Friday Market

Strategic Marketing

Introduction

- “Marketing is an organizational function and a set of process for creating, communicating, and for managing customer relationships in ways that benefit the organization and its stakeholders” AMA (American Marketing Association’s, new definition of marketing 2004)

- “Marketing is a culture, an organizational function and a set of process for creating, communicating, and delivering value with customers and for interacting in relationships in ways that benefit the organization, its customers and other stakeholders” Evert Gummesson

The strategic marketing planning process flows from a mission and vision statement to the selection of target markets, and the formulation of specific marketing mix and positioning objective for each product or service the organization will offer. Leading authors like Kotler present the organization as a value creation and delivery sequence. In its first phase, choosing the value, the strategist “proceeds to segment the market, select the appropriate market target, and develop the offer’s value positioning. The formula – segmentation, targeting, positioning (STP) – is the essence of strategic marketing.” (Kotler, 1994, p. 93).

Market segmentation is an adaptive strategy. It consists of the partition of the market with the purpose of selecting one or more market segments which the organization can target through the development of specific marketing mixes that adapt to particular market needs. But market segmentation need not be a purely adaptive strategy: The process of market segmentation can also consist of the selection of those segments for which a firm might be particularly well suited to serve by having competitive advantages relative to competitors in the segment, reducing the cost of adaptation in order to gain a niche. This application of market segmentation serves the purpose of developing competitive scope, which can have a “powerful effect on competitive advantage because it shapes the configuration of the value chain.” (Porter, 1985, p.53).

The aim of this paper is to present Market Segmentation Strategy and the customer Relationship Management (CRM).

 

I-Market Segmentation Strategy:

 

According to Porter, the fact that segments differs widely in structural attractiveness and their requirements for competitive advantage brings about two crucial strategic questions: the determination of (a) where in an industry to compete and (b) in which segments would focus strategies be sustainable by building barriers between segments (Porter, 1985, p. 231).

Through market segmentation the firm can provide higher value to customers by developing a market mix that addresses the specific needs and concerns of the selected segment. Stated in economic terms, the firm creates monopolistic or oligopolistic market conditions through the utilization of various curves of demand for a specific product category (Ferstman, C., & Muller, E., 1993). This is an expanded application of the microeconomic theory of price discrimination, where the firm seeks to realize the highest price that each segment is willing to pay. In this case the theory’s reliance on price is broadened to include all 4 P’s of the marketing mix (Wilkie, 1990, P. 98). This application of microeconomic theory is particularly applicable to organizations active in product categories that are cluttered with competition. It is also useful where sufficiently large markets with distinct sets of value preferences are found, or when the organization chooses to proactively build a stronghold by creating value preferences among a set of consumers.

Segmentation as a process consists of segment identification, segment selection and the creation of marketing mixes for target segments. The outcome of the segmentation process should yield “true market segments” which meet three criteria: (a) Group identity: true segments must be groupings that are homogeneous within segments and heterogeneous across groups. (b) Systematic behaviors: a true segment must meet the practical requirement of reacting similarly to a particular marketing mix. (c) The third criteria refer to efficiency potential in terms of feasibility and cost of reaching a segment (Wilkie, 1990). In addition, Gunter (1992) recommends considering the stability of market segments over time and different market conditions.

 

I-1 – Segment Identification

The first stage of market analysis consists of segment identification. The analyst has the option of segmenting the market using different sets of criteria including personal characteristics of the consumer, benefits sought, and behavioral measures of the consumer (Wilkie, 1990, p. 101). Within these categories the options available are truly overwhelming and in many cases different segmentation approaches will steer strategy along very different paths. Utilizing multiple segmentation approaches is recommended by several authors (Porter, 1985; Gunter, 1992).

There is no recipe for choosing which variables to utilize when segmenting. The identification of segmentation variables is among the most creative parts of the segmentation process, because it involves conceiving dimensions along which products and buyers differ, that carries important structural or value chain implications.

Furthermore, “the greatest opportunity for creating competitive advantage often comes from new ways of segmenting, because a firm can meet buyer needs better than competitors or improve its relative cost position” (Porter, 1985, p. 247).

