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Chapter 6 - Customer Value-Driven Marketing Strategy: Creating Value for Target Customers

Strategic Marketing, MASY1-GC 1230

YOUR DAILY COFFEE!

Where do you most prefer to purchase a cup of coffee?

Starbucks

Dunkin’ Donuts

Corner coffee shop or diner

Upscale neighborhood coffee shop

Mobile truck or coffee cart

McDonald’s or other fast food establishment

Bakery or dessert cafe

Peet’s, Tim Horton’s or other transplant coffee chain

Craft coffee chain, like Blue Bottle, Intelligentsia, Nespresso, Joe, Stumptown and Devocion

Deli or sandwich shop, including Panera and Pret a Manger

I don’t drink coffee

Other

Dunkin’ Donuts Targeting the Average Joe

Dunkin’ Donuts targets everyday Joes who just don’t get what Starbucks is all about.

Dunkin’ Donuts targets the “Dunkin’ tribe”—not the Starbucks coffee snob but the average Joe. Dunkin’ isn’t like Starbucks; it doesn’t want to be.

Designing a Customer Value-Driven Market Strategy

This figure shows the four major steps in designing a customer-driven marketing strategy.

In the first two steps, the company selects the customers that it will serve. Market segmentation involves dividing a market into smaller segments of buyers with distinct needs, characteristics, or behaviors that might require separate marketing strategies or mixes. Market targeting (or targeting) consists of evaluating each market segment’s attractiveness and selecting one or more market segments to enter.

In the final two steps, the company decides on a value proposition. Differentiation involves actually differentiating the firm’s market offering to create superior customer value. Positioning consists of arranging for a market offering to occupy a clear, distinctive, and desirable place, relative to competing products in the minds of target consumers.

Major Segmentation Variables for Consumer Markets

Segmentation Variable	Examples
Geographic	Nations, regions, states, counties, cities, neighborhoods, population density (urban, suburban, rural), climate
Demographic	Age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, generation
Psychographic	Social class, lifestyle, personality
Behavioral	Occasions, benefits, user status, usage rate, loyalty status

This table outlines variables that might be used in segmenting consumer markets. Each of these variables are discussed in the forthcoming slides.

Geographic and Demographic Segmentation

Geographic segmentation: Dividing a market into different geographical units

Such as nations, states, regions, counties, cities, or neighborhoods

Demographic segmentation: Dividing a market into segments based on variables

Such as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and generation

Geographic segmentation calls for dividing the market into different geographical units, such as nations, regions, states, counties, cities, or even neighborhoods. For example, many large retailers—from Target and Walmart to Kohl’s and Staples—are now opening smaller format stores designed to fit the needs of densely packed urban neighborhoods not suited to their typical large suburban superstores.

Demographic segmentation divides the market into segments based on variables such as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, and generation. Demographic factors are the most popular bases for segmenting customer groups. These factors are discussed in detail in the following slide.

Demographic Segmentation

Age and life-cycle segmentation

Dividing a market into different age and life-cycle groups

Gender segmentation

Dividing a market into different segments based on gender

Income segmentation

Dividing a market into different income segments

Some companies use age and life-cycle segmentation, offering different products or using different marketing approaches for different age and life-cycle groups. For example, Kraft’s Oscar Mayer brand markets Lunchables, convenient prepackaged lunches for children. To extend the substantial success of Lunchables, however, Oscar Mayer later introduced Lunchables Uploaded for teenagers and an adult version, P3 (Portable Protein Pack).

Gender segmentation divides a market into different segments based on gender, and has long been used in marketing clothing, cosmetics, toiletries, toys, and magazines For example, the men’s personal care industry has exploded, and many cosmetics brands that previously catered mostly to women, now successfully market men’s lines.

Income segmentation involves dividing a market into different income segments. For example, many retailers—such as the Dollar General, Family Dollar, and Dollar Tree store

chains—successfully target low- and middle-income groups. The core market for such stores is represented by families with incomes under $30,000. With their low-income strategies, dollar stores are now the fastest-growing retailers in the nation.

