Topic 5

Customer Value – Driven Marketing Strategy:

Creating Value for Target Customers

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 Objective 1:
Define the major steps in designing a customer-driven
marketing strategy: market segmentation, targeting,
differentiation, and positioning.

Objective 2:
Objectives List and discuss the major bases for segmenting
consumer and business markets.
Outline Objective 3:
Explain how companies identify attractive market
segments and choose a market-targeting strategy.

Objective 4:
Discuss how companies differentiate and position their
products for maximum competitive advantage.
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 Why Buyers are too Companies
companies many, widely HOW? They design
varied in their customer-driven
unable to scattered, and ability to serve
varied in needs marketing strategies
appeal to all different market
and buying to build the right
buyers in the segment. relationships with
marketplace. practices.
the right customers.

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 Overview of Marketing Strategies

SEGMENTATION TARGETING POSITIONING

Identify meaningful groups Select which segment(s) to Build and improve brand
of customer. serve equity to chosen target

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 Customer-Driven Marketing Strategy

Figure: Four major steps in designing a customer-driven marketing strategy

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 Market Segmentation

Market segmentation requires dividing a

market into smaller segments with distinct
needs, characteristics, or behaviors that
might require separate marketing
strategies or mixes.

Through market segmentation,

companies divide large, diverse markets
into smaller segments that can be
reached more efficiently and effectively Select customers to serve
with products and services that match
Segmentation: Divide the total market into smaller
their unique needs. segment

Targeting: Select the segment or segments to enter

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 Market Segmentation

4 important segmentation topics:

• Segmenting consumer markets

• Segmenting business markets
• Segmenting international markets
• Requirements for effective segmentation

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 Market Segmentation

a) Segmenting Consumer Markets

Geographic Demographic
segmentation segmentation

Psychographic Behavioral
segmentation segmentation

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 Geographic Segmentation
• Geographic segmentation - divides the market into different geographical units
such as nations, regions, states, counties, cities, or even neighborhoods.
• Marketers pay attention to geographical differences in needs and wants.
• Many companies are localizing their products, advertising, promotion, and sales
efforts to fit the needs of individual regions, cities, and neighborhoods.
• For example: McDonald's offers different menu items in different countries to suit local
tastes. In India, they have vegetarian options like the McAloo Tikki burger, while in
Japan, they offer items like the Teriyaki McBurger.

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 Demographic Segmentation
• Demographic segmentation - divides the market into segments based on variables
such as age, life-cycle stage, gender, income, occupation, education, religion, ethnicity,
and generation.

• Examples:
• Age and life-cycle stage segmentation divides a market into different age and life-
cycle groups.
- For example: Nestle promotes KoKo Krunch to kids & Fitness cereal to adult.
• Gender segmentation divides a market into different segments based on gender.
- For example: L'Oréal's market men’s lines under Men Expert.
• Income segmentation divides a market into different income segments
- For example: Automobile, travel, cosmetics.

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 Demographic Segmentation
Age / Gender Ethnicity Income
Generation cohort
• Needs and wants • One of the essential • By ethnic group • Income influences
various across age segmentation method such as Malay consumers’ wants and
group or life stages especially in clothing, market, Chinese buying power
• Marketers are more cosmetic, magazines market in Malaysia
certain of the target • Coach: Women and
market and thus having Men’s range
better productivity and
efficiency

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 Psychographic Segmentation
• Psychographic segmentation: Divides a market into different segments based on
social class, lifestyle, or personality characteristics.
• These psychographic variables are difficult to measure.
Personality Motive Lifestyle Social class
• Unique psychological • Need -> drive/motive • A person’s pattern of • Where people share
characteristics -> -> satisfy the need living similar values,
buying behavior • Activities, Interest, interests, and
Opinions (AIO) behaviors -> buying
behavior

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 Behavioral Segmentation
• Behavioral segmentation - divides a market into segments based on consumer
knowledge, attitudes, uses of a product, or responses to a product.

