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PART-THREE

CONNECTING WITH CUSTOMERS

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Prepared by Temesgen B. (PhD)

Chapter Questions
How do consumer characteristics influence buying
behavior?
How do consumers make purchasing decisions?
How do marketers analyze consumer decision
making?
What is the business market, and how does it
differ from the consumer market?
Who participates in the business-to-business
buying process?
How do business buyers make their decisions?
How can companies build strong relationships
with business customers?
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CUSTOMER ANALYSIS
To develop effective marketing strategies, it
requires to be almost obsessive about
understanding the needs of customers
The success of any customer-focused
program will involve
imaginative product development,
integrated distribution methods,
well calibrated pricing and
state of the art communications.
Customer analysis involves analysis of
Consumer buying behavior
Organizational buying behavior
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Analyzing the Consumer


Market
Consumer behaviour is the study of how individuals,

groups, and organizations select, buy, use, and dispose


of goods, services, ideas, or experiences to satisfy their
needs and wants.
Consumer is the customer who buys goods and services
of all types for personal as well as household usage.
Consumers behavior is described as an investigation into
the way individuals make decisions on how to spend
their available resources (time, money, effort) on
personal and household products.
A study of consumer behavior need to consider
what occurs before people consume something,
what goes on during the consumption period itself and
how consumers handle the disposal of what they have
consumed.
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What Influences
Consumer Behavior?

Cultural factors
Social factors
Personal factors
Psychological factors

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Factors affecting the buying


behaviour

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Cultural Factors
Culture, subculture, and social
class
are important influences on
consumer buying behavior.
Culture
is
the
fundamental
determinant of a persons wants and
behaviors.
Each culture consists of smaller
subcultures that provide more specific
identification and socialization for
their members.
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Subcultures
Nationalities ( in USA population-we
can find Asians, Europeans, Africans,
Latino and many more..) (in Ethiopia
many nations with their own
subculture)
Religions ( Christian, Muslim, )
Racial groups (black, white,
Hispanics
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Social Classes

Upper uppers
Upper middles
Lower uppers
Middle
Working
Upper lowers
Lower lowers

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Characteristics of Social Classes


Within a class, people tend to
behave alike
Class may be indicated by a
cluster
of
variables
(occupation, income, wealth)
Class designation is not fixed
over time
Social class members show
distinct product
And brand
preferences in many areas,
including clothing,
home
furnishing, leisure activities,
and automobiles etc
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Social Factors
In addition to cultural factors ,
such as
Reference groups
Family
Social roles
Status

Affect our buying behavior

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Reference Groups
Membership groups
Primary groups
Secondary groups
Aspirational groups
Dissociative groups

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Dir
ect
ind
or
i r ec
infl
uen t
the
ir b ce on
beh
uyi
ng
avi
or

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Membership groups
1) Groups having a direct influence are called
membership groups.
a. Some membership groups are primary groups
such as family, friends, neighbors, and coworkers with whom the person interacts fairly
continuously and informally.
b. Some membership groups are secondary
groups such as religious, professional groups
that tend to be more formal.
2) Reference groups expose an individual to new
behaviors and lifestyles, influencing attitudes and
self-concept.
3) They create pressures for conformity that
may affect actual product and brand choices.
4) People are also influenced by groups to which
they do not belong:
a. Aspiration groups are those a person hopes to
join.
b. Dissociative groups are those whose values or
behavior an individual rejects.
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Action of marketers
B)

Where reference group influence is strong,


marketers must determine how to reach and
influence the groups opinion leaders.
C) An opinion leader is the person in informal, productrelated communications who offers advice or
information about a specific product or product
category.
D) Marketers try to reach opinion leaders by identifying
demographic and psychographic characteristics
associated with opinion leadership, identifying the
media read by opinion leaders, and d irecting

messages at opinion leaders.


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Family Affecting Buying Decisions

A more direct influence on everyday buying


behavior is the family members
the persons spouse and
children.

