Mapping your competitive position harvard business review

Module 3 - Background

PRINCIPLES OF MARKETING

All readings are required unless noted as “Optional” or “Not Required.”

Introduction

In practice, Marketers use various models to describe the different marketing functions. Some of the more popular models are the 7 step model, STP (segmentation, targeting, positioning), or the 4 C's (Consumer Behavior, Company Analysis, Competitor Analysis, and Context). Each has advantages and drawbacks regarding comprehensiveness. Readings describing each of these models are provided in the Optional Reading list at the end of this section. For this module, however, we will use a model that integrates and abridges these other models.

Consumers, Markets, and Competition

Though many people think of marketing as consisting of sales and advertising, one of the most important marketing functions begins even before the final product or service has been developed. In this early stage, the organization conducts research to determine customer needs, how the market is structured, and the number and nature of competitors addressing that need. As you will see below, these three topics are intertwined.

Crowd of people photo Consumers

The purpose of marketing is to discover how to provide value to consumers while earning a profit. Marketers must understand the entire consumer base: the customer served by the organization, the customer currently served by competitors, and customers who may be served in the future. One way marketers do this is by analyzing buyer behavior (i.e., how consumers get information and how consumers make buying decisions). Consumer behaviors are influenced by a number of considerations such as psychological factors, convenience, competing choices, and cultural preferences. Read the following book chapter on consumer behavior.

Tanner, J., and Raymond, M. (2012). Marketing Principles (v. 2.0). Ch. 3: Consumer behavior: How people make buying decisions. Sections 3.1-3.6. Retrieved from https://2012books.lardbucket.org/pdfs/marketing-principles-v2.0.pdf

Markets

Any business needs to know the characteristics of the markets in which the firm operates. Understanding the customer and the market requires extensive and sophisticated research efforts to gather and analyze social and economic trends, human decision-making, and potential competitors. The goal of market research is to enable the firm to identify opportunities and threats in the business environment as well as the organization’s capacity to exploit its strengths and shore up its weaknesses.

Market research can be either primary (collected directly from the source), or secondary (collected/published by someone outside the organization). Some examples of secondary data include:

· US Census

· www.Data,gov

· Internal data (such as customer cards at grocery stores that collect data on buying patterns)

· Nielsen or Arbitron ratings

· Published articles and reports

· Blog posts

· Social media

The following chart illustrates the differences between primary and secondary market research:

Market Research Chart Source: http://www.mymarketresearchmethods.com/primary-secondary-market-research-difference/

Competition

Competition is either direct or indirect. Direct competitors, such as Coke and Pepsi, offer similar products or services. Indirect competitors offer similar functions or meet similar needs, but with different products, such as hardwood flooring vs. granite countertops in a re-model. These are different products, but they compete for the same re-modeling dollar. As we saw in Module 1, when there are substitute products, elasticity of demand is increased. This creates a need for marketing to differentiate the product from that of the competition.

Also relevant to understanding the competitive environment is to know the market share of the industry players. This is initially determined through market research. One important way of competing is to formulate a strategy to increase market share, because when competitors have similar products or services, larger market share generally equates to larger profits. Some common approaches to increasing market share are:

1. Lower production costs

2. Spend more on research

3. Spend more on equipment

4. Spend more on advertising

In analyzing the competition, the business must have a good understanding of itself. What are its own capacities and weaknesses? It may have the capacity to deliver the product – but at what level? Local, regional, national, international? Mass merchandising or boutique market niche? These decisions may be governed by the firm’s capacity to finance its activities. The best way to analyze the competitive situation and the firm’s capacity to respond to internal and environmental challenges is to conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). For an example of a SWOT analysis of Costco, review this report in the Trident Online Library:

GuruFocus.com: SWOT analysis: Costco wholesale corporation. (2015). Chatham: Newstex. Available in the Trident Online Library.

Market Segmentation, Targets, and Positioning

Once the firm has gained a broad understanding of its customers and competitive environment, it is time to make some more specific decisions about the services or products it offers. The first step is to divide the population of potential customers into homogeneous subgroups of consumers with similar needs and desires. This is called segmentation. The second step is to select from among these subgroups, which one(s) the firm will serve best. This is called the target market. Finally, the marketers determine the approach they will take in emphasizing the value their product/service had for the target group. This is called positioning.

