Strategic Marketing - Case Study Example

«Strategic Marketing» Contents Introduction 2 Literature Review 2 Segmentation in the mobile handset Industry 7 Conclusion 9 References 10 Introduction The term market segment implies a market sub set which is comprised of a group of people who share certain common characteristic features among themselves. A market segment is highly heterogeneous i.e., it is distinctly separate from the other market segments. The segments within themselves are said to be homogeneous in nature. Marketers adopt various parameters to segregate their customers. Segmentation provides the marketers with a specific market audience to whom it needs to cater. Marketers can thus match their product or service offering with its targeted customers. This helps in creating focus for an organization. This focus is essential for marketers if they want to attain sustainable competitive advantage. This is because customers have different needs and wants. The absence of a proper segmentation strategy would hamper the positioning of the company. Segmentation is done by segregating customers on the basis of various attributes like age, gender, price etc. The study aims at understanding the various segmentation strategies adopted by firms and the manner of their implementation. A thorough survey on the existing literature has been carried out and its implications have been analyzed on the contemporary organizations. Finally the segmentation strategy of a mobile handset manufacturing industry has been analyzed to understand the process of market segmentation. A fictitious firm named as XYZ Corporation has been chosen so as to maintain the anonymity of the study. Literature Review Market segmentation has been used as an important tool by brand managers irrespective of the industry. Many popular buzzwords have their origin in the concept of market segmentation. Winsten (2004) stated that market segmentation involves understanding the needs and wants of the customers and providing them the exact product or service that fulfill their needs and wants. The author further states that the objective behind a successful segmentation strategy is to study the markets, to identify the opportunities and to use them to find a suitable competitive position. He further states, that firms must keep a close watch on the segmentation strategies of their competitors. He stated the example of Dell and IBM in this context, where Dell did a better analysis of the market and which helped it to overtake IBM as the number one company in computer hardware (Winstein, 2004 pp.6). The author further states six dimensions to promote business segmentation. These are namely, geography, demographics, adopter categories, benefits, production uses and approach to purchasing. Winstein also states that two strategic options for segmentation. The first one suggests firms to segment the entire market and the latter one opines that organizations should treat the market as its customer. (Winstein, 2004 pp.7). A study conducted by the University of Delaware shows various initiatives taken by the firms towards market segmentation. The study proposes two types of segmentation strategies namely, the concentration strategy and the multi segment strategy. In the first strategy, one single market segment is carved out and the firm targets only that particular market segment. This technique offers certain advantages as the firms adopting this strategy can focus all their available resources to tap that single segment. This strategy allows firms with small resources to concentrate their focus on one single segment thus providing an opportunity to compete with the bigger organizations. The study also highlights the demerits of this strategy. It says that firms adopting this strategy could face serious problems if customers’ tastes start varying. Moreover firms using this strategy may face problems if they try to expand their markets. The second strategy states that firms should target different market segments, and have a distinct plan for each segment. This strategy aims at combining the attributes of concentrated and undifferentiated marketing. Firms adopting this strategy face considerably lesser amount of risk as they cater to different market segments. A shift in the taste of the customer may not necessarily affect the business prospects of the firm as they have products to cater to the varying tastes of the customer. This technique also provides the option of shifting the excess into the production and maintenance facility. This technique puts the firm in a less risky position. This technique requires large amount of resources which is not feasible for smaller companies. Marketers adopting this technique must also realize that product differentiation is maintained in each of the customer segments (University of Delaware, n.d.). Globalization has brought about a huge competition in the market. Firms are now trying to capture markets across the globe. Each firm is using its core competence to defeat its rival and make an impact in the market. In this situation, it is important for every firm to ensure that they have a fair share of the market. The prime requirement for this would be to satisfy the customers. Customer dissatisfaction would lead to loss of market share and in the long run this affects the positioning of the company. Doraszelski & Draganska (2005) conducted a study to find out the correlation between market segmentation and customer satisfaction. They found out two scenarios pertaining to it. The first scenario assumes that the product that is being offered to the customer fully satisfies his/her need. They referred this as the positive side of segmentation and called this situation ‘fit’, since the product or service offered fully fits the requirement of the customers. The author refers to this scenario as favorable, as in this case the customer is fully satisfied. The second scenario assumes that the product offered to the customer does not match the requirements of the customer. The scenario also assumes that the customer purchases a product that does not satisfy his specific needs and