FOUR CONSUMER GROUPS DRIVING SPENDING SHIFTS IN 2021

The NielsenIQ study breaks down the four groups in the following way:

Existing Constrained – were already watching what they spent prior to COVID-19, and this has not changed

Newly Constrained – experienced worsening household income/ financial situations and are consciously watching what they now spend

Cautious Insulated – limited impact to income/ financial situation, but are watching what they spend a lot or much more than before

Unrestricted Insulated – similar or improved income/ financial situation and do not feel the need to watch what they spend

Psychographic Segmentation

Marketers segment their markets using variables such as:

Social class

Lifestyle

Personality characteristics

The products people buy reflect their lifestyles.

Psychographic segmentation divides buyers into different segments based on social class, lifestyle, or personality characteristics. People in the same demographic group can have very different psychographic characteristics.

Psychographic Segmentation (CONT’D)

Panera launched a marketing campaign tagged “Food as it should be.”

Fast-casual restaurant Panera caters to a lifestyle segment of people who want more than just good-tasting food—they want food that’s good for them, too. To better meet the needs of this healthy-living lifestyle segment, Panera recently announced that it would soon banish more than 150 artificial preservatives, sweeteners, colors, and flavors from its food

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Behavioral Segmentation

Occasion segmentation: Segments divided according to occasions, when the buyers

Get the idea to buy

Make their purchase

Use the purchased item

Benefit segmentation: Segments divided according to the different benefits that consumers seek from the product.

Many marketers believe that behavior variables are the best starting point for building market segments.

Occasion segmentation divides the market into segments according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item. This segmentation can help firms build up product usage. Companies try to boost consumption by promoting usage during nontraditional occasions. For example, most consumers drink orange juice in the morning, but orange growers have promoted drinking orange juice as a cool, healthful refresher at other times of the day.

Behavioral Segmentation (CONT’D)

“There’s a Fitbit for Everyone.”

Benefit segmentation divides the market into segments according to the different benefits that consumers seek from the product. For example, to meet varying benefit preferences, Fitbit makes health and fitness tracking devices aimed at buyers in three major benefit segments: Everyday Fitness, Active Fitness, and Performance Fitness.

Behavioral Segmentation (CONT’D)

User status: Markets can be segmented into nonusers, ex-users, potential users, first-time users, and regular users.

Usage rate: Markets can be segmented into light, medium, and heavy product users.

Loyalty status: Consumers can be loyal to brands, stores, and companies.

User status segments markets into nonusers, ex-users, potential users, first-time users, and regular users of a product. Marketers want to reinforce and retain regular users, attract targeted nonusers, and reinvigorate relationships with ex-users. Included in the potential users group are consumers facing life-stage changes who can be turned into heavy users.

Usage rate segments markets into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption.

A market can also be segmented by loyalty status. Consumers can be loyal to brands, stores, and companies. Highly loyal customers promote the brand through personal word of mouth and social media. In contrast, by studying its less-loyal buyers, a company can detect which brands are most competitive with its own. By looking at customers who are shifting away from its brand, the company can learn about its marketing weaknesses and take actions to correct them.

Multiple Segmentation Bases

Segmentation bases help companies to:

Identify smaller, better-defined target groups

Identify and understand key customer segments

Reach customers more efficiently by tailoring market offerings and messages to customers’ specific needs

Segmentation systems help marketers segment people and locations into marketable groups of like-minded consumers.

Marketers rarely limit their segmentation analysis to only one or a few variables. Rather, they often use multiple segmentation bases in an effort to identify smaller, better-defined target groups.

One of the leading consumer segmentation systems is Experian’s Mosaic USA system. It classifies U.S. households into one of 71 lifestyle segments and 19 levels of affluence, based on specific consumer demographics, interests, behaviors, and passions. For example, the Birkenstocks and Beemers group is located in the Middle Class Melting Pot level of affluence and consists of 40- to 65-year-olds who have achieved financial security and left the urban rat race for rustic and artsy communities located near small cities.

Such segmentation helps companies identify and better understand key customer segments, reach them more efficiently, and tailor market offerings and messages to their specific needs.

Segmenting Business Markets

Consumer and business markets use many of the same variables for segmentation.

Variables used by business marketers for segmentation include

Operating characteristics

Purchasing approaches

Situational factors

Personal characteristics

Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically (industry, company size), or by benefits sought, user status, usage rate, and loyalty status. Yet, business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics.