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Personal Factors
Personal characteristics that influence a buyers
decision include
Age
Life cycle stage and economic circumstances
Occupation
Wealth
Personality
Values
Lifestyle
Self-concept
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Age and Stage in the Life Cycle

A) Our taste in food, clothes, furniture, and


recreation is often related to our age.
B) Consumption is also shaped by the
family-life cycle and the number, age,
and gender, of people in the household
at any point in time.
C) In addition, psychological life-cycles
may matter.
D) Marketers should also consider critical
life events or transitions as giving rise to
new needs. Prepared by Temesgen B. (PhD)
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Marketers also consider critical life events or transitions

Marriage,
Child Birth
Illness
Relocation
Divorce
Career change
Widowhood

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These should
alert service
providers
Banks, lawyers,
And marriage
and
bereavement
counselors

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Occupation and Economic Circumstances

Occupation influences consumption patterns


and economic circumstances influence
product. Product choice is greatly affected
by economic circumstances including:
A) Spendable income (level, stability, and time
pattern)
B) Savings and assets
C) Debts
D) Borrowing power
E) Attitudes toward spending and saving
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Personality and Self-Concept


Each person has personality characteristics that
influence his or her buying behavior.
Personality: A set of distinguishing human
psychological traits that lead to relatively consistent
and enduring responses to environmental stimuli.
A) Brands also have personalities, and consumers are
likely to choose brands whose personalities match
their own.
B) Consumers often choose and use brands consistent
with their actual self-concept (how we view ourselves).
C) Others self-concept (how we think others see us).
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Lifestyles and Value

People from the same subculture, social class, and


occupation may lead quite different lifestyles.
A) A lifestyle is a persons pattern of living in the world as
expressed in activities, interests, and opinions. It portrays
the whole person interacting with his or her environment.
B) Marketers search for relationships between their products
and lifestyle groups.
C) LOHAS is an acronym standing for: Lifestyles of health and
sustainability.
Consumers who worry about the environment, want
products to be produced in a sustainable way, and spend
money to advance their personal health, development,

appliances such
as Solar panels, alternative medicine, etc
Ex: organic food, energy-efficient

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Psychological Factors
A person's buying choices are further
influenced by four important
psychological factors:
motivation,
perception,
learning, and
beliefs and attitudes.

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Maslow's hierarchy of
needs

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Perception
A motivated person is ready to act. How the
person acts is influenced by his or her
perception of the situation.
perception is the process by which people
select, organize and interpret information to
form a meaningful picture of the world.
People can form different perceptions of the
same stimulus because of three perceptual
processes:
selective
attention,
selective
distortion and selective retention.
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THE BUYING DECISION PROCESS:


THE FIVE-STAGE MODEL

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Contd...
The consumer's choice results from
the complex interplay of cultural,
social, personal and psychological
factors. Although the marketer
cannot influence many of these
factors, they can be useful in
identifying interested buyers and in
shaping products and appeals to
serve their needs better.
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Problem Recognition
The buying process starts when the buyer
recognizes a problem or need.
The need can be triggered by internal or external
stimuli.
Marketers need to identify the circumstances that
trigger a particular need by gathering information
from a number of consumers.
Marketers Role

Identify the drives


Develop marketing strategies to
trigger the thoughts about the
possibility of making purchase.
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Marketers need to do some research


Who buys product or services?
Who makes the decision to buy the
product?
Who influences the decision to buy
product ?
How is the purchase decision made?
Why do customers buy certain
product?
How is our product is perceived by
customer?
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Information Sources

1) Personal (family,

friends)

2) Commercial (advertising, Web sites, salespeople)


3) Public (mass media, consumer organizations)
4) Experiential (handling, examining, using the product)
Generally speaking, consumers receive the greatest amount
of information about a product from commercial sources.

The most effective information often comes from personal


sources or public sources that are independent authorities

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Successive Sets involved in consumer Decision


Making
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Evaluation of Alternatives

No single process is used by all consumers, or


by one consumer in all buying situations. The
most current models see the consumer
forming judgments largely on a conscious and
rational basis.
A) First, the consumer is trying to satisfy a need.
B) Second, the consumer is looking for certain
benefits from the product solution.
C) Third, the consumer sees each product as a
bundle of attributes with varying abilities for
delivering the benefits.