wants. This situation has been named as ‘misfit’ since the product or service offering does not match with the specific requirements of the customer (Doraszelski & Draganska, 2005 pp.3). The situation of ‘misfit’ is perhaps the most dangerous for a firm. The dissatisfied customer never returns to the firm again as they feel cheated. The positioning aspect of the firm also takes a huge beating and in the long run this leads to the loss of market share. This kind of positioning initiates a chain of problems for a firm. The firm not only loses the loyalty of the customer but also loses the other potential customers through word of mouth. This problem has been compounded with the advent of social networking which has grown by leaps and bounds with the arrival of internet and other means of communication. This negative word of mouth spreads like wild fire causing irreparable damage to the firm’s image. A proper segmentation strategy in this sort of a case would have ensured that the customer is not being offered the wrong choice of products which does not satisfy his/her needs and wants. A study by Duke University proposes seven segmentation strategies based on the attractiveness of market segment, potential for profit making, and resources available to a firm. The seven strategies are mass market based approach, large segment approach, adjacent segment approach, multi segment, small segment, niche segment and mass customization (Duke University, n.d. pp.1-5). The study also concludes that firms need to create ‘need based segments’ rather than demographic based segments. The reason behind this could be attributed to the fact that globalization has put the customer in the driver’s seat where he/she is flooded with choices. This has made customer retention very important for firms. It is now a well established fact that in this age of competition, firms need to concentrate on customer retention as the cost of retaining a customer is far greater than the cost of acquiring a new customer. Segmentation assumes importance in this regard as providing a wrong product to a customer may lead to disastrous consequence for a firm. A proper segmentation would ensure that the right product is targeted to the right customer. This would lead to customer satisfaction which influences the positioning of the firm. This would also ensure that the resource that a company uses for acquiring a customer is not wasted. Tangibility is another factor that is important for a proper and efficient segmentation strategy. Tangibility implies that the segments formed by the firms must have a meaningful effect on the customer. A study by Dibb & Simkin (2001), states that even though all organizations are aiming to have a successful segmentation strategy, there are certain barriers that are associated with them. These are infrastructure barriers, segmentation process barrier and barriers for implementation. Organizations need to consider these barriers if they want to have a successful segmentation strategy. Infrastructural problems arise when there is a shortage of resources, or the level of marketing is low. A poor organizational communication also contributes to the infrastructural problems. Change resistance is another factor that contributes towards infrastructural problems while implementing segmentation in organizations. In order to overcome this problem Dibb and Simkin (2001) suggested that firms must review their strategies and effort must be made to ensure active participation of the senior management. Firms must also ensure that proper resources are allocated to the process. Process barriers arise when there is a severe shortfall of the various data required for the process or there is a lack of skilled people or when there is a misfit between the organizational policies and the segmentation strategies. Firms must properly define and communicate the segmentation process. Loopholes in the process if any must be removed on an urgent basis. Ideas must be instigated on a regular basis so as to ensure that the segmentation process matches with the organization’s mission and core policies. Firms must also seek external assistance to frame and implement segmentation. Implementation problems arise when the financial resources are inadequate to serve the need of the segmentation process. Other factors that contribute to implementation problems include aspects like poor external or internal communication, lack of interest of the senior management, misfit marketing communication systems etc. In order to prevent such issues, firms must try to first identify the key external and internal audiences. They should identify if there is any organizational problem within the firm. These problems must be identified and resolved at the earliest. Employees must be relocated if there is any issue with regards to employee’s skill mismatch. (Baker & Saren, 2010, pp.258). Segmentation in the mobile handset Industry Mobile handset manufacturing is one of the booming businesses both in terms of revenue and market share. The twenty first century has been often dubbed as information age in which mobile communication is considered to have the chief essence. This industry is also associated with high levels of product innovation. Mobile handset has been chosen for the study because it caters to a wide range of customers. Product and price variations are also prominent in this sector. Moreover the attractiveness and the market potential of this industry have led to a fierce competition among the market players who are desperate to grab a piece of their competitor’s market share. The study conducted below highlights the segmentation strategy of mobile handset markets. This sector has been chosen because it has a large number of variants and is characterized by high level of competition. The firm has been named as XYZ Corporation for the sake of study. Segmentation in the mobile handset industry is done on the basis of demographics which has been the traditional method. Demographic segmentation involves segregating the customers on the basis of age, income, gender and affiliation to various social groups. Segmentation on