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CHAPTER 7

Market Segmentation, Target Marketing, and Positioning

  • A. The Basics of Market Segmentation

An organization can choose to sell to everyone in the market or it can choose to segment a large market into smaller groups.

  • 1. Mass Marketing—appropriate strategy when demand is homogeneous, or every potential customer has the same basic need that can be satisfied in the same basic way, and with the same marketing mix.

  • 2. Market Segmentation—process of dividing a large market into smaller groups or clusters of customers with similar wants and needs and responses to marketing activities and programs.

  • 3. Why Subdivide Markets?—globalization, increased numbers of competitors, more diversity among customers, technology, and other factors encourage the use of segmentation strategies to reach more narrowly defined customer segments with highly targeted marketing mixes.

  • 4. Customer Value and Target Marketing—customer satisfaction is related closely to “value” as perceived by the customers themselves; organizations must not only deliver value to their customers but also do so better than the competition.

  • B. Target Marketing Strategies

The nature of customer demand patterns determines the type of marketing strategy to be pursued, i.e., whether to

target the entire market or focus on one or more distinctly different segments.

  • 1. A Multi-Segment Marketing Strategy—clustered or selective specialization strategy; each segment is treated as a unique market, with its own unique marketing mix.

  • 2. A Single-Segment Marketing Strategy—concentrated target marketing strategy used for a single-segment market with a distinct set of needs; approaches include niche marketing and one-to-one marketing.

    • a. Niche marketing—strategy is highly focused on a single segment that seeks special benefits; marketer must have distinct advantage over competitors and be able to satisfy customers with superior goods and services.

    • b. One-to-one marketing strategy—comprehensive databases and communications technology make it possible to narrow down markets more precisely, resulting in mass customization and micro-marketing strategies where needs of each individual customer are considered.

  • C. The Market-Segmentation Process

Market segmentation starts with a commitment to satisfy one or more groups of customers, requiring a thorough knowledge of both the targeted customers and the benefits of the goods and services being offered. Segmentation strategies also must be consistent with the organization’s mission, policies, goals, and ability to provide the desired benefits

(Transparency 7B: “The Market Segmentation Process”)

  • 1. Steps in the Segmentation Process

Five major steps are involved in dividing markets into meaningful segments, although these steps and their

description may vary from one situation to another.

  • a. Define and analyze the market—determine market parameters (based on characteristics that may include or exclude customers from a group) within organization’s mission and business definition, as well as its strategic intent.

  • b. Identify and describe potential segments—decide on the most useful dimensions or variables for selecting members of potential market segments; then aggregate customers into homogeneous groups, develop a profile of the characteristics of each group, etc.

  • c. Select the segment(s) to be served—select segments by evaluating against predetermined criteria, then rank according to the organization’s ability to serve the market profitably while providing customer satisfaction.

  • d. Determine the product positioning strategy—determine the best “fit” between a product and a market according to features most desired by customers; consider competitors’ positioning strategies, organizational goals, and the market situation.

  • e. Design and implement the marketing program—develop a tactical plan (marketing mix) and determine objectives for the marketing program; all elements of the marketing mix must be consistent with the selected positioning strategy.

  • 2. Criteria for Effective Segmentation

Because of the costs associated with the development and implementation of a market segmentation strategy, each

segment must meet certain basic criteria.

  • a. The organization must be able to identify and measure each segment. Some variables are easier to identify and measure objectively than others (i.e., demographics such as age, population statistics, etc.), while others are more subjective (i.e., lifestyle dimensions such as attitudes, etc.) Both objective (quantitative) and subjective (qualitative) information about a potential segment should be considered.

  • b. The market must be substantial enough. The segment must be sufficiently large, with substantial potential to generate desired revenue and profit levels. Multiple criteria are used to measure the size and profitability of an identified segment, and the organization also must consider its ability to serve this segment profitably.

  • c. The organization must be able to reach customers. A market must be accessible in terms of the availability of distribution channels, advertising media, personal selling, and other aspects of the marketing mix that are used to reach the market. Barriers also may include unfavorable laws and regulations, etc.

  • d. Customers in the selected segment must be responsive. Customers must have the money and willingness to buy the good or service offered.