 

I-2 – Segment Evaluation

The second stage consists of evaluating the segments. The first element that needs to be defined is the criteria by which the segments will be evaluated.

Approaches vary with some suggesting a quantitative evaluation of the resulting segments (Sarabia, 1996), while others highlight other strategies for evaluation. A way to approach market segment evaluation is through the examination of a market structure by constructing a spatial model where similarities and dissimilarities are mapped. This representation of the market is then used in conjunction with demand estimating and forecasting models to determine possible positioning alternatives for a product (Johnson, R., 1995). This analysis can be enhanced by using a chi-squared trees analysis and correspondence analysis to generate compositional perceptual maps, which are “vital to understanding consumer brand positioning” (Bendixen, M., 1995).

Other elements should also be considered such as simplicity and potential adaptability of the segmentation structure across national boundaries. Kotler (1990) suggests considering three key factors: segment size and growth, segment structural attractiveness, and company objectives and resources. Porter (1985) proposes a similar approach but also recommends studying the firm’s resources and skills as reflected in the value chain, and their suitability to target market alternatives. Aaker (1995) bases his selection criteria on the SWOT analysis produced during the strategic marketing planning process. Berrigan & Finkbeiner (1992) propose a somewhat similar process that includes market structure analysis, market opportunity analysis, product portfolio analysis, resource capabilities analysis and competitive analysis.

 

I-3 – Targeting through marketing mix

The third stage of the market segmentation process is the creation of a specific market mix to fulfill the needs, as well as market conditions of each specific target

segment (Wilkie, 1990; Gunter & Furnham, 1992; Kotler, 1994). Although many authors limit the market segmentation process to market identification rather on the key elements of the entire process, most companies fail to give due importance to other stages in market segmentation such as product positioning and mix development (Sarabia, 1996).

Once the firm has chosen a market segment it must choose a generic competitive strategy. At this point it is also necessary to review the selected strategy across segments and explore general strategic approaches. In some cases it might become apparent that a counter-segmentation strategy is applicable. In other cases, the development of distinct mixes for each segment uncovers inconsistencies or lack of resources at the corporate level and so it is necessary to revert to the segment evaluation stage.

According to Kotler (1994, p. 293) the only sustainable generic strategy in a segmented market is differentiation. He explains that the only other generic competitive strategy alternative (low cost) is not sustainable in a segmented market. In addition, a strategy successful at differentiating must generate customer value, provide perceived value, and be difficult to copy.

At this point in the process the company selects those ways in which it will distinguish itself from its competitors. In most cases the differentiation involves multiple elements. In fact, “most successful differentiation strategies involve the total organization, its structure, systems, people, and culture.” (Aaker, 1996). One way to differentiate is through brand equity building. A strategy based on brand is likely to be sustainable because it creates competitive barriers. A brand strategy permits the strategist to work with complex concepts and not limit the differentiation strategy to just a few competitive differences. This approach is consistent and reinforces the STP approach. A successful brand strategy builds barriers to protect the selected position by creating associations of the positioning variables with the brand name in the prospect’s mind.

 

I-4-Positioning

Gunter and Furnham (1992) prescribe that after selecting target markets the strategist should develop positioning objectives to then develop them into a detailed marketing mix. However, Aaker (1996) recommends developing the positioning objective only after the brand identity and value proposition have been developed. In exploring the latter, it is useful to understand Aaker’s definition of positioning is “the part of the brand identity and value proposition that is to be actively communicated to the target audience and that demonstrates an advantage over competing brands.” Kotler

(1994) refers to it as the unique selling proposition. Explained in other words, the positioning statement is the point where the bundle of attributes join to form one concept which aims at capturing the essence of that which the target audience seeks in the product category.

The benefit of following Aaker’s recommendation lies in the expanded range of position alternatives. Three places are suggested in looking for brand position elements: the core identity (central, timeless essence of a brand), points of leverage within the identity structure (an attribute, sub-brand, special feature, or service), and the value proposition (benefits that drive relationships with target audiences).

According to Brooksbank (1994), the positioning strategy should include three components: customer targets, which are the product of the segmentation study; competitor targets, which are a product of the analysis of external environment; and competitive advantage, which is also a product of the environmental analysis.