Occasions Benefit sought User status

Usage rate Loyalty status

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 Behavioral Segmentation
• Occasions refer to when consumers get the idea to buy, make their purchase, or use
the purchased item.
• Occasion segmentation can help firms build up product usage.

For example: Campbell’s advertises its soups more heavily in the cold winter months.
For example: Home Depot runs special springtime promotions for lawn and gardens
products.
For example: Other marketers prepare special offers and ads for holiday occasions or
nontraditional occasions.

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 Behavioral Segmentation
• Benefits Sought - Finding the major benefits people look for a product.
• Different people may buy the same product but for very different reasons.

For example: Starbucks - looking for dose of caffeine, pay for the experiences, buy the
environment, to show their status.

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 Behavioral Segmentation
• User Status - Nonusers, ex-users, potential users, first-time users, and regular users of a
product.
• Marketers want to reinforce and retain regular users, attract targeted nonusers, and rebuild
relationships with ex-users.

For example: A coffee shop may offer a rewards program where regular users earn points for each
purchase, leading to discounts, free drinks, or exclusive promotions.

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 Behavioral Segmentation
• Usage Rate - light, medium, and heavy product users.

For example: Telecommunication industry has different postpaid plans for users.

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 Behavioral Segmentation
• Loyalty Status - Segmented according to degree of loyalty.
• Consumers can be loyal to brands, stores, and companies.

Three levels of loyalty:

a) Completely loyal – buy one brand all the time and share with others.
b) Somewhat loyal – loyal to two or more brand or favor one brand while sometimes buying
others.
c) No loyalty – buy anything on sale.

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 Multiple Segmentation
a) Segmenting Consumer Markets

• Multiple segmentation is used to identify smaller, better-defined target groups.

• Powerful tool for marketers of all kinds as it help companies identify and better
understand key customer segments, reach them more efficiently, and tailor market
offerings and messages to their specific needs.
• Multivariable segmentation systems that merge geographic, demographic, lifestyle,
and behavioral data to help companies segment their markets down to zip codes,
neighborhoods, and even households.

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 Market Segmentation
b) Segmenting Business Markets

Consumer and business marketers use many of the same variables to segment their
markets.
Additional variables include:
1) Customer operating characteristics – Cost, frequency of purchase, amount of
purchase
2) Purchasing approaches – Bulk purchasing, cash purchase or contract purchase,
policies.
3) Situational factors – Urgency
4) Personal characteristics – Relationship between buyer and seller, loyalty

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 Market Segmentation
c) Segmenting International Markets

Geographic
Economic factors
location

Political and legal

Cultural factors
factors

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 Market Segmentation
c) Segmenting International Markets
• Geographic location – grouping countries by regions.
• Assumption: nations close to one another will have many common traits and behaviors.
• For example: Malaysia and Singapore

• Economic factors – group by population income level or by overall level of economic

development.
• A country’s economic structure shapes its population’s product and service needs.
• For example: Fast-growing developing economies with rapidly increasing buying power.

• Countries can be segmented based on political and legal factors

• For example: Stability of government, receptivity of foreign firms, monetary regulations and
amount bureaucracy.

• Cultural factors – grouping market according to common languages, religions, values and
attitudes, customs and behavioral pattern.
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 Market Segmentation
c) Segmenting International Markets
Intermarket segmentation/ cross market segmentation involves forming segments of
consumers who have similar needs and buying behaviors even though they are located in
different countries.

• As new communications technologies, such as satellite TV and the internet, connect

consumers around the world, marketers can define and reach segments of like-minded
consumers no matter where in the world.

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 Market Segmentation
d) Requirements for Effective Segmentation

Measurable

Accessible

Substantial

Differentiable

Actionable
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 Requirements for Effective Segmentation
Measurable: The size, purchasing power, and profiles of the segments can be measured.
(segmenting a market based on non-measurable criteria may lead to wrong projection of
production and sales.)
Accessible: The market segments can be effectively reached and served.
(segmenting a market for online shopping in rural areas that have no access to the internet
may not be the best decision)
Substantial: The market segments are large or profitable enough to serve (Segment
needs to be large enough for a firm to serve profitably)
(Segment needs to be large enough for a firm to serve profitably)
Differentiable: The segments are conceptually distinguishable and respond differently to
different marketing mix elements and programs.
(More unique products could be designed
Actionable: Effective programs can be designed for attracting and serving the segments.