  • e. Characteristics of the segment are relatively stable over a long period. Segmentation is a long-term strategy, consistent with the organization’s mission and long-term corporate objectives. Markets characterized by volatility and uncertainty make it difficult to forecast demand patterns and plan future actions.

  • D. Selection of Market Segments

Variables used to segment markets should be selected for their usefulness in forecasting sales and predicting customer response to the company’s offer, since a unique target marketing strategy is designed to appeal to the common characteristics shared by individuals within a given segment.

  • 1. Bases for Segmenting Consumer Markets

Dimensions used to divide consumer markets into segments include both objective and subjective dimensions, as noted below.

  • a. Demographic and socioeconomic descriptors—frequently used demographics include age, gender, marital status, household size and lifecycle stage, religion, race/ethnic group, and nationality; frequently used socioeconomic descriptors include income, occupation, education, social class, and asset ownership.

  • b. Geographic descriptors—ranging from location of small group of customers to the entire world, including country, region, state, county, metro area, zip code, neighborhood, etc.

  • c. Behavioral and situational descriptors—based on ways that consumers buy and use goods and services, including consumers’ status as present, past, or future user (or nonuser) of product class, brand, or supplier.

  • d. Psychological and psychographic descriptors—difficult to measure, but useful for product positioning, promotional messages and media, distribution strategies, etc.; include consumer lifestyles as predictor of buyer behavior.

  • e. Benefits sought—of particular importance to customers; generally involves quality, value, and service as wanted benefits; emphasis on convenience and self-improvement.

  • 2. Bases for Segmenting Business-to-Business Markets

Many general segmentation variables are used to segment both consumer and business markets. However, the specific dimensions within each category are selected for their predictability and marketing applications for business customers.

  • a. Demographic descriptors—most widely used dimension is industry classification (NAICS code); others include the size (sales, number of employees or locations), age, etc. of an organization, and how the product will be used by customers (OEM, resale, etc.).

  • b. Geographic descriptors—many industries are concentrated in one or a few geographic locations; domestic and overseas markets can be segmented on the basis of geography, economic conditions, population size, etc.

  • c. Behavioral and situational descriptors—frequently used dimensions include technology (high-/low-tech, innovative/conservative, etc.), usage (heavy, medium, light, nonusers), organization-related variables (e.g., buying policies), and purchase situation (nature of purchase, degree of customization needed, readiness to buy, etc.).

  • d. Psychological and psychographic descriptors—applies to the individual or group that makes the final buying decision (or may reflect the overall organizational culture); includes attitudes toward important factors, personal traits, etc.

  • e. Benefits sought—some benefits most frequently sought by organizations include value (low price/high quality), service, delivery based on economic motives and price sensitivity, and desire for convenience (logistics, service, etc.).

No one variable is sufficiently comprehensive to use in identifying market segments. Start with the most important dimension(s), then refine the list of variables until it is no longer useful; focus on combinations of variables that predict purchase for selected segment.

  • 4. International Implications of Market Segmentation

Rather than treating each country as a single segment with similar needs and wants, in today’s global society it is

more meaningful to identify similarities among consumers across multiple overseas markets (e.g., lifestyles, leisure activities, etc.).

  • 5. Technology and Marketing Intelligence as Segmentation Tools

Segmentation decisions require in-depth knowledge of the market gained from marketing research and the company’s marketing intelligence (MIS) and decision support (MDSS) systems that make it possible to manage large customer databases.

  • 6. Management Tools

  • a. VALS2—this values and lifestyle measure is used frequently to classify consumers into eight lifestyle segments, according to lifestyle and psychographics; the focus is on consumer attitudes and values based on self-orientation and resources.

The Full STP Process

The market segmentation, targeting and positioning (STP) process is a fundamental concept in understanding marketing and the strategies of firms. In most marketing textbooks, the STP approach is presented as a simple three step process. While that approach provides a good introduction to this marketing concept, it fails to adequately highlight the smaller steps of the STP process that should also be understood.

