MKTM028 Strategic Marketing S-T-P Week 8 Dr Stephen Castle Dr Elizabeth Kim Iain Bromley

Learning Objectives: By the end of this session students will: understand the meaning of segmentation, targeting and positioning (STP) the value and importance of STP to the organisation, and the value and importance of STP to the customer

Stages in segmentation and positioning Hooley et al (2012)

Customers are People! No marketplace consists of a mass of homogeneous customers, each having exactly the same characteristics and wanting an identical product.

The Marketing Conundrum In theory, long-term customer satisfaction is the key to marketplace success BUT - for most practical purposes, we cannot achieve this……. There are too many customers, too great a variety of needs……. We’re only one of many suppliers

* * * * * * * * * * * 1A 2B B 1 2 B 1A 1 B 1B 3 1 A 3B A 3A 3 A No Market Segmentation Complete Segmentation 1A 2B B 1 2 B 1A 1 B 1B 3 1 A 3B A 3A 3 A Segmentation by Income Segmentation by Age Segmentation by Age-income Class

Market Segments A group of customers who respond in a similar way to product/service offerings A homogeneous group within a heterogeneous whole - putting clear blue water between your groups

Breaking the market down into “bite-size” pieces Market Segmentation Breaking the market down into “bite-size” pieces If we can desegregate our customers into identifiable groups, we can create a different offer for each group

The Benefits of Segmentation Better matching of customer needs

The Benefits of Segmentation Better matching of customer needs it is easier to satisfy a small group of similar customers than a large group of dissimilar customers. We can get to understand our best customers better.

The Benefits of Segmentation Better matching of customer needs it is easier to satisfy a small group of similar customers than a large group of dissimilar customers. We can get to understand our best customers better. it is legitimate to say that there are customers who we DO NOT want.

The Benefits of Segmentation Better matching of customer needs it is easier to satisfy a small group of similar customers than a large group of dissimilar customers. We can get to understand our best customers better. it is legitimate to say that there are customers who we DO NOT want. The secret of profitability is not to sell a lot, but to sell a specific offering to a specific group and not to waste time or resources on customers who fall outside the target group. Ritson, M., Marketing, 5.6.03.

The Benefits of Segmentation Better matching of customer needs Enhanced prices/profits Enhanced opportunities for growth Easier to identify and combat competition Targeted communications Market leadership...........

Market Leadership is worth it! Doyle (1997) Return on Investment % 50 40 30 20 10 Absolute Market Share 10 20 30 40 50 60 %

Competitive positioning and market segmentation Hooley et al (2012)

Segmenting Consumer Markets Geographic Demographic Psychographic Behavioral Kotler and Keller (2009)

Effective Segmentation Usual textbook bases for segmentation: Socioeconomic Demographic Geodemographic are easy to use – but wrong! talking products is wrong! Segmentation has to be needs/ value based Malcolm McDonald

Major Segmentation Variables for Business Markets Demographic Kotler and Keller (2009) Operating variable Purchasing approaches Situational factors Personal characteristics

Segmentation Criteria Identifiable Homogeneous Measurable Actionable/accessible Substantial Exclusive Recognised by customers Premium priced Practicality is the essence of successful segmentation. To be useful and relevant to a company, market segments must be:

Too many - we can’t manage them Too few - no benefits So - how many segments? Too many - we can’t manage them Too few - no benefits Depending on the complexity of the product, “though database specialists are reluctant to come up with a rule of thumb, the answer appears to lie between 5 and 10…… Statistically speaking, 7 is normally the answer.” Direct Response, October 2003.

Factors affecting market segment attractiveness Hooley et al (2012)

Factors affecting business strength Hooley et al (2012)

So what do we do with our market segments?

Market segment attractiveness and organisational resource strength Hooley et al (2012)

Target market selection Hooley et al (2012)

Market Segment Evaluation Attractiveness of each segment Profit potential (60%) Market growth rate (20%) Market size (10%) Strength of competition (10%) Resources and capabilities to meet segment needs Market share (60%) Potential for differential advantage (20%) Potential cost advantages (10%) Brand image (10%)

Evaluating market targets for a hypothetical company Hooley et al (2012)

Preparing to go to Market Selection of our target segment(s) determines where we will compete. We now have to decide how we will compete. 5

Alternative marketing strategies Hooley et al (2012)

The Market Segment 1 Segment 2 Segment 3 Segment 2 Customer 1 Marketing Mix Undifferentiated strategy The Market Marketing Mix 1 Differentiated strategy Segment 1 Marketing Mix 2 Segment 2 Marketing Mix 3 Segment 3 Marketing Mix 2 Segment 2 Focused/Concentrated strategy Marketing Mix 1 Customer 1 Customised strategy Marketing Mix 2 Marketing Mix 3 Customer 2 Customer 3

The Market Segment 1 Segment 2 Segment 3 Segment 2 Customer 1 Marketing Mix Undifferentiated strategy The Market eg comparethemarket.com; Churchill insurance Marketing Mix 1 Differentiated strategy eg BMW Segment 1 Marketing Mix 2 Segment 2 Marketing Mix 3 Segment 3 Marketing Mix 2 Segment 2 Concentrated strategy eg Kellogg’s Special K Marketing Mix 1 Customer 1 Customised strategy Marketing Mix 2 Marketing Mix 3 Customer 2 eg Luxury Yacht Co. Customer 3