the basis of income levels implies that XYZ Corporation must have separate handsets catering to different income groups. Low price handsets would be targeted at customers having low income levels. The handset targeted to these customers would have few features and a lower price. Consequently it can also have a segment that would cater to customers with high income. The firm would target this segment with high priced handsets having multiple features like camera, MP3 etc. XYZ Corporation could either target one of these segments namely the low income group segment or the high income group segment. It could also aim to target both these segments, but while doing so it must exercise caution and ensure that there is no confused positioning among the customer. This is more important for the premium segment, as this segment consists of customer who would pay a premium for the products they buy with an aim to maintain a distinction in the social class. These customers tend to switch if they do not find this distinction. In order to counter this issue XYZ Corporation can introduce two separate product lines under the same brand name. In this case the brand name would be the same but the product for each segment would come from a different product line. A proper marketing communication must also be adopted so as to ensure that there is no confused positioning. XYZ Corporation can also segment the market based on product features. Mobile phones carry a huge lot of features like camera, music player, internet etc. Segmentation can also be done on the basis of these features. Variations among products could be introduced to segment the markets. For example there are some customers who prefer a simple set which offers them the basic amenities of a phone and is robust and hardy in nature. On the contrary, a second set of customers would prefer handsets which contain added features like a camera, MP3 player etc. XYZ Corporation again has a choice of catering to just the needs and wants of one single segment (focus strategy), or to both the segments (differentiation strategy). Adoption of the differentiation strategy requires expertise in the form of innovations in its product which must be executed at a regular basis, as the targeted customers of this segment are known to frequently look out for new features and may not necessarily maintain loyalty if they do not find new innovation in the product. Repositioning is another aspect which can be used to increase the market share within the existing segments. Mobile handset as a product does not have a high shelf-life as constant product innovation tend to make a product obsolete after a period of time. Repositioning could be applied to those products which are in their maturity stage. Apple Inc used this concept and launched its old product with certain innovations. The Apple I-phone is one such example where the firm has repositioned the product (mobile handset). Apple has redefined the mobile handset industry through this product. XYZ Corporation could also use product innovation to reintroduce the existing product. Customer segments that are always on the lookout for innovation could be targeted for the new products. The firm must also ensure that there is a proper promotion policy for propagating repositioning. Absence of a proper promotional policy would lead to confused positioning which is harmful for the organization. Conclusion Segmentation is possibly the most important process of a marketer as it defines the product features of a firm. It is the step that decides the nest course of marketing namely targeting and promotion. Improper segmentation leads to poor positioning of a company. The problem gets compounded when there are many market players which has become the norm for any product in the globalised world. Firms, while framing segmentation strategies must ensure that the segmentation strategy is in tune with the core policies of the company. Proper allocation of the resources is also important for having a sound segmentation strategy. Firms must ensure that the senior management is fully cooperative and supportive. All the other functions of organizations must be well integrated with the proposed segmentation strategy of a firm. Customer satisfaction is also associated with segmentation strategies. Improper segmentation would lead a customer to buy a product which may not satisfy his/her needs. This could lead to serious positioning issues for a firm. A proper segmentation must also ensure that customers’ need and the products offered are synchronized. Firms must also understand their strengths and weaknesses. They must strive to remove their weakness and capitalize on their strengths and core competencies to attain sustainable competitive advantage. References Baker, M & Saren, M. 2010. Marketing Theory: A Student Text. 2nd Edition. SAGE Publications Ltd. Dibb, S. Simkin, L. 2001. Market Segmentation: Diagnosing and Treating the Barriers. [Online]. Doraszelski, U & Draganska, M. 2005. Market segmentation strategies of multi product firms. [Pdf]. Available at http://groups.haas.berkeley.edu/marketing/sics/SICS%202005%20Papers/doraszelski_draganska.pdf [Accessed on August 20, 2010]. Duke University. No Date. Segmentation strategies. [Pdf]. Available at http://faculty.fuqua.duke.edu/~moorman/GeneralMills/Section2/Section2Documents/c-p118-123.pdf [Accessed on August 20, 2010]. Available at http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V69-447D2WW-1&_user=10&_coverDate=11%2F30%2F2001&_rdoc=1&_fmt=high&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1436945084&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=842969040705ec09bbf7a98694fd8903 [Accessed on August 20, 2010]. University of Delaware. No Date. Chapter 9. Class Notes. [Online]. Available at http://www.udel.edu/alex/chapt9.html#market. [Accessed on August 20, 2010]. Wienstein, A. 2004. Handbook of market segmentation: strategic targeting for business and technology firms. 3rd Edition. Routledge. Bibliography Wedel, M & kamakura, W.A. 2000. Market segmentation: conceptual and methodological foundations. 2nd Edition. Springer. Read More