Segmenting International Markets

Variables include

Geographic location

Economic factors

Political and legal factors

Cultural factors

Intermarket (cross-market) segmentation: Grouping consumers with similar needs and buying behaviors irrespective of their location.

Companies can segment international markets using one or a combination of several variables.

Geographic segmentation assumes that nations close to one another will have many common traits and behaviors. For example, some U.S. marketers lump all Central and South American countries together.

World markets can also be segmented based on economic factors. Countries might be grouped by population income levels or by their overall level of economic development. For example, many companies are now targeting the BRIC countries – Brazil, Russia, India, and China – which are fast-growing developing economies with rapidly increasing buying power.

Countries can also be segmented by political and legal factors such as the type and stability of government, receptivity to foreign firms, monetary regulations, and amount of bureaucracy.

Cultural factors can also be used by grouping markets according to common languages, religions, values and attitudes, customs, and behavioral patterns.

Using intermarket segmentation (also called cross-market segmentation), marketers form segments of consumers who have similar needs and buying behaviors even though they are located in different countries.

Requirements for Effective Segmentation

Measurable

Accessible

Substantial

Differentiable

Actionable

To be useful, the size, purchasing power, and profiles of market segments should be measurable. The market segments must be accessible – effectively reached and served. The market segments should be substantial – large or profitable enough to serve. They should be differentiable, which means they are conceptually distinguishable and respond differently to different marketing mix elements and programs. Finally, the segments should be actionable, which means that effective programs can be designed for attracting and serving the segments.

Market Targeting

Evaluating the various segments based on

Segment size and growth

Segment structural attractiveness

Company objectives and resources

Selecting target market segments

Target market: Set of buyers sharing common needs or characteristics that the company decides to serve

Market segmentation reveals the firm’s market segment opportunities. The firm has to evaluate the various segments and decide how many and which segments it can serve best. In evaluating different market segments, a firm must look at three factors.

First, a company wants to select segments that have the right size and growth characteristics. Second, the company needs to examine major structural factors that affect long-run segment attractiveness like strong and aggressive competitors or if it is easy for new entrants to come into the segment. The existence of actual or potential substitute products, the relative power of buyers, and powerful suppliers also affects segment attractiveness. Finally, the company must consider its own objectives and resources. Some attractive segments can be dismissed quickly because they do not mesh with the company’s long-run objectives. Or, the company may lack the skills and resources needed to succeed in an attractive segment.

After evaluating different segments, the company must decide which and how many segments it will target. A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. Market targeting can be carried out at several different levels.

Market-Targeting Strategies

This figure shows that companies can target very broadly, very narrowly, or somewhere in between. Undifferentiated (or mass marketing) refers to a market-coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer. Differentiated (or segmented marketing) refers to a market-coverage strategy in which a firm decides to target several market segments and designs separate offers for each. Concentrated (or niche marketing) refers to a market-coverage strategy in which a firm goes after a large share of one or a few smaller segments or niches. Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations. Rather than seeing a customer in every individual, micromarketers see the individual in every customer.

Micromarketing includes local marketing and individual marketing. Local marketing involves tailoring brands and marketing to the needs and wants of local customer segments like cities, neighborhoods, and even specific stores. Individual marketing involves tailoring products and marketing programs to the needs and preferences of individual customers.

Mass customization is the process by which firms interact one to one with masses of customers to design products, services, and marketing programs tailor-made to individual needs.

Market Targeting (CONT’D)

P&G markets multiple laundry detergent brands and then further segments each brand to service even narrower niches.

Using a differentiated marketing (or segmented marketing) strategy, a firm decides to target several market segments and designs separate offers for each. For example, P&G markets at least six different laundry detergent brands in the United States (Tide, Gain, Cheer, Era, Dreft, and Bold), which compete with each other on supermarket shelves. Thanks to its differentiated approach, P&G is really cleaning up in the $15 billion U.S. laundry detergent market, capturing a 61 percent market share.

