Marketing Principles and Practice - Assignment Example

Marketing Principles and Practice Market Segmentation The process wherein a large market is subdivided into sub-targets or subsets of consumers so asto understand and cater to their needs, tastes and preferences is known as market segmentation (Wilkinson, 2013). The market segmentation process can be broken up into three parts; market segmentation, targeting and positioning. Also known as the STP process, it is a fundamental concept that facilitates better understanding of a firm’s marketing strategies. The steps involved in the STP process, which contribute towards gaining an understanding of the subject, are highlighted below. 1. Define the Market An organization must have a thorough understanding of the target market and the customers to be served. In economic literatures, the concept of market has been depicted as a set of three major questions; “what to sell”, “how much to sell” and “whom to sell”. The third question is the answer to defining a market. For example, Coca-Cola or PepsiCo uses the market segmentation strategy. In order to so successfully, the companies require a more structured approach to outline sub-segments of the market tending towards a more product-market definition, besides considering the overall beverage market,. The overall market definition is too generic and does not take into account the diverse market segments. Coca-Cola has introduced Diet-Coke in order to cater to the population who are health conscious, yet has the desire to consume the soft drink. PepsiCo diversified its product line to include wafers and potato chips so as to ensure better revenues by providing the products offered to a wider range of people (Athanassopoulos, 2000;). 2. Creation of market segments A company has to firstly define the market and subsequently segment the same using different segmentation variables such as, market needs, consumer behaviours and purchasing power. The various tastes and preferences of the customers need to be considered by an organization in order to allocate them to various segments of the market. In this manner, a company is able to cater to the customers’ needs efficiently and correctly recognize the target market. For instance, Coca-Cola had introduced different flavours of its soft drinks such as, orange, vanilla and mango, so as to serve the wide ranging consumer bases. 3. Check viability of the various segments Once the market segments have been determined, the next task is to evaluate them using a set of predetermined criteria. Appropriate evaluation ensures that the model is logical and useable. The segments have to be assessed against different factors such as, reach of the segment, ability to cater to the diverse needs and proper segment development in terms of size. The evaluation criteria of market segmentation also require the marketer to check for homogeneity, implying that a segment should address customers displaying similar characteristics related to tastes and preferences. The segments should be heterogeneous in nature so that uniqueness of a customer set can be compared and their differing needs can be served accordingly. In order to determine the market size that an organisation caters to, relevant data is needed. Hence, the segment should be measurable such that data can be extracted from the same. The market segment should be substantially large and guarantee profits to the business so as to meet the owners’ interest. A company should be able to recover its initial investment and draw adequate financial returns, which is why the market segments must be substantial. The market should be considerably accessible so that proper distribution channels can be set up. The segments should also be viable in terms of practicality so as to support implementation of the marketing mix strategies. The market segment must respond adequately to the marketing mix strategies, as opposed to presenting a generic offering (Söllner and Rese, 2001; McDonald and Dunbar, 2004). 4. Develop segment profiles After developing the markets segments, it is necessary to do a profiling of the same. Segment profiles describe the consumers’ needs, behaviours, demographics, preferences, shopping patterns and so on and so forth (Pride & Ferrell, 2011). Organisations often designate specific names to such segments for the purpose of easily distinguishing them. 5. Evaluate the attractiveness Following the act of profiling, data on the segments is collected. Consequently, the consumer research findings are evaluated, alongside segment size, brand loyalty and price sensitivity. The combined analysis is then used to determine overall attractiveness of each market segment. Scoring models are employed for determining the qualitative and numerical scores of each segment (Steenkamp and Hofstede, 2002). 6. Selection of the target markets Post the detailed analysis of each segment, firms are able to decide on their appropriateness and accordingly select the target market. The firms consider a number of factors in order to realize appropriateness of a market such as, competitive environment, a firm’s ability to gain competitive advantage while operating in the market chosen and economies of scale to be obtained in long run (Furrer, Liu and Sudharshan, 2000). 