Module 3
Module 3
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There are many ways to segment a market, but not all segmentations are effective. For
example, buyers of table salt could be divided into black and brown hair customers. But hair
color obviously does not affect the purchase of salt. Furthermore, if all salt buyers bought the
same amount of salt each month, believed that all salt is the same, and wanted to pay the
same
price, the company would not benefit from segmenting this market.
Measurable
The size, purchasing power, and profiles of the segments can be measured. Certain
segmentation variables are difficult to measure. For example, there are approximately 30.5
million lefthanded people in the United States, which is nearly the entire population of
Canada. Yet few products are targeted toward this left-handed segment.
Accessible
The market segments must be effectively reached and served. Suppose a fragrance company
finds that heavy users of its brand are single men and women who stay out late and socialize
a
lot. Unless this group lives or shops at certain places and is exposed to certain media, its
members will be difficult to reach.
Substantial
The market segments are large or profitable enough to serve. A segment should be the largest
possible homogeneous group worth pursuing with a tailored marketing program. It would not
pay, for example, for an automobile manufacturer to develop cars especially for people
whose height is greater than seven feet.
Differentiable
The segments are conceptually distinguishable and respond differently to different marketing
mix elements and programs. If men and women respond similarly to marketing efforts for
soft drinks, they do not constitute separate segments.
Actionable
Effective programs can be designed for attracting and serving the segments. For example,
although one small airline identified seven market segments, its staff was too small to
develop separate marketing programs for each segment.
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Organizational markets can be segmented on the basis of various factors that can be broadly
classified into macro segmentation and micro segmentation.
Macro segmentation:
To segment organizational market, a company can use macro segmentation variables like an
organization’s size, its location and the industry it is a part of.
Organizational size: A large organization may buy the same product as a smaller
one, but it would buy differently.A large organization will buy in larger lots and will
have a formal buying process. It will have specialized departments like those of
purchase and quality control, with each one having an individual mandate. It is also
likely to demand more services and discounts.The company’s list price should take
into account the volume discounts that large clients will inevitably ask for and its
salespeople should be good negotiators. A company may have to design a unique
marketing mix to serve each of its major clients, and it may need to have dedicated
salespeople to serve each one of them.It may happen that a company’s profitability in
serving large clients is low, and hence it is not wise to ignore smaller clients, who do
not want extensive services and deep discounts. A company may develop a business
model for serving large number of small clients, which may not necessarily be less
profitable than another company’s business model of serving few large clients.
Micro segmentation:
Each company buys differently from other companies in its industry, and a seller needs to
develop a detailed understanding of how each company buys. It is important that salespeople
spend considerable time in understanding the roles that different functions play in the buying
process and their individual mandate. It is also important to understand the buyer’s
philosophy in terms of its emphasis on quality, its view on price and its intent of developing
long term relationship with the sellers.
Choice criteria: A company’s choice criteria will depend on how it has decided to
compete in its own market. Therefore, a buyer will not budge on quality because it is
making a premium product, and another will not budge on price because it is making
a value-for-money product.A seller needs to understand what each one of its buyers is
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trying to achieve for its target market to know how it would buy—the buyer who is
buying premium products will be willing to pay a higher price if the seller offers to
increase quality of its products, and the buyer who is buying value-for – money
products will be willing to buy products of lower quality if the seller offers to reduce
its price.Therefore, a seller needs to have different marketing mix when its buyers
have different choice criteria, and salespeople will need to emphasize different
benefits with different clients.
Decision making process: The size of the DMU depends on the type of the product
which is being bought, and whether the product has been bought earlier. The buying
process will be longer if the size of the DMU is large because the suppliers will be
evaluated on all the parameters that are important to all the members of the DMU. For
example, quality engineers will ensure that the supplier is capable of meeting quality
standards, and product developers will ensure that the component serves the function
for which it has been designed. Therefore, a seller needs to be willing to expend
resources and time to deal with a large DMU. The buying process is short when the
size of the DMU is small, and also when the product has been bought earlier.