Targeting Micro – marketing eg Fiat 500 3D Printing

Targeting entry level model 1 series middle managers 3 series senior managers top managers young, young minded, singles & couples well off couples with children 1 series 3 series 5 series 7 series Z4 sports X5

We select our target market segment(s) (“market coverage”) Positioning We select our target market segment(s) (“market coverage”) When we participate in a marketplace, whether we like it or not, our company, our products, our services will acquire a reputation Customers will rate us, as part of their buying behaviour 6

The way a product is defined……….. by customers……………. Market Positioning The way a product is defined……….. by customers……………. against significant attributes………. relative to competitors. This constitutes the position our product has in the customer’s mind. So - how do we assess “position”? 7

Competitive Positioning: Skoda High Quality “We’ve changed the car - can you change your mind?” “It’s a Skoda - honest!” Skoda, owned by VW 'The manufacturer of happy drivers' Low Price High Price Low Quality 16

Sustainable Competitive Advantage We must differentiate our product in the customer’s mind from that of our competitors We must give a “reason to buy”. If we do not differentiate, customers see no advantage from buying from us……… ……..and we end up selling a commodity, on price and availability 23

Differentiation “Marketing is about de-commoditising products” Doyle (1997) If customers see no difference between our product and our competitors’ then they will choose the cheapest and most accessible We need to create preference for our product. The route to this is branding.

Identify possible competitive advantages Positioning Tasks Identify possible competitive advantages Select the critical competitive advantage Communicate and deliver that advantage 22

Positioning risks and errors Hooley et al (2012)

Criteria for differentiation Kotler and Keller (2006) Important – relevant to customers Profitable – costs of differentiation more than covered by price charged Distinctive – inimitable Superior – greater value Affordable – Communicable -

The Value Proposition “A company can only outperform rivals if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at lower cost, or do both. The arithmetic of superior profitability then flows: delivering greater value allows a company to charge higher unit prices: greater efficiency results in lower unit costs” Porter (1996) HBR Nov/Dec 24

Positioning High Price Perceptual Map Narrow Product Range Wide eg supermarkets Tesco, Sainsbury, Aldi, Lidl, Asda, Morrisons, M&S, Waitrose Low Price

Positioning ATTACKING Brand Achieving Differentiation Unique-ness Promotion Place Product Pricing Hooley et al (2008: 308)

Positioning ATTACKING Sustaining Competitive Advantage Unique, valued product Uniqueness Enhanced customer linkage/service Tight market targets Brand / company credibility Corporate social responsibility

Positioning ATTACKING Product People Price Physical Evidence Place Process Promotion 7Ps 4Ps The Marketing Mix

Keys to Successful Positioning Clarity Consistency Successful positioning Credibility Competitive- ness PTO

Four Cs model for successful positioning (Jobber 2010) Clarity: target market, differential advantage. Complicated positioning not memorable BMW the ultimate driving machine Stella Artois reassuringly expensive Credibility: in minds of target customer eg Ford not appropriate for upmarket cars Consistency: of message Gillette – the best a man can get L’Oreal – because you’re worth it Land Rover Defender – rugged off-road vehicle Competitiveness : differential advantage should have competitive edge Hooley p 208: Positioning levels: companies, products and services, brands Kotler: Criteria for differentiation: Importance; Distinctive and pre-emptive – cannot be imitated/performed better by others; Superior – way to gain benefit; Communicable – and understandable; Affordable – can afford to pay difference; Profitable – can command appropriate price Positioning statement – memorable, image-enhancing, written summation of product’s desired stature. Jobber and Fahy Basic positioning options Hooley et al 2008 p556 Low-price Customers: Price sensitive, Standard indifferent; Strategic focus: Internal efficiency; Resource requirements: Effective cost-control systems, Internal information systems, TQM processes Premium quality Customers: Demanding and discerning, Less price-sensitive Strategic focus: Quality control, Image management Resource requirements: Market sensing capability, Quality control and assurance systems, Company/brand image and reputation Innovation Customers: Adventurous innovators and early adopters Strategic focus: First to market, Continuous improvement Resource requirements: Market gap identification skills, Creative R&D skills, New product/service development Superior service Customers: Service-sensitive, Less price-sensitive Strategic focus: Customer relationship management Resource requirements: Attention to service detail, Skilled and motivated staff, Continuous monitoring and feedback Differentiated Customers: Selected benefit segments Strategic focus: Segment leadership Resource requirements: Market sensing, Creativity in segmentation, Product/service design capabilities Customised Customers: Individual customers Strategic focus: Tailoring to individual customer requirements Resource requirements: Ability to listen to customer requirements, Customer bonding and relationship building

Learning Objectives: By the end of this session students will: understand the meaning of segmentation, targeting and positioning (STP) the value and importance of STP to the organisation, and the value and importance of STP to the customer