)
3
Assembly Fabrication Machining Tooling Combination
9. Is your company dependent on one or limited customers? (tick) Yes No 10. Do most of your sales come from one product? (tick) Yes No SECTION C POSITIONING: 1. Do you feel that you have a competitive advantage? (tick) Yes No 1.2 In what way do you feel you are different to your competitors? _ _ 1.3 Do you specifically regard any of the following items as a competitive advantage? Rank in order of importance? (tick) Items Essential Important Somewhat
important Not important
Price Quality Product attributes
Service Other 1.4 Is the item you selected in 1.3 consistence with what the customer want? (tick) Yes No 1.5 Is your competitive advantage cost effective? (tick) Yes No Comment, how _ 1.6 Is your competitive advantage sustainable? (tick) Yes No Comment, how _
4
1.7 Is your competitive advantage profitable? (tick) Yes No 2. Is your product differentiated from that of your competitors? (tick) Yes No Comment, how _ 3 Rank the order of importance of the following criteria to your target market? (tick) Criteria Essential Important Somewhat
important Not important
Price Quality Brand name Packaging After sales service Location Payment terms Other 4 Competitors: 4.1 Do you have direct competitors? (tick) Yes No Comment, how you identify them _ _ 4.2 Do you have indirect competitors? Yes No Comment, how you identify them _ _ 5. Competitor strength and weaknesses: 5.1 What do you regard as your competitors’ core two: (tick) Strength Weakness Finance Expertise Customer base Recognition Technology Other
5
5.2 Rank the best two strength selected in 5.1: (tick) Important Not
important Finance Expertise Customer base Recognition Technology Other Comment how, _ _ 6. Your company strength and weakness: 6.1 What do you regard as your companies’ core two: (tick) Strength Weakness Finance Expertise Customer base Recognition Technology Other 6.2 Rank the best two strength selected in 6.1: (tick) Important Not
important Finance Expertise Customer base Recognition Technology Other Comment how, _ _ 7. Is customer relationship important to your business? Yes No Comment how, _ _ Thanks for your time and cooperation 6
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