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Purchase decision
In executing a purchase intention, the
consumer may make up to five sub
decisions:
Brand ( what)
Dealer ( where)
Quantity (No.)
Timing ( weekend)
Payment method (credit card)
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Post purchase Behavior


Post purchase satisfaction ( satisfied,
dissatisfied, delighted)
Post purchase action ( re-purchase,
good talk)
Post purchase use and disposal
(safety use)

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Business Markets and Business Buyer


Behaviour
Organization buyers are customers that
comprised of various organizations such as
industrial firms,
commercial businesses, or
governmental organizations and institutions

It is also known by the Business-to- Business


Marketing (B2B marketing)
B2B markets have fewer buyers that can be
communicated through personal selling than
mass advertising

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What is Organizational
Buying?
Organizational buying refers to
the decision-making process by
which
formal
organizations
establish the need for purchased
products
and
services,
and
identify, evaluate, and choose
among alternative brands and
suppliers.
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Characteristics
It is concerned with the marketing of
products and services from one
organization to another.
The customer is an organization with
organizational goals
Business to business marketing is the
process of trying to match a
companys products and services to
the organizational goals of its target
customers.
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37

Continued

38

Dimension

Characteristics of
business market

Explanation

Nature of Demand

Derived Demand

The demand from a business is


derived from its own sales volume

Buying influences

Many influences

There are often many interested


parties who influence the buying
decision (bid committee, experts,
etc)

Market structure

Often concentrated
demand

A small number of large customers


often make up a substantial share
of the market

Purchasing motives

organizational, rational

Products purchased for the


achievements of organizational
goals

Purchasing decision
process

Often complex and


lengthy

Decisions can involve long and


complex analysis and negotiation

Purchasing skills

Professional, trained
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Buyers are often professionally


qualified in purchasing
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Example

Coal = Electricity thermal power generators


Sugar cane = sugar factories
Rubber= tire manufacturers
Tires = car /truck manufacturers
Train coaches/ rails etc: railways
Buses : Transportation companies
Water bottles + plastic bottles
Military : Govt bid for food and cloth suppliers
Dam and Road constructions: Govt. bid.
To create and capture value, sellers need to
understand
these organizations needs, resources,
policies, and buying procedures.

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The Business markets


The
business
markets
consists
of
all
organizations that acquire goods and services
used in the production of other products or
services that are sold or supplied to others.

Ex:
Major
Industries
business markets.

making

up

Agriculture,
forestry,
fisheries,
mining,
finance, insurance; distribution and services.
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Hide venders sell to hide tanners


Tanners sell to shoes manufacturers
Manufacturers to whole sellers
Whole sellers to retailers
Retailers to customers

su
pp
ly

ch
ai
n

Example of leather industry

Each party in the supply chain also


buy many other goods and services
in support of their operations.
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Characteristics of Business Markets


Fewer, larger
buyers
Close suppliercustomer
relationships
Professional
purchasing
Many buying
influences
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Derived demand
Inelastic demand
Fluctuating
demand
Geographically
concentrated
buyers
Direct
purchasing

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Major influences on
business buyer behavior
Environmental
Organisational
Interpersonal
Individual

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Major Influences on Business Buyers

Key Factors

Environmental
Organizational
Interpersonal
Individual

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Economic trends
Supply conditions
Technological change
Regulatory and
political environments
Competitive
developments
Culture and customs

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Major Influences on Business Buyers

Key Factors

Environmental
Organizational
Interpersonal
Individual

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Objectives
Policies
Procedures
Organizational
structure
Systems

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Major Influences on Business Buyers

Key Factors

Environmental
Organizational
Interpersonal
Individual

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Authority
Status
Persuasiveness

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7 - 46

Major Influences on Business Buyers

Key Factors

Environmental
Organizational
Interpersonal
Individual

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Authority
Age
Education
Job position
Personality
Risk attitudes
7 - 47

Stages in the Buying Process: Buy


phases
Problem recognition
General need description and
product specification
Supplier search
Proposal solicitation
Supplier selection
Order-routine specification
Performance review
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Factors Affecting
Buyer-Supplier Relationships

Availability of alternatives
Importance of supply
Complexity of supply
Supply market dynamism

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Market Segmentation, Targeting and Positioning

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Segmentation, Targeting, and


Positioning
6. Develop Marketing
Mix for Each Target Segment
5. Develop Positioning
for Each Target Segment
4. Select Target
Segment(s)

Market
Targeting

3. Develop Measures
of Segment Attractiveness
2. Develop Profiles
of Resulting Segments
1. Identify Bases
for Segmenting the Market

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Market
Positioning

Market Segmentation

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5.1 Market Segmentation


In market aggregation, the total market is
viewed as a single unit as one mass,
aggregate market.
To the contrary, there is an approach that
views a market as being composed of
many smaller, homogenous units.
Markets consist of buyers with different

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wants,
resources,
geographical locations,
buying attitudes, and
buying practices.

