MAR255 chapter 6

goal of designing a customer value-driven marketing strategy:

A customer value-driven marketing strategy seeks to build the right relationships with the right customers.

segmentation variable: behavioral

Occasions, benefits, user status, usage rate, loyalty status

2. market targeting

Once the groups have been identified, market targeting evaluates each market segment's attractiveness and selects one or more segments to serve

Designing a Customer Value-Driven Market Strategy

Select customers to serve: through segmentation or targeting decide on a value proposition: differentiation or positioning

segmentation variable: psychographic

Social class, lifestyle, personality

industrial products: supplies and services

Supplies include operating supplies (lubricants, coal, paper, pencils) and repair and maintenance items (paint, nails, brooms). Supplies are the convenience products of the industrial field because they are usually purchased with a minimum of effort or comparison. Business services include maintenance and repair services (window cleaning, computer repair) and business advisory services (legal, management consulting, advertising). Such services are usually supplied under contract.

substantial

The market segments are large or profitable enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars especially for people whose height is greater than seven feet.

Income segmentation

The marketers of products and services such as automobiles, clothing, cosmetics, financial services, and travel have long used income segmentation. Many companies target affluent consumers with luxury goods and convenience services.

Differentiable

The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. If men and women respond similarly to marketing efforts for soft drinks, they do not constitute separate segments.

It then chooses one of four market-targeting strategies—ranging from very broad to very narrow targeting

The seller can ignore segment differences and target broadly using undifferentiated (or mass) marketing. This involves mass producing, mass distributing, and mass promoting the same product in about the same way to all consumers. Or the seller can adopt differentiated marketing—developing different market offers for several segments. Concentrated marketing (or niche marketing) involves focusing on one or a few market segments only. Finally, micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations. Micromarketing includes local marketing and individual marketing.

measurable

The size, purchasing power, and profiles of the segments can be measured.

social marketing

and consists of using traditional business marketing concepts and tools to create behaviors that will create individual and societal well-being.

services

are a form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything. Examples include banking, hotel, airline travel, retail, wireless communication, and home-repair services.

convenience products

are consumer products and services that customers usually buy frequently, immediately, and with minimal comparison and buying effort. Examples include laundry detergent, candy, magazines, and fast food. Convenience products are usually low priced, and marketers place them in many locations to make them readily available when customers need or want them.

specialty products

are consumer products and services with unique characteristics or brand identifications for which a significant group of buyers is willing to make a special purchase effort. Examples include specific brands of cars, high-priced photography equipment, designer clothes, gourmet foods, and the services of medical or legal specialists. A Lamborghini automobile, for example, is a specialty product because buyers are usually willing to travel great distances to buy one. Buyers normally do not compare specialty products. They invest only the time needed to reach dealers carrying the wanted products.

unsought products

are consumer products that the consumer either does not know about or knows about but does not normally consider buying. Most major new innovations are unsought until the consumer becomes aware of them through advertising. Classic examples of known but unsought products and services are life insurance, preplanned funeral services, and blood donations to the Red Cross. By their very nature, unsought products require a lot of advertising, personal selling, and other marketing efforts.

industrial products: capital items

are industrial products that aid in the buyer's production or operations, including installations and accessory equipment. Installations consist of major purchases such as buildings (factories, offices) and fixed equipment (generators, drill presses, large computer systems, elevators). Accessory equipment includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (computers, fax machines, desks). These types of equipment have shorter lives than do installations and simply aid in the production process.

shopping products

are less frequently purchased consumer products and services that customers compare carefully on suitability, quality, price, and style. When buying shopping products and services, consumers spend much time and effort in gathering information and making comparisons. Examples include furniture, clothing, major appliances, and hotel services. Shopping product marketers usually distribute their products through fewer outlets but provide deeper sales support to help customers in their comparison efforts.

industrial products

are those products purchased for further processing or for use in conducting a business

product

as anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need include services, events, persons, places, organizations, and ideas or a mixture of these.

then they must then design the actual product and find ways to

augment it to create customer value and a full and satisfying brand experience.