The sellers will have to demonstrate a lot of patience as the buyer will evaluate lots of
options and get into a lot of consultation before settling on a supplier (new task). When
the company is already buying the item but only wants to alter the specifications of the
product or the conditions of purchase, it will expect the incumbent supplier to make the
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required changes and retain the order. New suppliers can make a pitch but they have to
compete hard against the incumbent supplier because of its proximity to the buyer
(modified rebuy). The incumbent supplier should get the order when the buyer
continues to buy the same item in the same way. New suppliers can make a pitch but
they have to prove that they are decisively better than the incumbent (straight rebuy).
Intermediate segmentation
Taking the Wind & Cardozo model, Bonoma & Shapiro[2] extended this into a multi-step
approach in 1984. As the application of all the criteria recommended by Wind and Cardozo
and subsequent scholars who expanded upon their two-stage theory became increasingly
difficult due to the complexity of modern businesses, Bonoma and Shapiro suggest that the
same / similar criteria be applied in multi-process manner to allow flexibility to marketers in
selecting or avoiding the criteria as suited to their businesses. “They proposed the use of the
following five general segmentation criteria which they arranged in a nested hierarchy:
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2. Operating variables: customer technology, product/brand use status, customer capabilities
3. Purchasing approaches: purchasing function, power structure, buyer-seller relationships,
purchasing policies, purchasing criteria
The idea was that the marketers would move from the outer nest toward the inner, using as
many nests as necessary”. As a result, this model has become one of the most adapted in the
market, rivalling the Wind & Cardozo model head-on. One of the problems with the nested
approach “is that there is no clear-cut distinction between purchasing approaches, situational
factors and demographics". Bonoma and Shapiro are aware of these overlaps and argue that
the nested approach is intended to be used flexibly with a good deal of managerial judgment”
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Benefits of market segmentation
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Market segmentation criteria of psychographic nature allow to divide the market into
segments
based on variables such as social class, lifestyle and personality.
Market targeting
A target market is the market a company wants to sell its products and services to, and it
includes a targeted set of customers for whom it directs its marketing efforts. Identifying the
target market is an essential step in the development of a marketing plan. A target market can
be separated from the market as a whole by geography, buying power, demographics and
psychographics. Market targeting is a process of selecting the target market from the entire
market. Target market consists of group/groups of buyers to whom the company wants to
satisfy or for whom product is manufactured, price is set, promotion efforts are made, and
distribution network is prepared.
Process:
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suitable option depends on situations prevailing inside and outside the company.
2. Selective Specialization:
In this option, the company selects a number of segments. A company selects several
segments
and sells different products to each of the segments. Here, company selects many segments to
serve them with many products. All such segments are attractive and appropriate with firm’s
objectives and resources.
There may be little or no synergy among the segments. Every segment is capable to promise
the profits. This multi-segment coverage strategy has the advantage of diversifying the firm’s
risk. Firm can earn money from other segments if one or two segments seem unattractive. For
example, a company may concentrate on all the income groups to serve.
3. Product Specialization:
In this alternative, a company makes a specific product, which can be sold to several
segments.
Here, product is one, but segments are many. Company offers different models and varieties
to
meet needs of different segments. The major benefit is that the company can build a strong
reputation in the specific product area. But, the risk is that product may be replaced by an
entirely new technology. Many ready-made garment companies prefer this strategy.
4. Market Specialization:
This strategy consists of serving many needs of a particular segment. Here, products are
many
but the segment is one. The firm can gain a strong reputation by specializing in serving the
specific segment. Company provides all new products that the group can feasibly use. But,
reduced size of market, reduced purchase capacity of the segment, or the entry of competitors
with superior products range may affect the company’s position.
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5. Full Market Coverage:
In this strategy, a company attempts to serve all the customer groups with all the products
they
need. Here, all the needs of all the segments are served. Only very large firm with overall
capacity can undertake a full market coverage strategy.
Market differentiation
A promotional strategy employed to create a particularly strong hold in a specific market.
While adopting market differentiation method, a firm would produce several variations of the
basic product which will be marketed in different sections of the market under the same
umbrella brand, which provides the parent brand a wide range of coverage and thus helps in
creating a sense of dominance across the various segments of the market.