7. Developing the Positioning Strategy The firms require developing strategies that would help them compete in the target markets. The knowledge regarding positioning of the products offered in the target market is necessary. The market in all likelihood would have existing competitive offerings. As a result, a new firm entering the market must be able to win the market share from its established competitors therein. In order to do so, the new firm needs to provide customers with a product that is unique and superior to the products available in the market. It also requires providing greater value for money to the consumers (Freytag and Clarke, 2001; Smith and Hirst, 2001). 8. Implementation of the marketing mix Implementation of a strategy is made after developing the same appropriately. A proper marketing mix is formulated so as to obtain desired results, following strategy implementation. The development takes into account product designing at a suitable price, building suitable distribution channels for covering greater number of consumers as well as initiation of an effective promotional programme (Dibb and Simkin, 2001). 9. Review performance In regular intervals, considering changes in the market scenarios, a firm needs to reassess and review the segmentation strategies developed so as to tap new avenues and opportunities. Methods of Segmentation The different methods of market segmentation are as follows: Geographic segmentation takes into accounts the tastes and preferences of consumers belonging to various regions and countries. For example, Dior is a brand that caters majorly to the high-end customers, which is why it would be unable to attain considerable sales in the less developed nations with high poverty rates. Distribution Segmentation deals with the distribution channels of a company that helps in reaching out to the various customer bases. An upscale line of clothing sold in the expensive departmental stores only is an example of distributional segmentation. Media Segmentation is an uncommon method that allows segmentation of media based on the reach of the same. Different media have the ability to target separate market segments. As a result, a firm must allocate its budget wisely in different media so as to target a wider range of the population. Price Segmentation divides a market along the price and income dimensions. If a company targets the high income groups, then it need not focus on price reduction strategies. For example, while General Motors produces Chevrolet Corvette Stingray to target the high income groups, Chevrolet Spark or Chevrolet Beat caters to the lower income groups. Demographic Segmentation is based on the identifiable characteristics of a population such as, age, marital status, and occupation and so on and so forth. There are certain brands that target only women such as, Bwitch and some direct focus on men solely. Companies manufacturing hearing aids mostly target the elderly group of people. Time Segmentation is a less common method, yet a very effective one. There are stores that deliver services round the clock or offer certain products during particular periods of time such as, cards during Christmas and firecrackers during Diwali (Armstrong and Cunningham, 2012). Psychographic Segmentation allows the customers to be distinguished on the basis of understanding of a customer’s interests, lifestyle, emotions, perceptions, beliefs and opinions. Qualitative research techniques are used to collect data and analyse behavioural profile of the consumers (Arimond and Elfessi, 2001). Behavioural Segmentation is an analysis of the market based on customers’ relationship with the firm concerned in terms of brand loyalty or brand switching and heavy users or light users. Disadvantages of Market Segmentation Small Segments – Small segments lead to wrong analysis of a firm’s expected turnover, thereby adversely affecting the profit margins and lowering viability. Misinterpretation of Needs – The data collection related to the consumers’ tastes, preferences and requirements can be faulty, resulting in wrong allocation of the product offered to a segment. For example, a market research team develops a report stating that the consumers need a cleansing agent and the firm accordingly launches a new soap; but the need was originally for new cleansing milk. Thus, a firm must conduct proper analysis of the consumers’ needs (Ziliani and Bellini, 2004; Toften and Hammervoll, 2010). Cost of production not estimated – A firm must be able to decide upon the budget that is to be allocated to production and launch of a new product. Over-allocation of budget in a particular project may lead to capital constraints in respect of future allocations. Too many brands – Before entering a new market, a firm needs to assess the scope of profitability. There might be a large number of existing brands offering the same product, which can minimize the firm’s impact on the market, thereby compromising on its profit margins. Volatile trends of demand – In case of a market that reflects excessive volatility, implying the consumers’ confusion related to product purchase, it is wise for a firm to exit the same. New product – If a firm plans to launch a new product, then there is hardly any data to consider for research. Target Marketing Strategies (Source: Wedel, 2000) Following segmentation and analysis of the different markets, a firm requires implementing the target marketing strategies. The target marketing strategies can be explained in the following manner. Multisegment Marketing Firms mostly tailor their offerings in such a manner that supports meeting the various needs of different customer segments. If a firm caters to different segments, then it is less vulnerable to competition and is able to appropriately respond