A company's market offering often includes

both tangible goods and services.

A company can expand its product line in two ways:

by line filling or line stretching

geographic segmentation

calls for dividing the market into different geographical units, such as nations, regions, states, counties, cities, or even neighborhoods. A company may decide to operate in one or a few geographical areas or operate in all areas but pay attention to geographical differences in needs and wants. Moreover, many companies today are localizing their products, services, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and neighborhoods.

corporate image marketing

campaigns to market themselves and polish their images

Which targeting strategy is best depends on

company resources, product variability, product life-cycle stage, market variability, and competitive marketing strategies.

target market

consists of a set of buyers who share common needs or characteristics that the company decides to serve

person marketing

consists of activities undertaken to create, maintain, or change attitudes or behavior toward particular people.

organization marketing

consists of activities undertaken to create, maintain, or change the attitudes and behavior of target consumers toward an organization. Both profit and not-for-profit organizations practice organization marketing.

A product mix (or product portfolio)

consists of all the product lines and items that a particular seller offers for sale.

market targeting

consists of evaluating each market segment's attractiveness and selecting one or more market segments to serve.

When developing products, marketers first must identify the

core customer value that consumers seek from the product

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.

behavioral segmentation

divides buyers into segments based on their knowledge, attitudes, uses, or responses concerning a product. Many marketers believe that behavior variables are the best starting point for building market segments

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. One reason is that consumer needs, wants, and usage rates often vary closely with demographic variables. Another is that demographic variables are easier to measure than most other types of variables.

pure service

for which the market offer consists primarily of a service. Examples include a doctor's exam and financial services

conformance quality

freedom from defects and consistency in delivering a targeted level of performance. All companies should strive for high levels of conformance quality

gender segmentation

has long been used in marketing clothing, cosmetics, toiletries, toys, and magazines. For example, P&G was among the first to use gender segmentation with Secret, a deodorant brand specially formulated for a woman's chemistry, packaged and advertised to reinforce the female image

target marketing

identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each.

industrial products: materials and parts

include raw materials as well as manufactured materials and parts. Raw materials consist of farm products (wheat, cotton, livestock, fruits, vegetables) and natural products (fish, lumber, crude petroleum, iron ore). Manufactured materials and parts consist of component materials (iron, yarn, cement, wires) and component parts (small motors, tires, castings). Most manufactured materials and parts are sold directly to industrial users. Price and service are the major marketing factors; branding and advertising tend to be less important.

A company must consider four special service characteristics when designing marketing programs:

intangibility, inseparability, variability, and perishability

differentiation

involves actually differentiating the firm's market offering to create superior customer value

product line filling

involves adding more items within the present range of the line. There are several reasons for product line filling: reaching for extra profits, satisfying dealers, using excess capacity, being the leading full-line company, and plugging holes to keep out competitors. However, line filling is overdone if it results in cannibalization (eating up sales of the company's own existing products) and customer confusion. The company should ensure that new items are noticeably different from existing ones

packaging

involves designing and producing the container or wrapper for a product. Traditionally, the primary function of the package was to hold and protect the product. In recent times, however, packaging has become an important marketing tool as well. Increased competition and clutter on retail store shelves means that packages must now perform many sales tasks—from attracting buyers to communicating brand positioning to closing the sale.

market segmentation

involves dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate marketing strategies or mixes. The company identifies different ways to segment the market and develops profiles of the resulting market segments.

local marketing

involves tailoring brands and promotions to the needs and wants of local customers.

product line

is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. For example, Nike produces several lines of athletic shoes and apparel, and Marriott offers several lines of hotels.

brand

is a name, term, sign, symbol, or design or a combination of these that identifies the maker or seller of a product or service. Consumers view a brand as an important part of a product, and branding can add value to a consumer's purchase. Customers attach meanings to brands and develop brand relationships. As a result, brands have meaning well beyond a product's physical attributes

Total quality management (TQM)

is an approach in which all of the company's people are involved in constantly improving the quality of products, services, and business processes. For most top companies, customer-driven quality has become a way of doing business.

what is the difference between consumer products and industrial products

is based on the purpose for which the product is purchased. If a consumer buys a lawn mower for use around home, the lawn mower is a consumer product. If the same consumer buys the same lawn mower for use in a landscaping business, the lawn mower is an industrial product.

design

is more than skin deep—it goes to the very heart of a product. Good design contributes to a product's usefulness as well as to its looks

product quality

is one of the marketer's major positioning tools. Quality affects product or service performance; thus, it is closely linked to customer value and satisfaction. In the narrowest sense, quality can be defined as "no defects." But most marketers go beyond this narrow definition. Instead, they define quality in terms of creating customer value and satisfaction.

