Market-Based Management

Market-Based ManagementMarket-Based Management

Chapter 5Chapter 5Market Segmentation, Market Segmentation,

Targeting and PositioningTargeting and Positioning

Market segmentation overviewMarket segmentation overview

• Why do we need to segment markets Why do we need to segment markets in the first place? in the first place?

• Because mkts are seldom Because mkts are seldom homogeneoushomogeneous

• Thus people have much different Thus people have much different tastes, etc.tastes, etc.

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Criteria for Effective SegmentationCriteria for Effective Segmentation

Segments must be:Segments must be:• MeasurableMeasurable - in terms of purchasing power - in terms of purchasing power

and size.and size.• ReachableReachable - can promote to and serve seg.

effectively.• ProfitableProfitable - large enough with sufficient - large enough with sufficient

disposable income to be profitable to serve.disposable income to be profitable to serve.• Match CapabilitiesMatch Capabilities - segment must fit with - segment must fit with

firm cap’s in process tech., dist., mktg., etc.firm cap’s in process tech., dist., mktg., etc.

Segmenting by Characteristics of Segmenting by Characteristics of People: People:

• Geographic SegmentationGeographic Segmentation• PsychographicPsychographic

Social class, Lifestyle, Personality.Social class, Lifestyle, Personality.

• DemographicDemographic Age, Sex, Occupation, EducationAge, Sex, Occupation, Education

Segmenting Organizational Mkts by Segmenting Organizational Mkts by Firm Characteristics:Firm Characteristics:

Needs & Preferences Segmentation:Needs & Preferences Segmentation:• Usually the best wayUsually the best way• Benefits sought/problems solved.Benefits sought/problems solved.

e.g. Price, Image, Valuee.g. Price, Image, Value

• Attitudes toward product Attitudes toward product • Perceptions of product/svc.Perceptions of product/svc.

Segmenting by Other Behaviorial Segmenting by Other Behaviorial Aspects:Aspects:• Product usageProduct usage• Brand loyaltyBrand loyalty• Customer SatisfactionCustomer Satisfaction

Needs Based Segmentation:Needs Based Segmentation:

• For each segment considered, we For each segment considered, we develop a profile based on the develop a profile based on the needs and benefits soughtneeds and benefits sought Done by surveys usuallyDone by surveys usually

• But these are not readily But these are not readily observable in many cases.observable in many cases.

• So we need a way to identify these So we need a way to identify these target consumers.target consumers.

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Thus, by linking to demos, we hit Thus, by linking to demos, we hit can develop a profile of the seg.can develop a profile of the seg.

There Are Two Basic Approaches There Are Two Basic Approaches to Marketing Productsto Marketing Products• UndifferentiatedUndifferentiated• Differentiated Differentiated

Undifferentiated MarketingUndifferentiated Marketing• Works in Mkts Where Overriding Works in Mkts Where Overriding

Concern/Need Is Common Among All Concern/Need Is Common Among All Consumers.Consumers.

• Can Be Efficient Can Be Efficient One Product for AllOne Product for All

• Most Marketers Find This Does Not Most Marketers Find This Does Not Work Very WellWork Very Well

Differentiated MarketingDifferentiated Marketing

• Develop Unique Products for Each Develop Unique Products for Each Market SegmentMarket Segment

• Position Them to the Customers in Position Them to the Customers in That SegmentThat Segment

• Develop the Marketing Mix to match Develop the Marketing Mix to match the position.the position.

Differentiating a Product Offering.Differentiating a Product Offering.• Product Product

Features, Performance, Durability, Reliability, Style, Benefits Features, Performance, Durability, Reliability, Style, Benefits Received Received

• ServiceService Delivery, Installation, Customer Training, Consulting Services, Delivery, Installation, Customer Training, Consulting Services,

Maintenance and RepairMaintenance and Repair

• PersonnelPersonnel Competence (Skill/Knowledge), Courteous, Credible, Trustworthy, Competence (Skill/Knowledge), Courteous, Credible, Trustworthy,

Reliable ,Consistent, ResponsiveReliable ,Consistent, Responsive

• Image Image Product Must Relate to a Strong Image Producing Thing or Idea Product Must Relate to a Strong Image Producing Thing or Idea

(Ideas, Symbols, People, Events)(Ideas, Symbols, People, Events)

Next Step is to Identify Positioning Next Step is to Identify Positioning Concepts for Each Target SegmentConcepts for Each Target Segment

• What Is Positioning?What Is Positioning?

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• Positioning Is the Relationship of Positioning Is the Relationship of Products to Positions in the Products to Positions in the Consumers Mind. Consumers Mind.

• We Want Our Users/Consumers to We Want Our Users/Consumers to Understand What Our Product Is and Understand What Our Product Is and What It Stands For.What It Stands For.

