UNIT III.

CREATING VALUE FOR TARGET CUSTOMERS

Overview

This unit looks into key customer-driven marketing strategy decisions: dividing up markets into
meaningful customer groups, choosing which customer groups to serve, creating market offerings
that best serve targeted customers, and positioning the offerings in the minds of consumers. The
objective of this section is to help you to implement these strategies and deliver superior customer
value.

Learning Objectives

At the end of the unit, I am able to:

1. define the major steps in designing a customer-driven marketing strategy including market
segmentation, targeting, differentiation, and positioning;
2. discuss the major bases for segmenting consumer; and,
3. explain how companies differentiate and position their products for maximum competitive
advantage.

Lesson Proper

Designing a Customer-Driven Marketing Strategy

Companies today recognize that they cannot appeal to all buyers in the marketplace—or at least
not to all buyers in the same way. Buyers are too numerous, widely scattered, and varied in their
needs and buying practices. Moreover, the companies themselves vary widely in their abilities to
serve different segments of the market.
Thus, most companies have moved away from mass marketing and toward target marketing:
identifying market segments, selecting one or more of them, and developing products and
marketing programs tailored to each. The figure below shows the four major steps in designing a
customerdriven marketing strategy:

Figure 5. Four Major Steps in Designing a Customer-Driven Marketing Strategy

Segmenting Consumer Markets 1. Geographic segmentation

Dividing a market into different geographical units, such as nations, states, regions,
counties, cities, or even neighbourhoods .e.g. Country such as Philippines, Canada, China,
India
2. Demographic segmentation
Dividing the market into segments based on variables such as age, gender, family
size, family life cycle, income, occupation, education, religion, race, generation, and
nationality .e.g. Gender such as male, female
3. Psychographic segmentation
Dividing a market into different segments based on social class, lifestyle, or
personality characteristics .e.g. Personality such as compulsive, outgoing, authoritarian
4. Behavioral segmentation
Dividing a market into segments based on consumer knowledge, attitudes, uses, or
responses to a product. e.g. Occasions such as regular occasion, special occasion, holiday,
seasonal
Requirements for Effective Segmentation 1.
Measurable
The size, purchasing power, and profiles of the segments can be measured.
2. Accessible
The market segments can be effectively reached and served.
3. Substantial
The market segments are large or profitable enough to serve.

4. Actionable
Effective programs can be designed for attracting and serving the segments.

Selecting Target Market Segments

A target market consists of a set of buyers who share common needs or characteristics that the
company decides to serve. Market targeting can be carried out at several different levels such as
follows:
1. Undifferentiated (Mass) Marketing
A market-coverage strategy in which a firm decides to ignore market segment
differences and go after the whole market with one offer.
2. Differentiated (Segmented) Marketing
A market-coverage strategy in which a firm decides to target several market
segments and designs separate offers for each.
3. Concentrated (Niche) Marketing
A market-coverage strategy in which a firm goes after a large share of one or a few
segments or niches.
4. Micromarketing
Tailoring products and marketing programs to the needs and wants of specific
individuals and local customer segments; It includes local marketing and individual
marketing.
a. Local marketing – Tailoring brands and promotions to the needs and wants of local
customer segments—cities, neighborhoods, and even specific stores.
b. Individual marketing – Tailoring products and marketing programs to the needs
and preferences of individual customers—also called one-to-one marketing,
customized marketing, and markets-of-one marketing.

Differentiation and Positioning

Beyond deciding which segments of the market it will target, the company must decide on a
value proposition—how it will create differentiated value for targeted segments and what
positions it wants to occupy in those segments. Product position is defined as the way the product
is defined by consumers on important attributes—the place the product occupies in consumers’
minds relative to competing products.

Perceptual Mapping/ Positioning Map

A perceptual map is a visual technique designed to show how the average target market
consumer understands the positioning of the competing products in the market (Bagaria, 2019).
 Figure 6. Perceptual Map of UK Chocolate Confectionery Brands
Theoretically a perceptual map can have any number of lines, to keep things simple they usually
have 2 lines the x and y axis. The x axis goes left to right and the y axis goes bottom to top.
Any criteria can be used for the map for example price, quality, status, features, safety and
reliability. Once the two lines have been drawn and labelled existing products will be placed onto
the map.
In the example, two dimensions price and quality have been used. If we plot the UK chocolate
market, we can identify where existing chocolate brands have been positioned by manufacturers.
For example our fictional brand of Belgian chocolates called Belgium Chocolates are high quality
and high price so they are placed in the top right hand box, whilst Twix is an affordable "every day"
treat chocolate so it has been placed in the bottom left hand square, in the low quality low price
brand box. Perceptual maps can help identify where (in the market) an organization could position
a new brand. In our example this could be at the medium price and medium quality position, as
there is a gap there. There is also a gap in high price low quality but consumers will not want to pay
a lot of money for a low-quality product. Similarly, the low price high-quality box is empty because
manufacturers would find it difficult to make a high quality chocolate for a cheap price or make a
profit from selling a high quality product at a low price.

Three steps for differentiation and positioning

1. Identifying Possible Value Differences and Competitive Advantages

An entrepreneur can differentiate its business through product, services, channels,
people, or image.
i. Product differentiation – features, performance, or style and design;
ii. Services differentiation – speedy, convenient, or careful delivery;
iii. Channel differentiation – channel’s coverage, expertise, and performance; iv.
People differentiation – hiring and training of their employees;
v. Image differentiation – company or brand image.
On the other hand, a business can develop successful customer value-based strategies
for building and maintaining profitable customer relationships through competitive advantage
which is defined as an advantage over competitors gained by offering greater customer value,
either by having lower prices or providing more benefits that justify higher prices.
Michael Porter suggested three winning competitive strategies:
i. Overall cost leadership – The company works hard to achieve the lowest
production and distribution costs. Low costs let it price lower than its
competitors and win a large market share.
ii. Differentiation – The company concentrates on creating a highly differentiated
product line and marketing program so that it comes across as the class leader
in the industry.
iii. Focus – The company focuses its effort on serving a few market segments well
rather than going after the whole market.

2. Choosing the Right Competitive Advantages

An entrepreneur should aggressively promote only one benefit to the target market.
Rosser Reeves develop the concept of Unique Selling Proposition (USP) which is defined
 as a key “statement” that describes the distinct and compelling value of the product, which
sets the product apart from competing products (Steinhardt, 2010). This proposition must
be one that the competition either cannot or does not offer.

3. Selecting an Overall Positioning Strategy

The full positioning of a brand is called the brand’s value proposition—the full mix
of benefits on which a brand is differentiated and positioned. It is the answer to the
customer’s question “Why should I buy your brand?”

Figure 7. Value Proposition

The above figure shows possible value propositions on which a company might
position its products. In the figure, the five green cells represent winning value propositions
—differentiation and positioning that gives the company competitive advantage. The red
cells, however, represent losing value propositions. The center yellow cell represents at
best a marginal proposition.

i. More for More – It involves providing the most upscale product or service and
charging a higher price to cover the higher costs.
ii. More for the Same – It includes a brand offering comparable quality at a lower
price.
iii. The Same for Less – It encompasses an offering with same brands but at deep
discounts based on superior purchasing power and lower-cost operations.

iv. Less for Much Less – It involves meeting consumers’ lower performance or
quality requirements at a much lower price.
v. More for Less – It provides the customer with more benefits but at a lower
price.