Market sensing and learning strategy Strategic market choices and targets Customer value strategy and positioning Strategic relationships and networks Strategic thinking and thinking strategically Strategic transformation and strategy implementation

 Market definition and the competitive box  Market segmentation and targeting  Market positioning  Market choices

 Markets are not fixed or static  The way they are defined should not be either  The danger is being trapped inside the competitive box while the important changes occur outside the box

Conventional value propositions Existing customer base New customer base The competitive box The usual suspects Known competitors, operating in traditional ways with the existing, known customer base and competing for market share through incremental innovation New types of competitor New business models New customers New customers

 Re-thinking market boundaries is a high priority  The way management understands and defines its markets is one of the most significant strategic issues  The product-customer matrix  a practical tool for looking at markets in new ways

Customers Products Total Market: Total

 Mapping market structure and change  insights into drivers of change  fundamental to looking at market segmentation and targeting

Production Of Central Heating Units Independent Distributors Construction Sub- Contractors Small Hardware Retailers Large Hardware Retailers Commercial Construction Companies (85,000 units) Domestic Customers (15,000 units) Direct sales = 1,000 units Direct sales = 10,000 units 84,000 units 5,000 units 42,000 units 40,000 units 2,000 units 7,000 units 75,000 units Production = 100,000 units Consumption = 100,000 units 5,000 units

 Market segmentation  dividing market into groups of buyers who make coherent targets, e.g., by demographics for consumers to industry type for companies  aims to develop consistent marketing programmes for segments with potentially different approaches for each

Market segments Marketing actions ABCD Product Price Communications Distribution & service Differentiated marketing actions across market segments Consistent value offerings for each market segment

 Insightful segmentation is based on the customer benefit from the product or service  e.g., customer loyalty-based segmentation  e.g., customer relationship-based segmentation

Loyalty segmentsOur customers Competitors’ customers Satisfied stayers Hostages Happy wanderers Dealers Committed to us and rate us highly, they show little interest in competitors Loyal customers, but this may only be inertia, may be vulnerable to competitors Show little positive commitment, may become interested in alternatives Show strong preference for the best “deal” on the market, with low supplier loyalty Committed to competitors and rate them highly, show little interest in us Repeat buyers for competitors, but may be interested in us Little commitment to competitors, may be interested in our offer No commitment to competitors - open to superior offers

Relationship segments Our customersCompetitors’ customers Relationship seekers Loyal buyers Relationship exploiters Arm’s length transactional customers Invest in customer relationship management and loyalty programmes to give a close relationship that is long term Find ways to offer a relationship that is superior in the customer’s terms to attract away from competitors Focus on retention through the value offering and not through relationship emphasis Emphasize superiority in value offering and rewards for long-term retention superior to those of competitors Control expenditures on loyalty incentives and provide economic contact, e.g. through Internet Offer relationship-based incentives to switch suppliers, but control costs to allow for short retention Emphasize value offering and avoid relationship investments unless can be converted to Loyal Buyers Demonstrate superior value offering and lack of ties or barriers to switching

 Broad segments and micro-segments  Strategic market segmentation  distinction between strategic and managerial issues in segmentation

Strategic segmentation Managerial segmentation Corporate mission Values Strategic intent Market position Marketing plans Resource allocation Operational management (sales, advertising)

 Conventional views of market segmentation  methodology to identify  criteria for evaluation  segmentation approach (differentiated, concentrated, undifferentiated)  An extended model of market segmentation  a diagnostic framework to distinguish between strategic and operational issues and address implementation questions

Explicitness and focus Organizational decision making level Explicit/externalImplicit/internal Strategic Operational Strategic segmentation Managerial segmentation Customer benefits Qualitative approach Links to mission and vision Organizational structure Information processing Corporate culture and history Conventional segmentation bases Quantitative approach Conventional tests and criteria of choice Sales and distribution organization Advertising and promotion Media buying Pricing tactics

 Market segment attractiveness and internal compatibility  consider not just how attractive a segment is as a target, but also how well it fits with company capabilities  a significant implementation question

Internal compatibility Market segment attractiveness High Low High Low Attractive segments that match with company capabilities Attractive segments but with poor match with company capabilities Unattractive segments that do not match with company capabilities Unattractive segments but with match to company capabilities

 How customers compare you to the competition and what they decide  The logic of blue oceans and red oceans  finding spaces where there is no competition

 Creating new market space  looking across substitute industries  looking across strategic groups within the industry  redefining the buyer group  look across to complementary products/services  re-think the functional/emotional orientation of the industry  participate in shaping external trends

 But, will the big idea work?  buyer utility  strategic pricing  business model  adoption hurdles

 Usually there are choices – which markets/segments to target?  how do we set priorities?  Portfolio approaches compare  market/segment attractiveness (how well the opportunity fits our goals and capabilities  market position (how well we believe we can do in this market/segment)

Market attractiveness Market position HighLow Strong Weak Core business Peripheral business Illusion business Dead-end business

 Portfolio approach identifies  core business – targets with a good fit and where we can do well  peripheral business – market is less attractive to us but we will take a strong position  illusion business – attractive markets where we can take only a weak position  dead-end business – unattractive markets where we do badly.  Provides a basis for making investment choices