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.

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. Products are made in factories, but brands happen in the minds of consumers.

To be useful, market segments must be

measurable, accessible, substantial, differentiable, actionable

The effectiveness of the segmentation analysis depends on finding segments that are

measurable, accessible, substantial, differentiable, and actionable.

product line stretching

occurs when a company lengthens its product line beyond its current range. The company can stretch its line downward, upward, or both ways

consistency

of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other aspect. The Clorox Company's product lines are consistent insofar as they are primarily consumer products and go through the same distribution channels. The lines are less consistent insofar as they perform different functions for buyers.

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, a version designed to meet the tastes and sensibilities of teenagers.

labels

range from simple tags attached to products to complex graphics that are part of the packaging. They perform several functions. At the very least, the label identifies the product or brand, such as the name Sunkist stamped on oranges. The label might also describe several things about the product—who made it, where it was made, when it was made, its contents, how it is to be used, and how to use it safely. Finally, the label might help to promote the brand and engage customers. For many companies, labels have become an important element in broader marketing campaigns.

product mix width

refers to the number of different product lines the company carries. For example, Clorox has a fairly contained product mix that fits its mission to "make everyday life better, every day." By contrast, GE manufactures as many as 250,000 items across a broad range of categories, from lightbulbs to medical equipment, jet engines, and diesel locomotives.

product mix depth

refers to the number of versions offered for each product in the line. The Clorox brand contains a deep assortment of items and varieties, including disinfecting wipes, floor cleaners, stain removers, and bleach products. Each variety comes in a number of product forms, formulations, scents, and sizes. For example, you can buy CLOROX Regular Bleach, CLOROX Scented Bleach, CLOROX Bleach Foamer, CLOROX High Efficiency Bleach, CLOROX UltimateCare Bleach (gentle for delicate fabrics), or any of a dozen other varieties

product mix length

refers to the total number of items a company carries within its product lines. Clorox carries several brands within each line. For example, its cleaning line includes CLOROX, FORMULA 409, LIQUID PLUMBER, SOS, PINE-SOL, TILEX, HANDI-WIPES, and others. The lifestyle line contains the KC MASTERPIECE, BRITA, HIDDEN VALLEY, and BURT'S BEES brands, among others

benefit segmentation

requires finding the major benefits people look for in a product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit.

In evaluating different market segments, a firm must look at three factors:

segment size and growth, segment structural attractiveness, and company objectives and resources.

style

simply describes the appearance of a product. Styles can be eye catching or yawn producing. A sensational style may grab attention and produce pleasing aesthetics, but it does not necessarily make the product perform better

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. - But differentiated marketing also increases the costs of doing business

undifferentiated marketing (or mass marketing)

strategy, a firm might decide to ignore market segment differences and target the whole market with one offer. Such a strategy focuses on what is common in the needs of consumers rather than on what is different. The company designs a product and a marketing program that will appeal to the largest number of buyers.

concentrated marketing (or niche marketing)

strategy, instead of going after a small share of a large market, a firm goes after a large share of one or a few smaller segments or niches. Through concentrated marketing, the firm achieves a strong market position because of its greater knowledge of consumer needs in the niches it serves and the special reputation it acquires. It can market more effectively by fine-tuning its products, prices, and programs to the needs of carefully defined segments. It can also market more efficiently, targeting its products or services, channels, and communications programs toward only consumers that it can serve best and most profitably Concentrated marketing can be highly profitable high risk

pure tangible good

such as soap, toothpaste, or salt; no services accompany the product.

competitive advantage

that a company can differentiate and position itself as providing superior customer value, it gains competitive advantage.

