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

Lecture 6

A route-map for marketled strategic change

Part I Customer value imperatives Part II Developing a value-based marketing strategy
The strategic pathway Market sensing and learning strategy

Part III Processes for managing strategic transformation

Change strategy

The Customer is always right-handed

Strategic gaps

New marketing meets old marketing

Strategic thinking and thinking strategically

Strategic market choices and targets

Organization and processes for change

Customer value strategy and positioning

Value-based marketing strategy

Strategic relationships and networks

Implementation process and internal marketing

The strategic pathway

Strategic thinking and thinking strategically

Market sensing and learning strategy

Strategic market choices and targets

Customer value Strategic strategy relationships and and positioning networks

Strategic transformation and strategy implementation

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

Strategic market choices and targets

Market definition and the competitive box Market segmentation and targeting

Strategic market choices and targets

Market positioning

Market choices

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

The competitive box

The usual suspects

New types of competitor

Known competitors, operating in traditional ways with the existing, known customer base and competing for market share through incremental innovation

New business models

Conventional value propositions New customers

Existing customer base

New customers

New customer base

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 productcustomer matrix

Market: Products 1. 2. 3. 4. 5. 6. 7. Total Customers 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

Production = 100,000 units Consumption = 100,000 units

Direct sales = 10,000 units

Commercial Construction Companies (85,000 units)

84,000 units

Independent Distributors

42,000 units

Construction 75,000 units SubContractors 7,000 units 40,000 units 2,000 units

42,000 units Production Of Central Heating Units

Small Hardware Retailers

5,000 units

Large Hardware Retailers

5,000 units Domestic Customers (15,000 units)

Direct sales = 1,000 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
A Product Marketing actions Price Communications Distribution & service Differentiated marketing actions across market segments B C D

Consistent value offerings for each 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 customers
Committed to us and rate us highly, they show little interest in competitors

Competitors customers
Committed to competitors and rate them highly, show little interest in us

Satisfied stayers

Hostages

Loyal customers, but this may only be inertia, may be vulnerable to competitors

Repeat buyers for competitors, but may be interested in us

Happy wanderers

Show little positive commitment, may become interested in alternatives

Little commitment to competitors, may be interested in our offer

Dealers

Show strong preference for the best deal on the market, with low supplier loyalty

No commitment to competitors - open to superior offers

Customer relationshipbased segmentation

Relationship segments Relationship seekers Our customers
Invest in customer relationship management and loyalty programmes to give a close relationship that is long term Focus on retention through the value offering and not through relationship emphasis Control expenditures on loyalty incentives and provide economic contact, e.g. through Internet Emphasize value offering and avoid relationship investments unless can be converted to Loyal Buyers

Competitors customers
Find ways to offer a relationship that is superior in the customers terms to attract away from competitors Emphasize superiority in value offering and rewards for long-term retention superior to those of competitors Offer relationship-based incentives to switch suppliers, but control costs to allow for short retention Demonstrate superior value offering and lack of ties or barriers to switching

Loyal buyers

Relationship exploiters

Arms length transactional customers

Market segmentation and targeting

Broad segments and micro-segments Strategic market segmentation distinction between strategic and managerial issues in segmentation

Strategic and managerial segmentation

Corporate mission

Values
Strategic segmentation Strategic intent Market position

Resource allocation Marketing plans Managerial segmentation 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
Explicit/external Implicit/internal

Strategic segmentation Strategic Organizational decision making level

Customer benefits Qualitative approach Links to mission and vision Organizational structure Information processing Corporate culture and history

Managerial segmentation
Conventional segmentation bases Quantitative approach Conventional tests and criteria of choice Sales and distribution organization Advertising and promotion Media buying Pricing tactics

Operational

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
High High
Attractive segments that match with company capabilities Attractive segments but with poor match with company capabilities

Low

Market segment attractiveness

Unattractive segments Unattractive segments but with match to that do not match with company company capabilities capabilities

Low

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
High Low

Strong

Core business

Peripheral business

Market position
Weak

Illusion business

Dead-end business

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