Strategic market choices and targets:Where to compete and where not to

Lecture 6

A route-map for market-led strategic change

Value-basedmarketingstrategy

New marketing

meetsold

marketing

Strategicthinking and

thinkingstrategically

Customer valuestrategy andpositioning

The strategic pathway

Strategicmarket choices

and targets

Market sensingand learning

strategy

Strategicrelationshipsand networks

Change strategy

Strategicgaps

Organizationand processes

for change

Implementationprocess and

internalmarketing

Part ICustomer value

imperatives

Part IIDeveloping a value-based

marketing strategy

Part IIIProcesses for managingstrategic transformation

The Customeris always

right-handed

The strategic pathway

Marketsensingandlearningstrategy

Strategicmarketchoicesandtargets

Customervaluestrategyand positioning

Strategicrelationshipsandnetworks

Strategic thinking andthinking strategically

Strategictransformationand strategyimplementation

Agenda

• Market definition and the competitive box• Market segmentation and targeting• Market positioning• Market choices

Strategic market choices and targets

Strategic marketchoices and

targets

Market definitionand the

competitive box

Marketsegmentation

andtargeting

Marketpositioning

Marketchoices

Market definition and the competitive box

• Markets are not fixed or static• The way they are defined should not be either• The danger is being trapped inside the competitive box

while the important changes occur outside the box

The trap of the competitive box

Conventional value propositions

Existing customer base

New customer base

The competitive box

The usual suspects

Known competitors, operatingin traditional ways with the

existing, known customer baseand competing for market sharethrough incremental innovationNew types of

competitorNew business

models

Newcustomers New

customers

Market definition and the competitive box

• Re-thinking market boundaries is a high priority• The way management understands and defines its

markets is one of the most significant strategic issues• The product-customer matrix

– a practical tool for looking at markets in new ways

The product-customer matrix

CustomersProducts 1. 2. 3. 4. 5. 6. 7. Total

Market:

1.

2.

3.

4.

5.

6.

7.

Total

Market definition and the competitive box

• Mapping market structure and change– insights into drivers of change– fundamental to looking at market segmentation and

targeting

Mapping market structure and trends for central heating units

ProductionOf Central

HeatingUnits

IndependentDistributors

ConstructionSub-

Contractors

SmallHardwareRetailers

LargeHardwareRetailers

CommercialConstructionCompanies

(85,000 units)

DomesticCustomers

(15,000 units)Direct sales = 1,000 units

Direct sales = 10,000 units

84,000 units

5,000 units

42,000 units

42,000 units

40,000units

2,000units

7,000units

75,000 units

Production =100,000 units

Consumption =100,000 units

5,000 units

Market segmentation and targeting

• Market segmentation– dividing market into groups of buyers who make

coherent targets, e.g., by demographics for consumers to industry type for companies

– aims to develop consistent marketing programmes for segments with potentially different approaches for each

Consistency versus differentiation in market segmentation

Market segments

Marketingactions

A B C D

Product

Price

Communications

Distribution& service

Differentiatedmarketingactions acrossmarketsegments

Consistent value offerings foreach market segment

Market segmentation and targeting

• Insightful segmentation is based on the customer benefit from the product or service– e.g., customer loyalty-based segmentation– e.g., customer relationship-based segmentation

Customer loyalty-based segmentation

Loyalty segments Our customersCompetitors’ customers

Satisfied stayers

Hostages

Happy wanderers

Dealers

Committed to us and rateus highly, they show little

interest in competitors

Loyal customers, but thismay only be inertia, may

be vulnerable to competitors

Show little positivecommitment, may becomeinterested in alternatives

Show strong preference forthe best “deal” on the market,

with low supplier loyalty

Committed to competitorsand rate them highly, show

little interest in us

Repeat buyers forcompetitors, but may be

interested in us

Little commitment tocompetitors, may be interested in our offer

No commitment tocompetitors - open to

superior offers

Customer relationship-based segmentation

Relationshipsegments Our customers Competitors’ customers

Relationshipseekers

Loyal buyers

Relationshipexploiters

Arm’s lengthtransactionalcustomers

Invest in customer relationshipmanagement and loyalty

programmes to give a closerelationship that is long term

Find ways to offer a relationship that is superior inthe customer’s terms to attract

away from competitors

Focus on retention throughthe value offering and not

through relationship emphasis

Emphasize superiority invalue offering and rewards

for long-term retention superiorto those of competitors

Control expenditures on loyalty incentives and provide

economic contact, e.g. throughInternet

Offer relationship-basedincentives to switch suppliers,but control costs to allow for

short retention

Emphasize value offering andavoid relationship investments

unless can be converted toLoyal Buyers

Demonstrate superior valueoffering and lack of ties or

barriers to switching

Market segmentation and targeting

• Broad segments and micro-segments• Strategic market segmentation

– distinction between strategic and managerial issues in segmentation

Strategic and managerial segmentation

Strategicsegmentation

Managerialsegmentation

Corporate mission

Values

Strategic intent

Market position

Marketing plans

Resource allocation

Operational management (sales, advertising)

Market segmentation and targeting

• Conventional views of market segmentation– methodology to identify– criteria for evaluation– segmentation approach (differentiated, concentrated,

undifferentiated)• An extended model of market segmentation

– a diagnostic framework to distinguish between strategic and operational issues and address implementation questions

An extended model of market segmentation

Explicitness and focus

Organizationaldecision makinglevel

Explicit/external Implicit/internal

Strategic

Operational

Strategic segmentation

Managerial segmentation

• Customer benefits• Qualitative approach• Links to mission and vision

• Organizational structure• Information processing• Corporate culture and history

• Conventional segmentation bases• Quantitative approach• Conventional tests and criteria of choice

• Sales and distribution organization• Advertising and promotion• Media buying• Pricing tactics

Market segmentation and targeting

• Market segment attractiveness and internal compatibility– consider not just how attractive a segment is as a

target, but also how well it fits with company capabilities

– a significant implementation question

Segment attractiveness and internal compatibility

Internal compatibility

Market segmentattractiveness

High Low

High

Low

Attractive segmentsthat match with

companycapabilities

Attractive segmentsbut with poor match

with companycapabilities

Unattractive segmentsthat do not match withcompany capabilities

Unattractive segmentsbut with match to

companycapabilities

Market positioning

• How customers compare you to the competition and what they decide

• The logic of blue oceans and red oceans– finding spaces where there is no competition

Market positioning

• Creating new market space– looking across substitute industries– looking across strategic groups within the industry– redefining the buyer group– look across to complementary products/services– re-think the functional/emotional orientation of the industry– participate in shaping external trends

Market positioning

• But, will the big idea work?– buyer utility– strategic pricing– business model– adoption hurdles

Market choices

• Usually there are choices – which markets/segments to target?– how do we set priorities?

• Portfolio approaches compare – market/segment attractiveness (how well the

opportunity fits our goals and capabilities– market position (how well we believe we can do in this

market/segment)

Market attractiveness and position

Market attractiveness

Marketposition

High Low

Strong

Weak

Corebusiness

Peripheralbusiness

Illusionbusiness

Dead-endbusiness

Market choices

• Portfolio approach identifies– core business – targets with a good fit and where we can do well– peripheral business – market is less attractive to us but we will

take a strong position– illusion business – attractive markets where we can take only a

weak position– dead-end business – unattractive markets where we do badly.

• Provides a basis for making investment choices