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 Market Targeting
• The firm now has to evaluate the various segments and decide how many and which
segments it can serve best.
• A target market is a set of buyers who share common needs or characteristics that the
company decides to serve.
• The selection of market targeting should be based on 3 factors:

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Market Targeting

Figure: Market-Targeting Strategies

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 Undifferentiated (Mass Marketing)
• Undifferentiated marketing:
– Ignore market segment differences and target the whole market with one offer.
– Mass marketing
– Focuses on the common needs rather than on what is different.
– The company designs a product and a marketing program that will appeal to the largest number of
buyers.
• Challenges:
– Difficult to develop a product or brand that will satisfy all consumers.
– Unable to compete with more focused firms who can better satisfy the needs of specific segment(s).

Company / Brand Target Market

Everyone

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 Differentiated Marketing
Differentiated marketing/multi segment targets several different market segments and designs separate
offers for each.
• Goal:
• Goal is to achieve higher sales and stronger position
• Create more total sales than undifferentiated marketing across all segments.
• Challenges:
• More expensive than undifferentiated marketing
• Separate marketing plan for separate segments (marketing research, forecasting, sales analysis,
promotion planning and channel management).
• Different advertising campaign to reach different segments.

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Differentiated Marketing

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Differentiated Marketing

For example: Colgate

targets different
market segments with
different types of
toothpastes

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Differentiated Marketing

Segment 1 Skinny

Segment 2  Slim Fit

Segment 3  Vintage

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 Concentrated Marketing
Concentrated marketing/niche marketing - targets a large of a smaller market.

Advantages: Disadvantages:

1) Firm able to achieve a strong market 1) It involves higher-than-normal risks – rely

position – greater knowledge of consumer on one or few segments.
needs.
2) Marketers will suffer greatly if the
2) More effective by enhance its products,
prices, and programs to the needs of the segments turn unprofitable.
segments.
3) Larger company may decide to enter the
3) More efficient in targeting its same segment with greater resources.
products/services, channel, and
communications programs.

4) Well plan limited resources.

5) Highly profitable.

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 Concentrated Marketing

geted
tar
COMPANY
t
ed / no Segment 1
s e r v
Un

Segment 2
Uns
e rved
/ no
t ta
rget
ed
Segment 3

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 Concentrated Marketing
Example: Luxury watch brands often adopt concentrated marketing
strategies by targeting high-end consumers who value craftsmanship,
exclusivity, and status symbols.

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 Micro Marketing
Micromarketing is the practice of tailoring products and marketing programs to suit the
tastes of specific individuals and locations:
 Local marketing
 Individual marketing

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 Micro Marketing
Local marketing: involves tailoring brands and promotion to the needs and wants of local
customer segments.
Drawbacks:
• Increase manufacturing and marketing costs – decrease in economies of scale.
• Caused logistic problems as company tries to meet the varied requirements of different local
markets.

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 Micro Marketing
Individual marketing: involves tailoring products and marketing programs to the needs
and preferences of individual customers.
Also known as:
a) One-to-one marketing
b) Mass customization

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 Factors when Choosing a Market-Targeting Strategy.

Choosing a targeting strategy depends on:

a) Company resources:
• Limited resources – concentrated marketing
b) Product variability:
• Uniform products – undifferentiated marketing
• Product vary in design (car, camera) – differentiated or concentrated marketing
c) Product life-cycle stage:
• Introductory stage (When a firm introduces a new product, it may be practical to
launch one version only, either undifferentiated marketing or concentrated)
d) Market variability:
• Same buyer behavior – undifferentiated marketing.
e) Competitor’s marketing strategies:
• Always use different marketing strategy as competitors.
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 Differentiation and Positioning
Product position is the way the product is defined by consumers on important attributes.
• To simplify the buying process, consumers organize products, services, and companies
into categories and “position” them in their minds.
• A product’s position is the complex set of perceptions, impressions, and feelings that
consumers have for the product compared with competing products.