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52

Continued
Market segmentation is the process of dividing the
total, heterogeneous market for a product in to
distinct and meaningful groups of buyers, each of
which tends to be homogenous in all significant
aspects.
Management then selects one or more of these
market groups or segments as the organization's
target market.
The objective of aggregation is to fit the market to the
product;
whereas the objective of segmentation is an attempt to fit
the product to the market believing that each segment calls
for a different product, promotional appeal, or other
element in the marketing mix.

The focus of segmentation is enhancing a separate


program in a pin pointed market.
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Why Segmentation?
Market segmentation is a customer - oriented
philosophy.
Specifically, it has the following benefits
Investing money and effort to most profitable
market.
Designing and developing products, which
match with the market demand as it focuses
on selected target markets;
Choosing the best promotional activity and
channel of distribution at a relatively lower
cost
It helps to determine an appropriate
marketing mix strategy for a segment.
Flexibility of organizational resources and
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programs in the
time of fierce competition can54

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Micromarketing
Micromarketing

Products
Productsto
tosuit
suitthe
thetastes
tastesof
ofindividuals
individualsor
orlocations
locations
(complete
(completesegmentation)
segmentation)

Niche
Niche Marketing
Marketing

Different
Differentproducts
productsto
tosubgroups
subgroupswithin
withinsegments
segments
((more
moresegmentation)
segmentation)

Segment
Segment Marketing
Marketing

Different
Differentproducts
productsto
toone
oneor
ormore
moresegments
segments
(some
(somesegmentation)
segmentation)

Mass
Mass Marketing
Marketing

Same
Sameproduct
productto
toall
allconsumers
consumers
(no
(nosegmentation)
segmentation)

Levels of Market Segmentation

Bases for Segmenting Consumer Markets


Geographic
Nations, states,
regions or cities

Demographic
Age, gender,
family size and life
cycle,
or income

Psychographic
Social class, lifestyle,
or personality

Behavioral
Occasions, benefits,
uses, or responses
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Psycho-graphic
Segmentation
In psycho-graphic segmentation consumer markets
can be divided in to different groups on the basis of
social class, life style or personality characteristics.

Even if consumers are on the same demographic


characteristics, they can have different psychographic profiles.
These social class, life style and personality
characteristics result from psychological and
sociological aspects of the individual;

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Geographic Segmentation
Many organizations segment their market on some
geographic basis such as nations, states, regions,
countries, cities, urban-suburban-rural, topography or
climate depending on the notion that consumer needs
or responses vary geographically.
Here it should be considered that the marketing costs
and potentiality of each segment varies depending on
the geographic needs and preferences.
A firm can decide to operate in one or a few
geographic areas or operate in all but pay attention to
variations in needs and preferences of the specific
location.

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Demographic Segmentation

Probably the most widely used basis for segmenting


consumer market is demographic characteristics.
In demographic segmentation, the market is divided into
different customer groups on the basis of demographic
variables such as age, sex, family size, family life, cycle,
education, occupation, religion ethnic background, income
and nationality.
Demographic variables have long been the most popular
bases for distinguishing customer needs and preferences
for certain reasons.
customer wants, preferences and usage rates are highly
associated with demographic variables.
they are easily quantifiable and accessible than most
other types of variables.
Even when the target market is described in nondemographic factors, the link to demographic variables is
vital to know the size of the target market and how to reach
it efficiently.

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Behavioral Segmentation

Some organizations try to segment their consumer markets on


the basis of a consumer behavioral characteristics related to
the product.
The variables used in behavioral segmentation include the
consumer's knowledge, attitude, use or response to an actual
product or its attributes.
Behavioral segmentation can be done with respect to the
following factors:
Purchase occasion with regard to time such as regular and
special occasion. For example, air traveler for vacation,
family or business.
Benefits sought from the product in relation to individual
interest such as low price, durability, general product
quality and so on.
User status with respect to the existence and potentiality
of customers such as non-users, ex-users, potential and
regular users of a product.
Usage rate with respect to the size of purchase such as
light users, medium users or heavy users.
Readiness stage of the customers to buy a product
depending on their information, interest, intention and
degree of awareness of a product.