The following diagram highlights the overall STP process in nine steps:

The Full STP Process The <a href=market segmentation , targeting and positioning (STP) process is a fundamental concept in understanding marketing and the strategies of firms. In most marketing textbooks, the STP approach is presented as a simple three step process . While that approach provides a good introduction to this marketing concept, it fails to adequately highlight the smaller steps of the STP process that should also be understood. The following diagram highlights the overall STP process in nine steps: The following is a quick discussion of the full market segmentation, targeting and positioning (STP) process, as shown above. Step One Define the market In the first step in this more detailed model is to clearly define the market that the firm is interested in. This may sound relatively straightforward but it is an important consideration. For example, when Coca-Cola looks at market segmentation they would be unlikely to look at the beverage market overall. Instead they would look at what is known as a sub-market (a more product-market definition). A possible market definition that Coca-Cola could use might be diet cola soft drinks in South America. It is this more precise market definition that is segmented, not the overall beverage market, as it is far too generic and has too many diverse market segments. Step Two – Create market segments Once the market has been defined, the next step is to segment the market, using a variety of different segmentation bases/variables in order to construct groups of consumer. In other words, allocate the consumers in the defined market to similar groups (based on market needs, behavior or other characteristics). " id="pdf-obj-4-16" src="pdf-obj-4-16.jpg">

The following is a quick discussion of the full market segmentation, targeting and positioning (STP) process, as shown above.

In the first step in this more detailed model is to clearly define the market that the firm is interested in. This may sound relatively straightforward but it is an important consideration. For example, when Coca-Cola looks at market segmentation they would be unlikely to look at the beverage market overall. Instead they would look at what is known as a sub-market (a more product-market definition). A possible market definition that Coca-Cola could use might be diet cola soft drinks in South America. It is this more precise market definition that is segmented, not the overall beverage market, as it is far too generic and has too many diverse market segments.

Step Two – Create market segments

Once the market has been defined, the next step is to segment the market, using a variety of different segmentation bases/variables in order to construct groups of consumer. In other words, allocate the consumers in the defined market to similar groups (based on market needs, behavior or other characteristics).

Step Three – Evaluate the segments for viability

After market segments have been developed they are then evaluated using a set criteria to ensure that they are useable and logical. This requires the segments to be assessed against a checklist of factors, such as: are the segments reachable, do they have different groups of needs, are they large enough, and so on.

Step Four – Construct segment profiles

Once viable market segments have been determined, segment profiles are then developed. Segment profiles are detailed descriptions of the consumers in the segments – describing their needs, behaviors, preferences, demographics, shopping styles, and so on. Often a segment is given a descriptive nickname by the organization. This is much in the same way that the age cohorts of Baby Boomers, Generation X and Generation Y have a name.

Step Five – Evaluate the attractiveness of each segment

Available market data and consumer research findings are then are added to the description of the segments (the profiles), such as segment size, growth rates, price sensitivity, brand loyalty, and so on. Using this combined information, the firm will then evaluate each market segment on its overall attractiveness. Some form of scoring model will probably be used for this task, resulting in numerical and qualitative scores for each market segment.

Step Six – Select target market/s

With detailed information on each of the segments now available, the firm then decides which ones are the most appropriate ones to be selected as target markets. There are many factors to consider when choosing a target market. These factors include: firms strategy, the attractiveness of the segment, the competitive rivalry of the segment, the firm’s ability to successfully compete and so on.

Step Seven – Develop positioning strategy

The next step is to work out how to best compete in the selected target market. Firms need to identify how to position their products/brands in the target market. As it is likely that there are already competitive offerings in the market, the firm needs to work out how they can win market share from established players. Typically this is achieved by being perceived by consumers as being different, unique, superior, or as providing greater value.

Step Eight – Develop and implement the marketing mix

Once a positioning strategy has been developed, the firm moves to implementation. This is the development of a marketing mix that will support the positioning in the marketplace. This requires suitable products need to be designed and developed, at a suitable price, with suitable distribution channels, and an effective promotional program.

Step Nine – Review performance

After a period of time, and on a regular basis, the firm needs to revisit the performance of various products and may review their segmentation process in order to reassess their view of the market and to look for new opportunities.