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 Differentiation and Positioning
• Positioning maps show consumer perceptions of marketer’s brands versus competing products
on important buying dimensions.
• In planning their differentiation and positioning strategies, marketers often prepare perceptual
positioning maps.
• The position of each circle on the map indicates the brand’s perceived positioning on two
dimensions: price and orientation (luxury versus performance).
• The size of each circle indicates the brand’s relative market share.

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Positioning maps: Large luxury SUVs in the USA
Land Rover (UK)

Lexus (Japan)
Toyota (Japan)

Cadillac (US)

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 Differentiation and Positioning

Choosing a Differentiation and Positioning Strategy

• Identifying a set of possible competitive advantages to build a position
• Choosing the right competitive advantages
• Selecting an overall positioning strategy
• Communicating and delivering the chosen position to the market

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Choosing a Differentiation and Positioning Strategy

Competitive advantage is an advantage over

competitors gained by offering consumers greater value,
either through lower prices or by providing more benefits
that justify higher prices.

Marketers must be able to gain competitive advantage

through its differentiation and positioning.

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 Choosing a Differentiation and Positioning Strategy
• Identifying a set of possible competitive advantages to differentiate along the lines of:

Differentiation Description
Product Features, performance, style and design
Service Speedy, convenient, careful delivery, high-quality
customer care
5 differentiation
Channel Coverage, expertise, performance
ways:
People Hiring and training people than their competitors
do.

Image A company or brand image should convey a

product’s distinctive benefits and positioning.

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Criteria in Choosing the Right Competitive Advantage:

Important Distinctive Superior

Communicable Preemptive Affordable

Profitable

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 Criteria in Choosing the Right Competitive Advantage:
Possible competitive
Description
advantage

Important The difference delivers a highly valued benefit to target buyers.

Superior The difference is superior to other ways that customers might obtain the
same benefit.
Communicable The difference is communicable and visible to buyers

Preemptive Competitors cannot easily copy the difference

Affordable Buyers can afford to pay for the difference.

Profitable The company can introduce the difference profitably.
Distinctive Competitors do not offer the difference, or the company can offer it in a
more distinctive way.
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 Choosing a Differentiation and Positioning Strategy
The full positioning of a brand is called the brand’s value proposition
• The full mix of benefits upon which a brand is positioned.

Figure: shows possible value propositions on which a company might position its products.

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 Choosing a Differentiation and Positioning Strategy
More for More (More benefits, higher price)
• Provide the most upscale product or service and charging a higher price to cover the
higher costs.
• Offer higher quality & prestige to the buyers, symbolizes status.
Drawbacks:
1) Competitors will imitate to claim the same quality but at a lower price.
2) Economic downturn cause buyer becomes more cautious in choosing expensive
products.
For example: Rolex

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 Choosing a Differentiation and Positioning Strategy
More for the Same (More benefits, same price)
• Offering comparable quality at a lower price.
• To attack competitor’s value proposition.
For example: Lexus versus BMW

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 Choosing a Differentiation and Positioning Strategy
The Same for Less (Same benefits, less price)
• A powerful value proposition —everyone likes a good deal.
• Example: Mr. DIY and Daiso
.

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 Choosing a Differentiation and Positioning Strategy
Less for Much Less (Less benefits, less price)
• Offer less and therefore cost less.
• Example: Tune Hotel – charge less as consumers do not pay for unnecessary services.

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 Choosing a Differentiation and Positioning Strategy
More for Less (More benefits, less price)
• A most winning value proposition but very difficult to sustain.
• Offering more usually cost more, making it difficult to deliver on the ‘for-less- promise.

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 Communicating and Delivering the Chosen Position

Choosing the positioning is often easier than implementing the position.

Establishing a position or changing one usually takes a long time.
Maintaining the position requires consistent performance and communication.

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