To target the best market segments

the company first evaluates each segment's size and growth characteristics, structural attractiveness, and compatibility with company objectives and resources.

value proposition

the full mix of benefits on which a brand is differentiated and positioned. It is the answer to the customer's question "Why should I buy your brand?" BMW's "ultimate driving machine" value proposition hinges on performance but also includes luxury and styling, all for a price that is higher than average but seems fair for this mix of benefits.

product line length

the number of items in the product line. The line is too short if the manager can increase profits by adding items; the line is too long if the manager can increase profits by dropping items. Managers need to analyze their product lines periodically to assess each item's sales and profits and understand how each item contributes to the line's overall performance.

Using intermarket segmentation (also called cross-market segmentation)

they form segments of consumers who have similar needs and buying behaviors even though they are located in different countries.

return-on-quality approach

viewing quality as an investment and holding quality efforts accountable for bottom-line results

A company's product mix has four important dimensions:

width, length, depth, and consistency

occasion segmentation

Buyers can be grouped according to occasions when they get the idea to buy, actually make their purchases, or use the purchased items. Occasion segmentation can help firms build up product usage.

upward stretching

Companies can also stretch their product lines upward. Sometimes, companies stretch upward to add prestige to their current products. Or they may be attracted by a faster growth rate or higher margins at the higher end.

3. differentiation

Differentiation involves actually differentiating the market offering to create superior customer value.

4. positioning

Positioning consists of positioning the market offering in the minds of target customers.

accessible

The market segments can be effectively reached and served.

consumer products

are products and services bought by final consumers for personal consumption. Marketers usually classify these products and services further based on how consumers go about buying them. Consumer products include convenience products, shopping products, specialty products, and unsought products

Posititioning

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.

The differentiation and positioning task consists of three steps:

identifying a set of possible differentiations that create competitive advantage, choosing advantages on which to build a position, and selecting an overall positioning strategy.

place marketing

involves activities undertaken to create, maintain, or change attitudes or behavior toward particular places

Product quality has two dimensions:

level and consistency

value proposition

the full mix of benefits on which the brand is positioned.

core customer value

- most basic level (center of circle) which addresses the question: What is the buyer really buying? When designing products, marketers must first define the core, problem-solving benefits or services that consumers seek.

actual product

- second level (middle of circle) They need to develop product and service features, a design, a quality level, a brand name, and packaging. For example, the iPad is an actual product. Its name, parts, styling, operating system, features, packaging, and other attributes have all been carefully combined to deliver the core customer value of staying connected.

individual product decisions (flow chart)

1. product attributes 2. branding 3. packaging 4. labeling 5. product support services

augmented product

3rd level (outside of circle) around the core benefit and actual product by offering additional consumer services and benefits. - delivery and credit, product support, warranty, after-sale service

Services now account for

80 percent of the U.S. gross domestic product (GDP). Services are growing even faster in the world economy, making up almost 64 percent of the gross world product

segmentation variable: demographic

Age, life-cycle stage, gender, income, occupation, education, religion, ethnicity, generation

downward stretching

Companies located at the upper end of the market can stretch their lines downward. A company may stretch downward to plug a market hole that otherwise would attract a new competitor or to respond to a competitor's attack on the upper end. Or it may add low-end products because it finds faster growth taking place in the low-end segments.

actionable

Effective programs can be designed for attracting and serving the segments. For example, although one small airline identified seven market segments, its staff was too small to develop separate marketing programs for each segment.

quality level

In developing a product, the marketer must first choose a quality level that will support the product's positioning

individual marketing

In the extreme, micromarketing becomes individual marketing—tailoring products and marketing programs to the needs and preferences of individual customers. Individual marketing has also been labeled one-to-one marketing, mass customization, and markets-of-one marketing.

1. marketing segmentation

Market segmentation is the act of dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate marketing strategies or mixes

segmentation variable: geographic

Nations, regions, states, counties, cities, neighborhoods, population density (urban, suburban, rural), climate