Module 5

Identifying And Serving Market Segments To Stay Competitive

Kotler’s Chapter 8 and 9

Chapter 8: Dealing with the Competition

• Learning Objectives– 1. Discuss and apply Porter’s five forces that

determine the attractiveness of a market segment (segment rivalry, new entrants, substitute products, buyers’ bargaining power, and suppliers’ bargaining power).

– 2. Describe and apply how to identify competition utilizing both the industry concept of competition and the market concept of competition.

Chapter 8: Dealing with the Competition

• Learning Objectives Continued– 3. Describe and apply how to analyze the

competition and design the competitive intelligence system.

– 4. Discuss and apply how to design competitive strategies.

Chapter 8/Objective 1: Porter’s Five Forces

• Industry Competition - are there numerous strong competitors; are there exit barriers making it hard to leave

• New Entrants - consider entry and exit barriers

• Substitute Products - more substitutes limit price

• Buyers’ Growing Bargaining Power - are they concentrated/organized, is product undifferentiated, is switching cost low, do buyers have price sensitivity

• Suppliers’ Growing Bargaining Power - can they raise prices/reduce quantity; concentrated/organized.

Chapter 8/Objective 2: How to identify competitors with industry and market

concept of competition• Industry Concept of Competition

– Focus on firms that offer product(s) that are close substitutes for each other.

– Industries classified by # of sellers; degree of product differentiation; presence or absence of entry/mobility/exit barriers; cost structure; degree vertical integration;degree globalization.

• Market Concept of Competition– Focus-firms satisfying same customers’ needs.

Chapter 8/Objective 3: How to analyze the competition and design the

competitive intelligence system.• Need to understand competitors’

– Strategies and Objectives– Strengths and Weaknesses - especially in terms of

customer perception (consider share of market, share of mind, and share of heart), consider benchmarking

– Reaction Patterns - Laid-back (does not react quickly or strongly), Selective (reacts to only certain types of attacks), Tiger (reacts swiftly/strongly to everything), and Stochastic (no predictable pattern).

Chapter 8/Objective 3: How to analyze the competition and design the competitive intelligence system

• Competitive Intelligence System 4 steps: – Setting up system - identify vital types of info

needed, its’ sources, and how/who will manage it.

– Collecting the data - collect continuously with field people and secondary sources of data.

– Evaluating and analyzing the data

– Disseminating information and responding• Goal to produce relevant, timely, high-quality,

understandable and usable information for managers.

Chapter 8/Objective 4: How to design competitive strategies.

• Market Leaders-Advantage of size/visibility but are targets, must do three things: (1) Expand Total Market (new users, new uses, and more usage), (2) Defend Market Share (position, flank, preemptive, counteroffensive, mobile, and contraction defenses) and (3) Expand Market Share (taking

antitrust, cost, and profits into account). • Market Challengers- May lack size advantage but can be

more innovative/relevant than Leaders. Five attack strategies

Frontal, Flank, Encirclement, Bypass, and Guerilla. Additionally, Challengers need to decide to focus on price-discount, cheaper goods, or prestige goods.

Chapter 8/Objective 4: How to design competitive strategies.

• Market Follower - Focuses on product imitation rather than innovation. Four strategies: (1) Counterfeiter (duplicates and sells illegally), (2) Cloner (emulates leader with slight variation), (3) Imitation (copies some from leader but maintains some differentiation - ex. price), and Adapter (adapts/improves leader’s product).

• Market Nichers - Leaders in narrow segments through specialization. By knowing market so well, may command high margins. Niches though can disappear so must look for new niches - must create niches, expand niches, and protect niches.

Chapter 9: Identifying Market Segments and Selecting Target Markets

• Learning Objectives– 1. Describe the levels of market segmentation

and the procedure for market segmentation.– 2. Describe and apply the basis for segmenting

consumer and business markets.– 3. Describe how a firm would utilize market

targeting to decide how many and which segments they will serve.

Chp 9/Obj 1: The levels of market segmentation and the procedure for

market segmentation• Mass Marketing - seller engages in mass production,

distribution, and promotion of one product for all buyers.

• 4 Levels of Market Segmentation– Segment Marketing - consists of a large, identifiable group w/in a

market with similar wants, purchasing power, geographical location, or buying attitudes/habits.

– Niche Marketing - a more narrowly defined, more specific, group of customers whose needs aren’t well served.

– Local Marketing - all members in same geographical area

– Individualized Marketing - customize product to fit the specific needs/wants of individual customers (mass customization).

Chp 9/Obj 1: The levels of market segmentation and the procedure for

market segmentation• 3 Step Market Segmentation Procedure

– 1. Survey Stage - gain insights into motivations, attitudes, and behavior; attributes and their importance; brand awareness and use;

consumer characteristics, etc... – 2. Analysis Stage - factor/cluster analysis to get segments

– 3. Profiling Stage - describe cluster segments based on distinguishing attitudes, behaviors, demographics, psychographic, and media patterns.

• Target marketing requires marketers to: (1) Identify and profile distinct groups of buyers who might require separate mktg mixes, (2) Select 1+ market segments to enter, and (3) Establish/ communicate distinct benefits for segment(s) (i.e.positioning).

Chp 9/Obj 2: The basis for segmenting consumer and business markets

• Consumer Markets Variables (Table 9-1)– Geographical - ex. region, metro size, climate– Demographic -ex. age, family life cycle, gender– Psychographic - ex. lifestyle, personality– Behavioral - ex. occasions used, benefits, user status,

usage rates, loyalty, readiness stage, and attitude toward product.

• Use more than 1 variable to segment. While geographic and demographics useful for finding segment, behavioral and psychographic useful for understanding segment.

Chp 9/Obj 2: The basis for segmenting consumer and business markets

• Business Markets Variables (Table 9-3)– Demographic - ex. industry, location– Operating - ex. technology, user/nonuser status– Purchasing approaches - ex. polices, criteria– Situational - ex. urgency, size of order– Personal variables - ex. attitude towards risk,

loyalty to suppliers.

Chp 9/Obj 3: How a firm would utilize market targeting to decide how many/which segments to serve.

• A segment has to be Measurable, Substantial, Accessible, Differentiable, and Actionable.

• 1. Evaluating the Market Segments – Segment’s overall attractiveness

• Look at size, growth, profitability, scale economies, and risk.

– Firm’s objectives and resources• Look at long-run objectives and if the firm has the

necessary competences to offer superior value.

Chp 9/Obj 3: How a firm would utilize market targeting to decide how many/which segments to serve.

• 2. Selecting the Market Segments– Single-Segment Concentration - serve 1 segment

– Selective Specialization - select several segments

– Product Specialization - select a certain product to sell to multiple segments, build reputation in 1 category

– Market Specialization - serve many needs of a particular customer group, build reputation for 1 group

– Full Market Coverage - serve all customer groups with all the products they need, must be large to do this.

Module 5 Conclusions

• Firms need to focus on those customers whose needs they can profitably meet and with whom they can build a loyal, long-term relationship despite the competition. Remember the marketing concept.

• Firms need to understand and track competition constantly and recognize there are many different strategies in which to address the competition.

• Firms need to describe those segment(s) they can most profitably serve in terms of multiple variables. They can’t serve all customers profitably; especially with the trend of the vigilant consumer demanding more.

• ANY QUESTIONS?