The Product Life Cycle

A product's life cycle (PLC) can be divided into several stages characterized by the revenue generated by the product. If a curve is drawn showing product revenue over time, it may take one of many different shapes, an example of which is shown below:

Product Life Cycle Curve

The Product Life Cycle A product's life cycle (PLC) can be divided into several stages characterizedmarketing mix usually are required in order to adjust to the evolving challenges and opportunities. Introduction Stage When the product is introduced, sales will be low until customers become aware of the product and its benefits. Some firms may announce their product before it is introduced, but such announcements also alert competitors and remove the element of surprise. Advertising costs typically are high during this stage in order to rapidly increase customer awareness of the product and to target the early adopters. During the introductory stage the firm is likely to incur additional costs associated with the initial distribution of the product. These higher costs coupled with a low sales volume usually make the introduction stage a period of negative profits. During the introduction stage, the primary goal is to establish a market and build primary demand for the product class. The following are some of the marketing mix implications of the introduction stage:  Product - one or few products, relatively undifferentiated  Price - Generally high, assuming a skim pricing strategy for a high profit margin as the early adopters buy the product and the firm seeks to recoup development costs quickly. In some cases a penetration pricing strategy is used and introductory prices are set low to gain market share rapidly.  Distribution - Distribution is selective and scattered as the firm commences implementation of the distribution plan. " id="pdf-obj-6-8" src="pdf-obj-6-8.jpg">

The life cycle concept may apply to a brand or to a category of product. Its duration may be as short as a few months for a fad item or a century or more for product categories such as the gasoline-powered automobile.

Product development is the incubation stage of the product life cycle. There are no sales and the firm prepares to introduce the product. As the product progresses through its life cycle, changes in the marketing mix usually are required in order to adjust to the evolving challenges and opportunities.

Introduction Stage

When the product is introduced, sales will be low until customers become aware of the product and its benefits. Some firms may announce their product before it is introduced, but such announcements also alert competitors and remove the element of surprise. Advertising costs typically are high during this stage in order to rapidly increase customer awareness of the product and to target the early adopters. During the introductory stage the firm is likely to incur additional costs associated with the initial distribution of the product. These higher costs coupled with a low sales volume usually make the introduction stage a period of negative profits.

During the introduction stage, the primary goal is to establish a market and build primary demand for the product class. The following are some of the marketing mix implications of the introduction stage:

Product - one or few products, relatively undifferentiated

Price - Generally high, assuming a skim pricing strategy for a high profit margin as the early adopters buy the product and the firm seeks to recoup development costs quickly. In some cases a penetration pricing strategy is used and introductory prices are set low to gain market share rapidly.

Distribution - Distribution is selective and scattered as the firm commences implementation of the distribution plan.

Promotion - Promotion is aimed at building brand awareness. Samples or trial incentives may be directed toward early adopters. The introductory promotion also is intended to convince potential resellers to carry the product.

Growth Stage

The growth stage is a period of rapid revenue growth. Sales increase as more customers become aware of the product and its benefits and additional market segments are targeted. Once the product has been proven a success and customers begin asking for it, sales will increase further as more retailers become interested in carrying it. The marketing team may expand the distribution at this point. When competitors enter the market, often during the later part of the growth stage, there may be price competition and/or increased promotional costs in order to convince consumers that the firm's product is better than that of the competition.

During the growth stage, the goal is to gain consumer preference and increase sales. The marketing mix may be modified as follows:

Product - New product features and packaging options; improvement of product quality.

Price - Maintained at a high level if demand is high, or reduced to capture additional customers.

Distribution - Distribution becomes more intensive. Trade discounts are minimal if resellers show a strong interest in the product.

Promotion - Increased advertising to build brand preference.

Maturity Stage

The maturity stage is the most profitable. While sales continue to increase into this stage, they do so at a slower pace. Because brand awareness is strong, advertising expenditures will be reduced. Competition may result in decreased market share and/or prices. The competing products may be very similar at this point, increasing the difficulty of differentiating the product. The firm places effort into encouraging competitors' customers to switch, increasing usage per customer, and converting non-users into customers. Sales promotions may be offered to encourage retailers to give the product more shelf space over competing products.

During the maturity stage, the primary goal is to maintain market share and extend the product life cycle. Marketing mix decisions may include:

Product - Modifications are made and features are added in order to differentiate the product from competing products that may have been introduced.

Price - Possible price reductions in response to competition while avoiding a price war.

Distribution - New distribution channels and incentives to resellers in order to avoid losing shelf space.

Promotion - Emphasis on differentiation and building of brand loyalty. Incentives to get competitors' customers to switch.