Segmentation

Many firms differentiate among their customers and offer different products or level of service depending on customer type. This allows the firm to direct marketing efforts effectively and efficiently to the “right” people to maximize sales and profit. For example, banks may offer their “preferred customers” (large depositors or borrowers) free checking, better interest rates, complementary safety deposit boxes, personal bankers, etc. These perks are geared toward attracting and keeping their most profitable customers. Other firms do not differentiate and offer everyone the same thing. Though segmentation may initially be more expensive than mass-marketing, firms that segment are more profitable than those that do not. The most common categories of segmentation are:

· Demographic (age, gender, income)

· Geographic (SMSA, census)

· Psychographic (lifestyle, personality)

· Behavioral (usage, loyalty, occasion, price consciousness)

The following video offers an excellent overview of these topic areas:

Tutor2u (2016) Market Segmentation, Targeting and Position. Retrieved from https://www.youtube.com/watch?v=0srjdRDh99Y

Targeting

Once the customer base has been segmented by need and characteristics, the firm needs to decide which group it can pursue most successfully. Considerations include which group(s) the firm can 1) best satisfy, 2) fit best with the firm’s strategy, and 3) be most profitable in the future.

Many things must be considered. The fastest-growing segment may attract more competitors and thus be more expensive to capture and retain. Segments can also overlap. For example, business users of internet services also make decisions about ISP's for personal use. Another consideration is that a product may appeal to a non-targeted segment, thus decreasing its appeal to the targeted segment. For example, when XYZ product becomes the product of choice of “gray hairs,” it may no longer appeal to the 20-something demographic who were the desired customers (think Facebook). This may require the firm to change its strategy. Read about some of the disadvantages of target marketing in this short article from the Houston Chronicle:

Suttle, R. (2019). The disadvantages of target marketing. Small Business, Chron. Retrieved from http://smallbusiness.chron.com/disadvantages-target-marketing-36131.html

Positioning

When the target market has been selected, the firm has a very important decision to make. How will it position its product or service in relationship to the other offerings in the market? This is the essence of marketing strategy: Positioning determines how the target will view the product or even the firm. Think of the different images that come to mind when you think about Target vs. Saks Fifth Avenue. Do you immediately think of price and quality? Now consider Target vs. Walmart. Both offer low prices, but Target emphasizes that the customer “gets more” while paying less. They are positioning themselves for the more discerning customer by appearing to offer better quality along with value pricing.

Positioning maps are used by marketers to understand customer perceptions of a marketplace and the relative positions of different firms, products, and brands.

The following study guide illustrates how to construct a positioning or perceptual map:

A Step-by-Step Guide to Constructing a Perceptual Map. (n.d) Retrieved from http://www.segmentationstudyguide.com/understanding-perceptual-maps/a-step-by-step-guide-to-constructing-a-perceptual-map/

The Marketing Mix

While positioning describes the firm’s strategic approach to marketing a product or brand, the 4 P's are direct tactical decisions regarding delivering customer value. The 4 P's are as follows:

Product

What fundamental need does the purchase satisfy? “Product” is more than the actual product; it can involve meeting needs for status, convenience, reliability, ability to customize, etc. Thus, packaging, warrantees, design, options, reputation, or customer service may be just as important as the product itself. Branding is an integral part of product management. Think of BMW or Apple. What comes into your mind when you hear these names? Our imagination translates these brands into descriptive and evaluative phrases having to do with the qualities or attributes of products carrying these brands. Similarly, Target, Pepsi, McDonald's, your favorite restaurant, and even yourself can be said to "have a brand," (i.e., be identified by certain qualities that mean something to those who perceive these brands).

Price

To a marketer, price is more than how much the customer pays at purchase – it also involves the time the consumer spends in making the decision to buy, and the opportunity cost of choosing one product over the other available choices. The price a firm sets for a product is called pricing strategy. Choosing the right price is a complex decision that needs to take a number of factors into account, including the characteristics of your target market and the overall strategy of the firm to gain market share, given the competitive environment. Options include skim pricing and penetration pricing. To review some of the factors involved with pricing strategies and gain insight into how a firm could decide which might be appropriate, read:

Woodruff, J. (2019) Different types of pricing strategy. Chron Retrieved from https://smallbusiness.chron.com/different-types-pricing-strategy-4688.html

Promotion

No matter how good a product or service is – or how much value it provides to the target market - it will not sell if people do not know about it. This is where advertising and selling come in. There are many approaches and tools marketers can use in promotion. The decision depends on the firm’s strategy, the budget, and availability. TV reaches the most people, but it is very expensive. Personal selling by employing a sales force can also be expensive, but the cost can be mitigated through telemarketing and/or digital marketing online.