Choosing a Targeting Strategy

Factors to consider

Company resources

Product variability

Product’s life-cycle stage

Market variability

Competitors’ marketing strategies

Companies need to consider many factors when choosing a market-targeting strategy. Which strategy is best depends on the company’s resources. When the firm’s resources are limited, concentrated marketing makes the most sense. The best strategy also depends on the degree of product variability. The product’s life-cycle stage also must be considered. When a firm introduces a new product, it may be practical to launch one version only, and undifferentiated marketing or concentrated marketing may make the most sense. In the mature stage of the product life cycle, however, differentiated marketing can be useful.

Another factor is market variability. If most buyers have the same tastes, buy the same amounts, and react the same way to marketing efforts, undifferentiated marketing is appropriate. Finally, competitors’ marketing strategies are important. When competitors use differentiated or concentrated marketing, undifferentiated marketing can be suicidal.

Socially Responsible Target Marketing

Controversy and concern of target marketing

Vulnerable or disadvantaged consumers are targeted with controversial or potentially harmful products.

Socially responsible target marketing should be done to serve both the interests of the company and the interests of those targeted.

Target marketing sometimes generates controversy and concern. The biggest issues usually involve the targeting of vulnerable or disadvantaged consumers with controversial or potentially harmful products.

In target marketing, the issue is not really who is targeted but rather how and for what. Controversies arise when marketers attempt to profit at the expense of targeted segments—when they unfairly target vulnerable segments or target them with questionable products or tactics. Socially responsible marketing calls for segmentation and targeting that serve not just the interests of the company but also the interests of those targeted.

Differentiation and Positioning

Firms must decide which segments to target and on the value proposition.

Product position is the way a product is defined by consumers on important attributes.

Beyond deciding which segments of the market it will target, the company must decide on a value proposition—how it will create differentiated value for targeted segments and what positions it wants to occupy in those segments. A product position is the way a product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products.

Differentiation and Positioning (CONT’D)

Sonos does more than just sell speakers; it unleashes “All the music on earth, in every room of your house, wirelessly.”

Positioning Map: Large Luxury SUVs

Marketers prepare perceptual positioning maps that show consumer perceptions of their brands versus those of competing products on important buying dimensions to plan their differentiation and positioning strategies.

This figure shows a positioning map for the U.S. large luxury SUV market. The position of each circle on the map indicates the brand’s perceived positioning on two dimensions: price and orientation (luxury versus performance). The size of each circle indicates the brand’s relative market share.

Mapping your brand’s sweet spot – Harvard business review

https://hbr.org/2015/06/a-better-way-to-map-brand-strategy

Choosing a Differentiation and Positioning Strategy

The differentiation and positioning task consists of three steps, which include identifying a set of differentiating competitive advantages on which to build a position, choosing the right competitive advantages, and selecting an overall positioning strategy. The company must then effectively communicate and deliver the chosen position to the market.

The following slides discuss each of these steps in greater detail.

Identifying Possible Value Differences and Competitive Advantages

Competitive advantage: An advantage over competitors gained by offering greater customer value either by

Having lower prices, or

Providing more benefits that justify higher prices

Firms can differentiate in terms of product, services, channels, people, or image.

Competitive advantage refers to an advantage over competitors gained by offering greater customer value, either by having lower prices or providing more benefits that justify higher prices.

To find points of differentiation, marketers must think through the customer’s entire experience with the company’s product or service. Through product differentiation, brands can be differentiated on features, performance, or style and design. Some companies gain services differentiation through speedy, convenient service.

Firms that practice channel differentiation gain competitive advantage through the way they design their channel’s coverage, expertise, and performance. Companies can also gain a strong competitive advantage through people differentiation that is, hiring and training better people than their competitors.

Even when competing offers look the same, buyers may perceive a difference based on company or brand image differentiation. A company or brand image should convey a product’s distinctive benefits and positioning.

Choosing the Right Competitive Advantages

Number of differences to promote

Developing a unique selling proposition (USP) for each brand and sticking to it

Positioning on more than one differentiator

Many marketers think that companies should aggressively promote only one benefit to the target market. A company should develop a unique selling proposition (USP) for each brand and stick to it. Each brand should pick an attribute and tout itself as “number one” on that attribute. Other marketers think that companies should position themselves on more than one differentiator. Today, in a time when the mass market is fragmenting into many small segments, companies and brands are trying to broaden their positioning strategies to appeal to more segments.