Decline Stage

Eventually sales begin to decline as the market becomes saturated, the product becomes technologically obsolete, or customer tastes change. If the product has developed brand loyalty, the profitability may be

maintained longer. Unit costs may increase with the declining production volumes and eventually no more profit can be made.

During the decline phase, the firm generally has three options:

Maintain the product in hopes that competitors will exit. Reduce costs and find new uses for the product.

Harvest it, reducing marketing support and coasting along until no more profit can be made.

Discontinue the product when no more profit can be made or there is a successor product.

The marketing mix may be modified as follows:

Product - The number of products in the product line may be reduced. Rejuvenate surviving products to make them look new again.

Price - Prices may be lowered to liquidate inventory of discontinued products. Prices may be maintained for continued products serving a niche market.

Distribution - Distribution becomes more selective. Channels that no longer are profitable are phased out.

Promotion - Expenditures are lower and aimed at reinforcing the brand image for continued products.

Penetration Vs. Skimming Marketing Strategies

Cutting-edge technology products are often marketed with skimming techniques.

Penetration pricing and price skimming are marketing strategies commonly implemented when companies launch new products or services. Both approaches have worked for businesses, but you have to understand how your price relates to your overall marketing and promotions strategies. Penetration pricing relies on a low upfront price to attract customers, while skimming is the use of high upfront prices to maximize short-term profits from the most eager and interested customers.

Growth Emphasis

Penetration pricing is intended to attract a larger contingent of customers away from competing brands. The idea is to use a better mix of product benefits and a lower price to lure customers only modestly satisfied with existing products. This is not typically the case with skimming, which often leads to a select market of initial customers, with broader market appeal coming later when prices are reduced. Skimming may make more sense with a niche market of highly selective customers.

Competitor Disruption

Penetration pricing can prevent competitors from cutting into your market at lower price points. If your upfront price is low and your product or service is of reasonable quality, the burden falls on other providers to justify higher prices on similar offerings. With skimming, the door is left open for subsequent competitors to undercut your prices and defeat your ability to generate revenue and profits from early adopters. A superior product may offset the ability of competitors to attract quality-hungry customers who prefer your offering.

Cost Impact

Companies sometimes use penetration pricing in combination with efforts to minimize costs on products and supplies. By offering a low market price and creating significant sales volume, you can order more products at once from distributors, often resulting in bulk discounts. This enables you to maintain reasonable profit even with low market prices. Skimming is more about operating with a high upfront price point that creates significant profit margin regardless of your cost basis.

Profits

Companies not capable of achieving an industry-low cost structure may have a hard time earning profit at rock bottom prices with penetration pricing. Penetration pricing also does not allow you to take advantage of an eager market of customers with money to spend and a willingness to do so. Users of price skimming hope to pocket significant profit from initial customers and maintain high enough prices over time to maintain steady long-term profit from value-oriented buyers.

Five Ms of Advertising

The five Ms’ of advertising on which an advertiser has to take decisions:

  • 1. Mission : This refers to the purpose or objective behind advertising. The objectives behind advertising are varied

in character. They include sales promotion, information and

guidance to consumers, developing brand loyalty, market goodwill, facing market competition effectively, making the products popular or successful and introduction of a

new product. Decision in regard to mission is a basic one as other decisions are to be adjusted as per the mission or objective or purpose of advertising decided. For consumer products like chocolate, tooth paste, soap, the mission or objective includes facing market competition, sales promotion and making the product popular in the market.

  • 2. Money :

    • a. This refers to the finance provided for advertising purpose (advertising budget). It means the budget allocation made by the company for advertising. Money provided is a limiting factor as effectiveness of advertising, media used, coverage of advertising, etc. are related to the funds provided for advertising purpose. Advertising is costly and companies have to spend crores of rupees for this purpose. Advertising should be always within the limits of funds provided. Naturally, decisions on an advertising package should be adjusted as per the budget allocation for advertising.

    • b. It may be noted that consumer products like tooth paste or chocolate are highly competitive with many substitutes easily available in the market. Naturally, extensive advertising on TV, newspapers, radio, etc. is required. These media are costly. Naturally, the manufacturing or marketing company will have to provide huge money for advertising purpose.