Coupons, discounts, and rewards programs are effective tools and can be applied selectively at critical times during the year. Some companies price the product very low to entice sales – but the replacement parts may be very expensive. For example, consider cheap razors with expensive razor blades or free cellphones with expensive data plans.

There are basically two kinds of promotion strategies: the push and pull strategies. Each has advantages and disadvantages. For an explanation of the differences between the two approaches, take a couple of minutes to read this short article from the online Houston Chronicle:

Robertson, T. (2019). Difference between push & pull marketing. Small Business, Chron. Retrieved from http://smallbusiness.chron.com/difference-between-push-pull-marketing-31806.html

Place

Few companies design a product, manufacture it, and sell it directly to the consumer. Most rely on distributors to transport and independently owned stores to actually sell the product. This is termed the distribution channel. Wholesalers and retailers are critical to the marketing function as they comprise major parts of the distribution channel. Firms prefer that members of the distribution channel act as partners. But when distributors become large and powerful, an imbalance can occur, drastically affecting the marketing strategy of the firm.

Distributors can add value in multiple ways. You can buy an unassembled bicycle on the internet at a discount, or buy the same bike from a specialty shop that will assemble, customize, and service your purchase for a higher price. Some distributors also provide logistics management to ensure the timely delivery of the products to the consumers at the low costs. With the popularity of Internet and e-commerce, more and more companies deliver their products or services directly to the end consumers, using direct distribution channels.

For more information on distribution channels, refer to the following optional resources.

Fontelera, J. (2019). Distribution Channels and Marketing Analysis. Retrieved from http://smallbusiness.chron.com/distribution-channels-marketing-analysis-60985.html

Blunt, L. (2019) Types of Marketing Channels. Retrieved from http://smallbusiness.chron.com/types-marketing-channels-21627.html

Quain, S. (2018). How Does Logistics Differ From Distribution? Retrieved from http://smallbusiness.chron.com/logistics-differ-distribution-77542.html

For a quick review of the 4 P's of the Marketing Mix, view the following video:

Paxton/Patterson (2017) The 4 Ps of the Marketing Mix. Retrieved from https://www.youtube.com/watch?v=Mco8vBAwOmA

Summary

Product, price, promotion, and place strategies are highly interdependent. Mass distribution generally is coupled with low price, whereas boutique or limited distribution is generally associated with higher product and advertising prices.

Perhaps the area where these interdependencies become most clear is when considering product life cycle. It is in the firm’s best interest to sell the greatest number of products as long as possible. To do this, the firm must capture the greatest market share it can for as long as it can. Product, price, place, and promotion must change over time through product introduction, growth, maturity, and decline. For a summary on how the marketing mix should change according to the product life cycle, read:

Claessens, M. (2015) Product Life Cycle Stages (PLC) – Managing the Product Life Cycle. Retrieved from https://marketing-insider.eu/product-life-cycle-stages/

Finally, for an overview of general marketing topics from the perspective of a marketeer, review the following optional chapters:

Popky, L. (2015) Chapter 3. What hasn’t changed: Timeless Marketing Truths. Marketing Above the Noise: Achieve Strategic Advantage with Marketing that Matters. Bibliomotion. Available in the Skillsoft data in the Trident University Library.

Popky, L. (2015) Chapter 4. What has changed: The New Realities. Marketing Above the Noise: Achieve Strategic Advantage with Marketing that Matters. Bibliomotion. Available in the Skillsoft data in the Trident University Library.

Videos

Learnloads. (2014, March 10). What are distribution channels? Retrieved from https://youtu.be/ALoo4vrKKUw

Marcy Research. (2018, November 8). Perceptual mapping. Retrieved from https://youtu.be/L9hgJ-4hLYg. Standard YouTube License.