• Product Ladder Exercise for ColasProduct Ladder Exercise for Colas

Criteria for Position SelectionCriteria for Position Selection• Differences Must Be Differences Must Be

Important to BuyersImportant to Buyers DistinctiveDistinctive Superior to Other Products Which Satisfy This NeedSuperior to Other Products Which Satisfy This Need CommunicableCommunicable Not Easily CopiedNot Easily Copied AffordableAffordable Profitable for firmProfitable for firm

Other FactorsOther Factors

• The Product Itself Must Be RightThe Product Itself Must Be Right• Price must be right.Price must be right.• The Image It Coveys Must Fit the The Image It Coveys Must Fit the

PositionPosition• Media Support Must Carry the Same Media Support Must Carry the Same

MessageMessage

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Positioning ApproachesPositioning Approaches• Position Against the competition.Position Against the competition.

Avis "Were Number Two, We Try Harder“Avis "Were Number Two, We Try Harder“

• Use Competition's Features Against Use Competition's Features Against ThemThem 7-Up7-Up "the Uncola“"the Uncola“

• New, Unoccupied PositionNew, Unoccupied Position Apple “Works Better, Hip, Cool“Apple “Works Better, Hip, Cool“

• Reposition the CompetitionReposition the Competition Advil Repositioning TylenolAdvil Repositioning Tylenol

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Chapter 6Chapter 6Competitor Analysis Competitor Analysis

and Sources of Advantageand Sources of Advantage

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Competitive AnalysisCompetitive Analysis

• The search to understand The search to understand competitor’s advantages and competitor’s advantages and disadvantagesdisadvantages

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Five Forces ComparisonFive Forces Comparison

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Sources of Competitive AdvantageSources of Competitive Advantage

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Cost AdvantageCost Advantage

• Variable and Fixed CostsVariable and Fixed Costs Scale effectsScale effects Scope effectsScope effects Learning effectsLearning effects

• Strong cost advantage is a barrier to Strong cost advantage is a barrier to entryentry

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Cost and VolumeCost and Volume

Volume

Cost ($)

LRAC A

LRAC B

LRAC A ‘

Firm A movesfrom A to A’due to learning andreinvestment

What shouldFirm B do?

Avg. costs decrease asfirm increases volume

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Profit Impact of Differentiation (which Profit Impact of Differentiation (which we’ve already covered) Advantages.we’ve already covered) Advantages.

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DifferentiationDifferentiation

• Increases avg. costsIncreases avg. costs• Also increases profitability due to:Also increases profitability due to:

Pricing power of meeting customer needs Pricing power of meeting customer needs better than competitors. better than competitors.

• Builds Loyalty – barrier to entryBuilds Loyalty – barrier to entry

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Marketing AdvantageMarketing Advantage

• Mostly about branding:Mostly about branding: Building associations in the mind of the buyer Building associations in the mind of the buyer

that are:that are: UniqueUnique PositivePositive StrongStrong

• Builds barrier to entry.Builds barrier to entry.

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Also important to know customer views Also important to know customer views of competitorsof competitors• Brand MappingBrand Mapping

Portfolio AnalysisPortfolio Analysis

• Looks at business competitive Looks at business competitive position position andand market attractiveness market attractiveness based on share.based on share.

• Looks at multiple SBUs.Looks at multiple SBUs.• Helps provide strategic direction for Helps provide strategic direction for

a firm’s SBUs.a firm’s SBUs.

BCG Growth-Share MatrixBCG Growth-Share MatrixStars Prob. Child

Cash Cows Dogs

Hig

hLo

w

MktGrowthRate

High Low

R&D

Competitive Position (Share Ratio)10 1.0 0.1

Expanded Portfolio AnalysisExpanded Portfolio Analysis

GE Market Attractiveness - Bus. PositionGE Market Attractiveness - Bus. PositionMkt Attractiveness:

High Med. Low

High

Med.

Low

BusinessPosition:Ability To Compete

Evaluating the Ability to CompeteEvaluating the Ability to Compete

• SizeSize• GrowthGrowth• Share by Seg.Share by Seg.• Cust. LoyaltyCust. Loyalty• MarginsMargins• DistributionDistribution

• Tech. SkillsTech. Skills• PatentsPatents• MarketingMarketing• FlexibilityFlexibility• CultureCulture• Firm CapabilitiesFirm Capabilities

Market AttractivenessMarket Attractiveness

• SizeSize• GrowthGrowth• Cust. Sat. LevelCust. Sat. Level• Competition:Competition:

How muchHow much How intenseHow intense

• Price LevelsPrice Levels• ProfitabilityProfitability• TechnologyTechnology• Gov’t Regs.Gov’t Regs.• Sensitivity to Sensitivity to

Economic TrendsEconomic Trends

Strategies for GE Matrix.Strategies for GE Matrix.

• Invest to HoldInvest to Hold• Invest to PenetrateInvest to Penetrate• Invest to RebuildInvest to Rebuild• Selective InvestmentSelective Investment• Low InvestmentLow Investment• Divest.Divest.

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Break Time Break Time

6.25 minutes