  • 3. Message :

    • a. Message is provided through the text of advertisement. The message is given through written words, pictures, slogans and so on. The message is for the information, guidance and motivation of prospective buyers. Attractive and meaningful messages give positive results, and the advertising becomes result- oriented. The services of creative writers, artists, etc. are used for giving an appealing message to the consumers. Here, the advertiser has to decide the message to be given, the media to be used for communicating the message, the extent of creativity, the specific customer group selected for giving the message and so on. The message is also related to the decisions taken as regards a mission, and money provided for advertising.

    • b. For advertising consumer product like chocolate, the message is important. The buyers are mainly children and others of lower age groups or for the benefit (pleasure and satisfaction) of younger generation. The advertising message should be simple and easily understandable with the help of picture or slogan. It should be also attractive and agreeable to younger generation. The pictures or slogans used should be short and impressive.

  • 4. Media :

    • a. The advertiser has to take a decision about the media to be used for an advertising purpose. Media differ as regards cost, coverage, effectiveness, etc. The selection of media depends on the budget provided, products to be advertised, and features of prospective buyers, so on. Wrong decision on media may make advertising ineffective and money spent will be wasted. This suggests that media should be selected properly, and decision in this regard is important and critical.

    • b. For advertising popular and extensively used consumer items like chocolate, the media should be selected properly. TV advertising, particularly a cartoon channel, advertising in children books or newspaper supplements for children, advertising on radio programs for children, etc.

    • 5. Measure : Measure relates to the effectiveness of advertising. An advertiser will like to evaluate advertisement in order to judge its effectiveness. If an advertisement is not effective, it will be modified or withdrawn. This is necessary for avoiding expenditure on the advertisement which is not purposeful or is not likely to give positive results. An advertiser has to measure the effectiveness of his advertisement program or campaign and take suitable decisions. This decision-making as regards effectiveness of advertising is equally important and essential. Such testing facilitates an introduction of suitable remedial measures, if required.

    Public Relations Specialized Functions

    Public relations functions are categorized by the publics with which relationships are established and to whom appeals are made to understand and/or accept certain policies, procedures, individuals, causes, products or services. Practitioners who perform specialized functions may play a management role, operate as a communications technician, or function in a dual role.

    Community Relations

    A public relations function consisting of an organization’s planned, active and continuing participation with and within a community to maintain and enhance its environment to the benefit of both the organization and the community. This can involve partnerships, volunteer activities, philanthropic contributions and public participation.

    Employee Relations

    Employee Relations Dealing and communicating with the employees of an organization. This can include team building and employee empowerment.

    Government Relations

    Dealing and communicating with legislatures and government agencies on behalf of an organization.

    Financial Relations

    Dealing and communicating with firms and interest groups within the organization’s industry.

    Media Relations

    Dealing and communicating with the news media when seeking publicity or responding to reporters’ questions. It also involves setting up and maintaining a professional and mutually beneficial working relationship with news gatherers and gatekeepers, in part by becoming known as a credible source and as a provider of factual, expert information whether or not that information results in media coverage.

    Public Affairs

    Dealing and communicating with government and groups with regard to societal (public) policies, action and legislation. Unlike government relations, where the practitioner works strictly on behalf of an organization, public affairs also is concerned with the effect of public policies, actions and legislation on its publics.

    BCG Growth-Share Matrix

    Companies that are large enough to be organized into strategic business units face the challenge of allocating resources among those units. In the early 1970's the Boston Consulting Group developed a model for managing a portfolio of different business units (or major product lines). The BCG growth- share matrix displays the various business units on a graph of the market growth rate vs. market share relative to competitors:

    BCG Growth-Share Matrix

    BCG Growth-Share Matrix Companies that are large enough to be organized into strategic business units faceg rowth- share matrix displays the various business units on a graph of the market growth rate vs. market share relative to competitors: BCG Growth-Share Matrix Resources are allocated to business units according to where they are situated on the grid as follows:  Cash Cow - a business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units.  Star - a business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, a star will become a cash cow when its industry matures. " id="pdf-obj-12-14" src="pdf-obj-12-14.jpg">

    Resources are allocated to business units according to where they are situated on the grid as follows:

    Cash Cow - a business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units.

    Star - a business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, a star will become a cash cow when its industry matures.