Marketing 91. Product life cycle. Retrieved from https://youtu.be/pq3e1b_7uho. Standard YouTube License.

Patel, N. (2019, May 8). Pricing strategies. How to price your product or services for maximum profit. Retrieved from https://youtu.be/0NGQLgrHRe4. Standard YouTube License.

Paxton/Patterson. (2017). The 4 Ps of the marketing mix. Retrieved from https://www.youtube.com/watch?v=Mco8vBAwOmA. Standard YouTube License.

The audiopedia. (2018). What is perceptuak mapping? Retrieved from https://youtu.be/CeNpI2ufn44. Standard YouTube License.

Tutor2u (2016) Market Segmentation, Targeting and Position. Retrieved from https://www.youtube.com/watch?v=0srjdRDh99Y. Standard YouTube License.

Required Reading

A Step-by-Step Guide to Constructing a Perceptual Map. (n.d) Retrieved from http://www.segmentationstudyguide.com/understanding-perceptual-maps/a-step-by-step-guide-to-constructing-a-perceptual-map/

Kemp, E. A., Borders, A. L., Anaza, N. A., & Johnston, W. J. (2018). The heart in organizational buying: Marketers' understanding of emotions and decision-making of buyers. The Journal of Business & Industrial Marketing, 33(1), 19-28. Available in the Trident Online Library.

Paxton/Patterson. (2017). The 4 Ps of the marketing mix. Retrieved from https://www.youtube.com/watch?v=Mco8vBAwOmA. Standard YouTube License.

Phillips, T. (2017, March 10). Digital marketing strategy: Push vs pull? The Guardian. Available in the Trident Online Library.

Pricing strategy (2010). NetMBA. Retrieved from http://www.netmba.com/marketing/pricing/

Suttle, R. (2015). The disadvantages of target marketing. Small Business, Chron. Retrieved from http://smallbusiness.chron.com/disadvantages-target-marketing-36131.html

The product life cycle. (2010). Quick MBA. Retrieved from http://www.quickmba.com/marketing/product/lifecycle/

Tutor2u (2016) Market Segmentation, Targeting and Position. Retrieved from https://www.youtube.com/watch?v=0srjdRDh99Y. Standard YouTube License.

Vanegas, J. G., Restrepo, J. A., Barros, G. A., & Moreno, G. A. (2018). Service quality in Medellin hotels using perceptual maps. Cuadernos de Administración, 34(60). Retrieved from http://cuadernosdeadministracion.univalle.edu.co/index.php/cuadernos_de_administracion/article/view/5927. Available in the Trident Online Library. CC BY-NA.

Optional Reading

Annual Reports & Proxies. (2014) Walmart. Retrieved from http://stock.walmart.com/investors/financial-information/annual-reports-and-proxies/default.aspx

Chaffey, D. (2013) Marketing models that have stood the test of time. Smart Insights. Retrieved from http://www.smartinsights.com/digital-marketing-strategy/online-business-revenue-models/marketing-models/

Cohen, H. (2013). 7 step marketing framework. Actionable Marketing Guide. Retrieved from http://heidicohen.com/7-step-marketing-framework/

D’Aveni, R.A. (2007). Mapping your competitive position. Harvard Business Review. Retrieved from https://hbr.org/2007/11/mapping-your-competitive-position

Hanlon, A. (2013) How to use Segmentation, Targeting and Positioning (STP) to develop marketing strategies. Smart Insights. Retrieved from http://www.smartinsights.com/digital-marketing-strategy/customer-segmentation-targeting/segmentation-targeting-positioning-model/

Hanlon, A. (2015) The 4 C’s marketing model. Smart Insights. Retrieved from http://www.smartinsights.com/marketing-planning/marketing-models/4cs-marketing-model/

Jorina, F, (n.d.). Distribution Channels and Marketing Analysis. Retrieved from http://smallbusiness.chron.com/distribution-channels-marketing-analysis-60985.html

Lanee, B. (n.d.). Types of Marketing Channels. Retrieved from http://smallbusiness.chron.com/types-marketing-channels-21627.html

Neil, K. (n.d.). How Does Logistics Differ From Distribution? Retrieved from http://smallbusiness.chron.com/logistics-differ-distribution-77542.html