to demographic and other market changes. Such strategies also help a firm to weather economic issues by allowing customers to choose between the high-end and low-end products offered (Hudson, 2007; Schiffman and Kanuk, 2010). For example, Marriott International is a company that has adopted multisegment marketing in an efficient manner. The company has designed its facilities in a manner that serves diverse market segments. Marriott Courtyard targets the on-road travellers, while Ritz-Carlton Hotels directs its services at luxury travellers. Marriott Conference Centres are designed to host small and medium sized meetings, while Marriott ExecuStay provides services to the executives who require longer accommodations. Concentrated Marketing Small firms with limited resources often undertake concentrated marketing. Concentrated marketing involves targeting a very select group of consumers. Concentrated marketing can at times prove to be risky as its application implies that the concerned company is more vulnerable to market fluctuations. For example, Apple follows a concentrated marketing strategy in the developing countries as the income levels therein do not appropriately correspond to the company’s product prices. Several manufacturers of automobile parts in North America supply products exclusively to companies such as, General Motors, Chrysler and Ford. When these companies had experienced a sharp reduction in the sales, following the recession in 2008, manufacturers had to incur huge losses. In order to diversify the product lines, the manufacturers had then tried to sell parts for aerospace tools, wind turbines and solar panels (Tsai and Chiu, 2004). Niche marketing The marketing technique that involves targeting an extremely exclusive group of consumers is known as niche marketing. When a firm engages in niche marketing, it aims to earn profits by way of catering to a smaller market segment so as to create a larger impact. For example, sports channels like, ESPN, Fox Sports and Star Sports, target only the sports enthusiasts. Other examples of niche marketing companies include that of Hohner dealing with musical instruments and Swarovski that sells crystal products (Baker and Hart, 2008). Micro targeting This type of marketing is unconventional and unethical to an extent, given that gathering information pertaining to one’s personal life. This method helps to further narrow down markets and target the isolated ones. Such marketing approach was previously used during elections when the personal records of voters were obtained and analysed. This information ranged from the tax records to the subscriptions of local television channels. A company named Axciom is engaged in this kind of marketing and in exchange for a fee, can provide personal records of individuals such as, the cars driven, magazines bought, personal care products preferred and income and education received (Quinn , Hines and Bennison, 2007). One-to-One Marketing One-to-one marketing is a direct form of promotion that involves communication between the business representative and the targeted or interested consumer. A typical one-to-one marketing conversation entails the customer stating his needs and demands and the representative or sales person paying heed so as to be able to propose goods or services that are able to meet those requirements. It is thus an extreme form of database marketing in which product differentiation is taken to a new level whereby the products and services can be personalised to meet the specific needs of the consumer. Interactive media such as the internet is a very practical example of personalized marketing whereby a website can follow a customers demands and interests in order to customise the products accordingly. Customers are able to make choices by organizing and prioritizing information according to their own specifications. Consumer purchasing records like repetitive purchases are also taken into account in order to personalise a product. The four stages of such marketing are as follows: Identify: Having a better understanding of the customers of a company is very crucial. In order to achieve this end, reliable data is collected regarding their preferences and how their needs can best be satisfied. Differentiate: Distinguishing the customers in terms of their unique tastes and preferences and segmenting them into classified groups. Interact: Determining the correct mode of communication with the customer is very important and requires in depth understanding of the consumer’s personality. Customize: The information thus gathered thereby enables the company individualise the products and services according to the customer needs. Once the company successfully achieves this, then it is able to deliver complete satisfaction to its consumers (Baumgartner and Pieters, 2003). Pizza Hut has franchises all over the world. Nonetheless, the company ensures proper packaging and advertising and designs its policies in such a manner that the local sentiments are addressed. The developing countries are a lucrative market for the multinational companies, which appear to tailor the products offerings as per country-specific needs. The developing countries such as, China and India, have a huge population. Hence, even though the firms have to follow a price segmentation policy, yet the volume purchased is able to greatly enhance their sales, thereby compensating for the price reductions. Reference List Arimond, G. and Elfessi, A., 2001. 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