    Question Mark (or Problem Child) - a business unit that has a small market share in a high growth market. These business units require resources to grow market share, but whether they will succeed and become stars is unknown.

    Dog - a business unit that has a small market share in a mature industry. A dog may not require substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should be liquidated if there is little prospect for it to gain market share.

    Four Generic Strategy

    Cost Leadership

    The cost-leadership strategy is a good option for companies that are able to consistently reduce the costs of doing business. Maintaining low overhead costs and negotiating favorable acquisitions costs with suppliers are key to making this strategy work. You can apply cost leadership in one of two ways. You either generate higher profit margins by charging industry-average prices despite your low cost basis, or you pass the savings onto customers and build market share through high sales volume.

    Differentiation

    A differentiation strategy is a better alternative for a company that doesn't have strong cost advantages or prefers to emphasize strengths in production or resale. The key to this approach is to research customer needs, design and develop quality products or service proceeds to match and effectively market and sell solutions by stressing the differences from competing brands. Product quality, elite service, unique features and environmental responsibility are common ways to separate yourself with a differentiated approach.

    Cost Focus

    In general, the focus strategy is distinct because it is used when you serve a niche target market. The cost-focus approach means you use the principles of a low-cost operation to market affordability to a niche market. In the supermarket category, for instance, German chain Aldi's drives business from lower- to middle-income buyers by maintaining a very low-cost operation. This enables them to offer low prices to the most budget-conscious grocery shoppers.

    Differentiation Focus

    A differentiated-focus approach means you market a bigger or better solution to a smaller market segment. Local businesses commonly rely on this strategy when competing against larger box retailers. A small electronics retailer, for instance, could promote the best selection of high-tech products or the most knowledgeable service staff as a way to attract business from general-merchandise retailers and discount stores. This strategy offers a way to build strong loyalty since you focus specifically on the needs of a select group of customers.

    Ansoff Matrix

    To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. Ansoff's matrix is shown below:

    Ansoff Matrix

     

    Existing Products

    New Products

    Existing

       

    Markets

    Market Penetration

    Product Development

    New

       

    Markets

    Market Development

    Diversification

    Ansoff's matrix provides four different growth strategies:

    Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share.

    Market Development - the firm seeks growth by targeting its existing products to new market segments.

    Product Development - the firms develops new products targeted to its existing market segments.

    Diversification - the firm grows by diversifying into new businesses by developing new products for new markets.

    Holistic Marketing

    The holistic marketing concept looks at marketing as a complex activity and acknowledges that everything matters in marketing. The holistic viewpoint follows that systems—in this case marketing—somehow function as wholes and that their functioning cannot be fully understood solely in terms of their component parts. Therefore, a broad and integrated perspective is necessary in developing, designing, and implementing marketing programs and activities. The four components that characterize holistic marketing are relationship marketing, internal marketing, integrated marketing, and socially responsive marketing.

    Relationship Marketing

    Relationship marketing was first developed from direct response marketing campaigns. It is a form of marketing that emphasizes customer retention and satisfaction rather than a dominant focus on sales transactions. As a practice, relationship marketing differs from other forms of marketing in that it recognizes the long term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages.

    Internal Marketing

    Internal marketing is a process that occurs within a company or organization whereby the functional process aligns, motivates, and empowers employees at all management levels to deliver a satisfying customer experience. Over recent years internal marketing has been increasingly integrated with employer branding and employer brand management, which strives to build stronger links between the employee brand experience and customer brand experience. The challenge for internal marketing is not only to get the right messages across, but to embed them in such a way that they both change and reinforce employee behavior.

    Integrated Marketing

    Integrated marketing is an approach to brand communications where the different modes work together to create a seamless experience for the customer and are presented with a similar tone and style that reinforces the brand's core message. Its goal is to make all aspects of marketing communication (advertising, sales promotion, public relations direct marketing, online communications, and social media) work together as a unified force rather than permitting each to work in isolation, which maximizes their cost effectiveness. Integrated marketing is becoming more significant in marketing practice because of the reduced cost effectiveness of mass media and media fragmentation. As consumers spend more time online and on mobile devices, all exposures of the brand need to tie together so they are more likely to be remembered. Increasingly, the strategies of brands cannot be understood by looking solely at their advertising.