Which Differences to Promote

Important

Distinctive

Superior

Communicable

Preemptive

Affordable

Profitable

Each brand difference has the potential to create company costs as well as customer benefits. A difference is worth establishing to the extent that it satisfies the criteria of being important, distinctive, superior, communicable, preemptive, affordable, and profitable.

Important. The difference delivers a highly valued benefit to target buyers.

Distinctive. Competitors do not offer the difference, or the company can offer it in a more distinctive way.

Superior. The difference is superior to other ways that customers might obtain the same benefit.

Communicable. The difference is communicable and visible to buyers.

Preemptive. Competitors cannot easily copy the difference.

Affordable. Buyers can afford to pay for the difference.

Profitable. The company can introduce the difference profitably.

Possible Value Propositions

The full positioning of a brand is called the brand’s value proposition. It refers to the full mix of benefits on which a brand is differentiated and positioned.

This figure shows possible value propositions on which a company might position its products. The five blue cells on the top and right represent winning value propositions—differentiation and positioning that give the company a competitive advantage. The purple cells at the lower left, however, represent losing value propositions. The center green cell represents at best a marginal proposition.

Winning Value Propositions

Value proposition	Description
More for more	Provides the most upscale product or service
More for the same	High quality at lower prices
More for less	Best winning proposition
The same for less	Gives a good deal
Less for much less	Meeting consumers’ lower performance or quality requirements at a lower price

The table describes the five winning value propositions.

More-for-more positioning involves providing the most upscale product or service and charging a higher price to cover the higher costs.

With a more-for-the-same value proposition, companies can attack a competitor’s more-for-more positioning by introducing a brand offering comparable quality at a lower price.

Offering the same for less can be a powerful value proposition, as it is a good deal. Discount stores offer many of the same brands as department stores and specialty stores but at deep discounts based on superior purchasing power and lower-cost operations.

Less-for-much-less positioning involves meeting consumers’ lower performance or quality requirements at a much lower price. For example, Family Dollar and Dollar General stores offer more affordable goods at very low prices.

The winning value proposition would be to offer more for less. Companies find it very difficult to sustain such best-of-both positioning. Offering more usually costs more, making it difficult to deliver on the “for-less” promise. Companies that try to deliver both may lose out to more focused competitors.

DEVELOPING A POSITIONING STATEMENT

Positioning statement: Summarizes company or brand positioning

For [your target market] who [target market need],

[your brand name] provides [main benefit that differentiates your offering from competitors]

because [reason why target market should believe your differentiation statement.]

Source: “Positioning Statement Template and Examples”, Hubspot, 12.9.19

Evernote Positioning Statement

“To busy multitaskers who need help remembering things, Evernote is a digital content management application that makes it easy to capture and remember moments and ideas from your everyday life using your computer, phone, tablet, and the Web.”

A positioning statement refers to a statement that summarizes a company or brand positioning using this form: To (target segment and need) our (brand) is (concept) that (point of difference).

Here is an example using the popular digital information management application Evernote: “To busy multitaskers who need help remembering things, Evernote is a digital content management application that makes it easy to capture and remember moments and ideas from your everyday life using your computer, phone, tablet, and the Web.”

AMAZON POSITIONING STATEMENT

“For consumers who want to purchase a wide range of products online with quick delivery, Amazon provides a one-stop online shopping site. Amazon sets itself apart from other online retailers with its customer obsession, passion for innovation, and commitment to operational excellence.”

Communicating and Delivering the Chosen Position

All the company’s marketing mix efforts must support the positioning strategy.

Maintain the position obtained through consistent performance and communication.

The product’s position should be monitored and adapted over time.

Once it has chosen a position, the company must take strong steps to deliver and communicate the desired position to its target consumers. All the company’s marketing mix efforts must support the positioning strategy. Companies often find it easier to come up with a good positioning strategy than to implement it.

Once a company has built the desired position, it must take care to maintain the position through consistent performance and communication.

It must closely monitor and adapt the position over time to match changes in consumer needs and competitors’ strategies. A product’s position should evolve gradually as it adapts to the ever-changing marketing environment.

HAPPY MONDAY FINGERSPELLING XYZ – positioning statements

Rhove – positioning statements