 

II-Customer Relationship Management (CRM)

 

Online customers are different from those who are able to contact you and deal with you directly. They have a unique set of expectations. Generally, they expect immediate service, either by finding what they need on your site themselves; or, they may expect that the goods or services be delivered without delay.

CRM is the broad category of concepts, tools, and processes that allows an organization to understand and serve everyone with whom it comes into contact. CRM is about gathering information that is used to serve customers-basic information, such as name, address, meeting and purchase history, and service and support contacts. In a supplier relationship it might be procurement history, terms and conditions, or contact information. This information is then used to better serve the clients.

Customers need to be able to find out about your products and services and be able to make purchases. You need to track each customer’s activity in order to make offers of complimentary products and new products that you may provide.

Investors will have needs that relate to the operation of the business and the performance of their investment. Making some of that information available on the web site will accomplish two things: (1) investors will be better informed, and they will be able to find out the information they require without making specific inquires that take time to provide; (2) investors will get the same information at the same time.

Suppliers and partners want to be connected with your organization. Creating special places where these strategic partners can participate is valuable. Providing them with information, such as product promotions, press releases, and advertising campaigns will build strong relationships.

 

II-1-CRM and the customer life cycle

It takes ten times more effort and costs ten times more money to attract a new customer than to keep an existing customer. This “statistic” alone should be enough for companies to invest in CRM. Finding customers is the first step and the faster you get through the sorting process of qualifying prospects into customers; the faster will be the returns. A web environment adds to this process in a very positive way. You can provide the means for people visiting your site to select whether they are indeed right to be customers. Good design and clear information will aid in this goal.

The process starts with finding customers. The Internet allows you to attract customers in two ways: (1) getting them to find you through search engines, links, and alliances with other sites; and (2), by proactively finding them and sending material electronically. The number one way people find online businesses is through search engines. There are a number of general-purpose engines where you can be registered, such as Altavista, Google, Yahoo!, and MSN. Because each of the major engines works differently in the way they index information, it is advised that companies engage a person or company that has experience in this activity.

It is also important to find the specialty search engines that focus on your specific industry. Whether you are in the oil and gas, tourism, or agriculture industries, there are search engines that specialize in information focused on these markets. And is also valuable to have your site linked from other complimentary e-businesses.

 

II-2-Building value for the Customer

Now that you have found your customer, it is important to find ways to add value to the relationship. Keep in mind that value is in the mind of the customer. Find out what they perceive to be valuable by surveying them either online, by phone, or by regular mail. Even though you are using online techniques, do not forget the many other ways to connect with customers.

Another way to add value is to produce newsletters that can be delivered online or by mail. Newsletters can be related to product or service announcements and contain general industry information. E-newsletters are simple and inexpensive to produce and deliver. A good rule of thumb is to keep the newsletter small and to discuss only two or three concepts.

As you build the relationship with your online customer you will be able to solicit and build more profile information. Information about product preferences allows you to offer complimentary products or give specials on items of interest to a specific set of customers.

 

II-3-E-Loyalty

It is easy to get customers to visit your website for the first time. It is much more difficult to get them to return. You must create value for the return visitor.

As you gain more experience with online services you might use more sophisticated ways to build customer loyalty and strong relationships. Building customized or personalized sites for your customers to use will provide both added services and give customers a reason to return regularly to your e-business.

Ensuring you have good content can do this. Content can be unique articles about the industry or simply links to other sources of information. Content can also be tools that a visitor may find useful. Many real estate sites have mortgage calculators or home buying checklists that aid customers in using the service. Acknowledging the purchasing history of a customer and thanking them for the business when they return to the site can earn loyalty. One way to have customers return is to provide incentives for the second or subsequent purchases.

It is important to remember that an e-business is no different than a traditional business, when it comes to understanding the customer and delivering to expectations.

The first thing to get right is the creation of a web site that is easy for your visitors to use. It needs to be clear, concise, and include content that is appropriate for your visitor’s needs. Understanding your customers’ technology characteristics, including the type of hardware, software and connections they are likely to have, helps in the design of the site.

Online service can be as simple as FAQ’s (Frequently Asked Questions), or as complex as interactive text, voice, or video service delivered in real time. Here are a few ideas on how to deliver service and in what areas.

 

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