    Instead, they can be understood by seeing how all aspects of their communications system work together—particularly how communications are personalized for each customer—and react in real time, as in a conversation.

    The Five Concepts Described

    The Production Concept. This concept is the oldest of the concepts in business. It holds that consumers will prefer products that are widely available and inexpensive. Managers focusing on this concept concentrate on achieving high production efficiency, low costs, and mass distribution. They assume that consumers are primarily interested in product availability and low prices. This orientation makes sense in developing countries, where consumers are more interested in obtaining the product than in its features.

    The Product Concept. This orientation holds that consumers will favor those products that offer the most quality, performance, or innovative features. Managers focusing on this concept concentrate on making superior products and improving them over time. They assume that buyers admire well-made products and can appraise quality and performance. However, these managers are sometimes caught up in a love affair with their product and do not realize what the market needs. Management might commit the “better-mousetrap” fallacy, believing that a better mousetrap will lead people to beat a path to its door.

    The Selling Concept. This is another common business orientation. It holds that consumers and businesses, if left alone, will ordinarily not buy enough of the selling company’s products. The organization must, therefore, undertake an aggressive selling and promotion effort. This concept assumes that consumers typically sho9w buyi8ng inertia or resistance and must be coaxed into buying. It also assumes that the company has a whole battery of effective

    selling and promotional tools to stimulate more buying. Most firms practice the selling concept when they have overcapacity. Their aim is to sell what they make rather than make what the market wants.

    The Marketing Concept. This is a business philosophy that challenges the above three business orientations. Its central tenets crystallized in the 1950s. It holds that the key to achieving its organizational goals (goals of the selling company) consists of the company being

    more effective than competitors in creating, delivering, and communicating customer value to its selected target customers. The marketing concept rests on four pillars: target market, customer needs, integrated marketing and profitability.

    The Societal Marketing Concept. This concept holds that the organization’s task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors (this is the original Marketing Concept). Additionally, it holds that this all must be done in a way that preserves or enhances the consumer’s and the society’s well-being.

    This orientation arose as some questioned whether the Marketing Concept is an appropriate philosophy in an age of environmental deterioration, resource shortages, explosive population growth, world hunger and poverty, and neglected social services.

    Are companies that do an excellent job of satisfying consumer wants necessarily acting in the best long-run interests of consumers and society?

    Push marketing and pull marketing differ in concept and application. Let’s explore the five main differences between push and pull.

    1.

    Concept

    Push Marketing: This is also known as outbound marketing, since it pushes marketing out to customers.

    Pull Marketing: This is also known as inbound marketing. The term “inbound” means that your marketing efforts generate a response: interest, inquiries, transactions, etc. That is, customers come to you for answers.

    2.

    Strategy

    Push Marketing : Push strategy is about devising ways to place products before prospects. This usually involves some form of paid advertising: TV ads, radio spots, billboards and flyers.

    Pull Marketing: Pull makes it easy for customers to find you. The focus is on creating awareness and increasing brand visibility, particularly on the web. Pull marketing strategies include eBooks, white papers, blogs and social media marketing.

    • 3. Channels

    Push Marketing: This type of marketing typically starts offline, with a few exceptions. A direct mail postcard is an example of offline marketing. An email offer is a perfect example of how push marketing can translate to the web. You can also combine both. For example, send a postcard that includes a URL to an irresistible online offer.

    Pull Marketing: Pull is usually a web-based method. Blog posts, eBooks and other online-content machines are forms of pull marketing that live on the web.

    4. Application

    Push and pull also differ in application. Let’s consider a few specific examples.

    Example 1: Phone

    Push:You pick up the phone and cold call a list of prospects

    Pull:They call you and place an order, having found your number on your site

    Example 2: Direct Mail

    Push: You mail out a holiday coupon

    Pull: A customer emails you to inquire about your services

    5. Engagement

    Push Marketing: If done incorrectly, push marketing can be disruptive. As a result, push customers tend to be less engaged. This happens when marketers send a “Hail Mary” to a large swath of customers hoping for a lucky touchdown.

    Pull Marketing: Marketing is easy when customers come to you. Pull marketing generally enjoys a higher level of engagement because the customers seek out the companies. Pull marketing can also fail if you target the wrong audience, or betray a customer’s trust.