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Marketing Analytics and Strategy, MKT 455

Marketing Strategy Teaching Note 3, MSTN3

Segmentation, competitive, and positioning strategies

Dr. Rebecca Wells

Revised October 2017

Preface

A strategic marketing plan is a statement of organization-wide long-term priorities regarding markets and products intended to enhance the value of the overall company. An organization’s success ultimately depends on its ability to satisfy the expectations of both consumers and investors. It is through a clearly communicated strategic marketing plan that the organization articulates how it intends to satisfy consumer expectations, relative to competitors, within a relevant product market.[footnoteRef:1] [1: MSTN1]

Understanding the customer is of central importance to a marketing oriented organization. Segments in the relevant product market, those defined by the industry, are determined by the consumer purchase decision process, benefits desired, usage behaviors, psychographics, and demographics of consumers. Segments are formed by aggregating together consumers who are likely to respond to a marketing effort in a like way and who share descriptive characteristics.

The segmentation strategy of a firm identifies the industry defined segments to be targeted and the refinement of those segments to enhance the effectiveness and efficiency of the firm’s marketing efforts. The firm’s segmentation strategy informs its competitive strategy and, integrated with the portfolio strategy, determines the firm’s positioning strategy.

Segmentation and Targeting Strategy

Consumers in the relevant product market are initially aggregated into segments of those with common purchase decision processes and, therefore, common expected responses to marketing efforts. From these industry-defined segments, firms operating in the relevant product market determine those segments and/or sub-segments to be targeted. A firm’s targeting strategy is a statement of its association with specific consumers in the relevant product market. Broad-based targeting strategies include the following:

· A firm that selects an undifferentiated targeting strategy, also known as a mass strategy, serves all industry-defined consumer segments with a single marketing effort.

· With a differentiated targeting strategy, a firm serves all industry-defined consumer segments with unique marketing effort for each segment.

· When a firm serves a subset of the industry-defined segments with a unique marketing effort for each, it is pursuing a selective targeting strategy.

· If a firm elects to serve only one or a few closely aligned industry-defined consumer segment or segment subset, it is pursuing a concentrated targeting strategy.

· A micro targeting strategy is applicable if the firm has the resources and competencies to customize its market to individual buyers.

Customer lifetime value is a financial assessment used to refine targeted consumer segments and focus investment on those segments that contribute most to the value of the firm. The profit impact of customer loyalty is another metric used to guide investments to retain current customers.[footnoteRef:2] [2: Refer to class notes ]

Competitive Strategy

A firm’s competitive strategy determines how a firm relates to competitors in the relevant product market and is dependent on the firm’s segment targeting strategy and its product portfolio strategy.

Michael Porter’s model of competitive strategy: This strategic model is based on the assumption that a firm’s value is created and sustained in one of two ways.[footnoteRef:3] [3: Refer to the Michael Porter article cited at the end of this document.]

· Offer products with the unique features and functions that create a clear differential advantage relative to competition and satisfy the demand of consumers in the targeted segments.

· Offer products with total costs lower than the costs incurred by competitors in the relevant product market and at a level sustainable over time.

A firm’s competitive strategy identifies how it will sustain its value in the face of dynamic conditions in the relevant product market. New competitors may enter the market and/or other competitors may offer direct challenges. In either case, prices may decline to attract consumers and costs may increase as rivals vie for resources.

Porter’s model, see Table 1, incorporates two dimensions; 1) product features and the production and marketing cost structure, and 2) volume defined by the firm’s segment targeting strategy.

Table 1: Porter’s Model of Competitive Strategy
	Product Features/Cost Structure
Volume		Unique features valued by consumers	Low cost structure relative to competition
	Broad Market	DIFFERENTIATED COMPETITIVE STRATEGY	LOW COST PROVIDER STRATEGY
	Particular Segment	FOCUS COMPETITIVE STRATEGY

If the firm’s offerings have unique features and functions valued by consumers, then those characteristics provide a means of sustaining a long-term differential advantage. The low cost position assumes that the firm produces and markets products at a cost lower than the competition. With a sustained low cost position, the firm has the option to price below the competition.

Volume reflects the targeting strategy of the firm. If the firm targets all industry-defined segments, the “broad market” referred to here, it is employing a differentiated targeting strategy. If, on the other hand, the firm pursues one or a few industry-defined segments or sub-segments, the “particular segment,” it is pursuing a selective or concentrated targeting strategy.

Applying this strategic analysis, Porter defines three alternative competitive strategies.

· Differentiated Competitive Strategy

· Low Cost Provider Strategy

· Focus Competitive Strategy

The Differentiated Competitive Strategy is sustainable if the firm takes advantage of its offerings’ unique characteristics and designs distinct marketing approaches for each the segments or sub-segments in the relevant product market. The Low Cost Provider Strategy applies only to those firms that can sustain low total costs relative to competitors. A Focus Competitive Strategy creates customer value for selected target segments or sub-segments based on either uniqueness or a low cost structure.

Positioning Strategy

A firm’s positioning strategy integrates its portfolio, targeting, and competitive strategies. A firm’s positioning strategy incorporates it sustainable differential advantages perceived and valued by targeted consumers relative to competitors.

These three factors are the critical elements of a positioning strategy. A firm must be able to differentiate its offerings using specific characteristics valued by the consumers. It also must be able to communicate those characteristics to influence the consumers’ perceptions. Finally, it must take into consideration the consumers’ perceptions of the competitors’ offerings to understand how consumers will react to marketing efforts.

Alternative positioning strategies reflect perceived brand value, the perceived quality of the brand and the product attributes relative to price.

Vertical positioning strategy: A product is positioned as being significantly higher in quality than competing products. Under this situation, if prices are the same, customers will always select the product with higher perceived quality. As the price for the higher quality product increases, consumers will continue to select that product until the price exceeds the value of the quality differences. To manage this, marketers must know the value of the additional quality.

Suppose a customer is considering two SUVs, one a Cadillac and the other a Buick. Since the Cadillac is perceived to be of higher quality, and the low end Cadillac SUV may be priced the same as a high end Buick SUV, the customer will select the Cadillac. Positioning messages for Buick should focus on the price/value relationship.

Horizontal positioning strategy: Competing products have different attributes even though they are of the same quality. If priced the same, consumers will select the attributes they value. Price differentials then reflect the value of those attributes.

For example, a SUV and a mini-van may be the same quality and in the same price range, however, the attributes are different. Customer buy one or the other based on those attributes. Promotional messages should emphasize the different attributes.

Return on Investment in Marketing

The firm must be ready to invest its resources consistent with its strategic decisions. These investments commit the firm to incurring costs associated with long-term pay back periods, under conditions of uncertainty about future costs and potential demand. Net Marketing Contribution, return on marketing investments (ROI), and return on sales (ROS) are alternative financial measures that assess the contribution of marketing efforts to the firm’s intrinsic and market value.

Works cited:

Porter, M. E. (2008) "The Five Competitive Forces That Shape Strategy." Special Issue on HBS Centennial. Harvard Business Review 86 (1): 78–93. 

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