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Segmentation of organizational
markets
Organizational size
Industry sector
Geographical location

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Organizational size
Annual sales turn over
Number of employees
Volume of production

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Industry sector

Banking (service)
Manufacturing
Mining
Assembly
Government
others

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Geographical location
Domestic and
Export markets
Each can also be further subdivided

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Requirements for Effective Segmentation


Measurable
Measurable
Accessible
Accessible
Substantial
Substantial
Differential
Differential
Actionable
Actionable
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Size, purchasing power, profiles


of segments can be measured.
Segments must be effectively
reached and served.

Segments must be large


or
profitable
enough to serve.
Segments must respond
differently to different
marketing mix elements &
actions.
Must be able to attract and
serve
the
segments.

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5.2 Targeting and


Positioning

Targeting is the process of assessing the relative worth of


different market segments and selecting one or more
segments in which to compete- these become the target
segment
Positioning is the identification of a particular appeal that
the firm can make to customers in each target segment,
which is designed to convenience customers to choose that
firm over its rivals
Target market
A group of customers at which the seller directed the
marketing programs

Marketing for the targeted market

Marketing strategy (positioning)


Marketing mix (Product, Promotion, Price, Distribution)

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Evaluating Market Segments

Segment Size and Growth


Analyze sales, growth rates and expected
profitability.

Segment Structural Attractiveness


Consider effects of: Competitors, Availability of
Substitute Products and, the Power of Buyers &
Suppliers.

Company Objectives and Resources


Company skills & resources relative to the
segment(s).
Look for Competitive Advantages.

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C. Concentrated Marketing

68

Segment
Segment 33

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Company
Company
Marketing
Marketing
Mix
Mix

Segment
Segment 22
Segment
Segment 11

B. Differentiated Marketing

Company
Company
Marketing
Marketing Mix
Mix 33
Company
Company
Marketing
Marketing Mix
Mix 22
Company
Company
Marketing
Marketing Mix
Mix 11

Segment
Segment 33
Segment
Segment 22
Segment
Segment 11

A. Undifferentiated Marketing

Company
Company
Marketing
Marketing
Mix
Mix

Market
Market

Market Coverage Strategies

Choosing a Market-Coverage Strategy

Company
Resources

Product
Variability
Products Stage
in the Product Life Cycle

Market
Variability

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Competitors
Marketing Strategies

69

Positioning the Product


Products Position - the place the
product occupies in consumers minds
relative to competing products; i.e.
Volvo positions on safety.
Marketers must:
Plan positions to give products the greatest
advantage
Develop marketing mixes to create planned
positions
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Users
Users

F
F
D
D

Usage
Usage
Occasions
Occasions

B
B

E
E

Against
Againstaa
Competitor
Competitor

A
A
C
C

Benefits
Benefits
Offered
Offered

H
H

G
G

Away
Awayfrom
from
Competitors
Competitors

Product
Product
Attributes
Attributes

Product
Product
Class
Class

Positioning for Competitive Advantage:


Strategies

Steps to Choosing and Implementing


a Positioning Strategy

Step 1. Identifying a set of possible


competitive advantages: Competitive
Differentiation.
Step 2. Selecting the right competitive
advantage.
Step 3. Effectively communicating and
delivering the chosen position to the
market.
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Image
Image

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Personnel
Personnel

Areas
Areas for
for Competitive
Competitive
Differentiation
Differentiation

Service
Service

Product
Product

Developing Competitive
Differentiation

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Communicable
Communicable

Superior
Superior

Distinctive
Distinctive

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Preemptive
Preemptive

Criteria
for
Determining
Which
Differences
to
Promote

Affordable
Affordable

Profitable
Profitable

Important
Important

Selecting the Right Competitive


Advantages

Generic product Positioning map

High
Q
u
a
l
i
t
y

Exceptional Brands

Premium Brands

Standard Brand

Budget Brands

Cowboy Brands

Low
Low

High
Price

12/5/16

Prepared by Temesgen B. (PhD)

75