It helps the brand to acquire a large mind share amongst the prospective and current
consumers due to its presence in as many categories as possible. With the technology
reaching masses and rise in disposable income, there is a market demand of various version
of the product so that the different needs of different type of consumers is satiated. Every
market and its corresponding customers are important.
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Durabliyty
Reliability
Repairability
Style
Design
Service differentiation
Quality of delivery
Installation
Customer training
Consulting service
Repair
Miscellaneous
Personal differentiation
Image differentiation
Market Positioning
What is market position? In marketing and business strategy, market position refers to the
consumer’s perception of a brand or product in relation to competing brands or
products. Market positioning refers to the process of establishing the image or identity of a
brand or product so that consumers perceive it in a certain way.
Attribute positioning : based on attributes of product
Benefit positioning : benefit or use of product
Cost positioning
Segment positioning
User positioning
Competitor positioning ; against competitor
Quality positioning
Product category positioning
Variety based positioning : based on producing a subset of industrys product or
service
Needs based positioning : needs of grp of customer
Access based positioning :
Trade off
Porter emphasizes that choosing a unique position, however, is not enough to
guarantee a sustainable advantage.
There are two more essential conditions for ensuring sustain advantage by preventing
imitations.
There are trade-offs and fit.
Trade-offs create the need for choice and purposefully limit what a company Fit looks
out for imitators by creating a chain that is as strong as its strongest link.
Instead of commiting itself fully to the chosen strategic position, if the company to
mix with its tactics or elements of some other strategy, it would become self-defeating
Therefore, trade-offs which create the need for choice and purposefully limit what a
com offers are essential to strategy.
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Porter points out that trade-offs arise for three reasons.
The first is inconsistencies in image or reputation.
Secondly, trade-offs arise from activities themselves.
Third trade offs arise from limits on internal coordination and control activities and
approaches makes coordination and control difficult.
Fit
Porter explains that positioning choices determine not only which activities but how
activities relate to one another.
Porter identifies three types of fit, although they are not mutually exclusive.
One is Simple Consistency between each activity (function) and the overall strategy.
The second order fit occurs when Activities are Reinforcing.
The third-order fit goes beyond activity minimization to what Porter calls
optimization of effort.
Competitive advantage grows out of the fit among the entire system of activities
which substantially reduces costs or increases differentiation.
Porter points out that while operational effectiveness in achieving excellence in
individual activities, or functions, which may be easily copied, strategy is about
combining activities which is fundamental not only to competitive advantage but also
to the sustainability of that advantage - it is harder for a rival to match an array of
interlocked activities than it is merely to imitate a particular activity or approach.
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outmaneuver competitors these days involves building highly effective internal and
external relationships that ensure that you have the ability to support your company’s
mission and meet evolving growth initiatives. The strategy of maintaining open
dialogue among your channel partners has become crucial for innovation and overall
success. In today’s economy you must develop and maintain connections that provide
the resources your channel partners need to grow and strengthen their business, which
translates into success for your company. CRM or Customer Relationship
Management is a strategy for managing an organization’s
I. supplier pattern
II. preferred suppliers
III. commercial suppliers
3 type trust
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Life cycle models of buyesr supplier relationship
This is the simplest and most widely used model, which divides the relationship into three stages:
Initiation: In this stage, the buyer and supplier are getting to know each other and establishing the
foundation for the relationship. This is often a time of high communication and information
sharing as both parties work to define expectations and roles.
Growth: In the growth stage, the relationship becomes more mature and collaborative. The buyer
and supplier begin to work together more closely to improve performance and efficiency. This
may involve joint problem-solving, information sharing, and technology integration.
Decline: In the decline stage, the relationship begins to deteriorate. This may be due to a number
of factors, such as changes in the market, changes in the needs of the buyer or supplier, or poor
performance by one or both parties. The buyer and supplier may begin to look for alternative
partners.
Selection: In this stage, the buyer is identifying and evaluating potential suppliers. This is a
critical stage, as the decision of who to partner with will have a significant impact on the success
of the relationship.
Termination: In this stage, the buyer and supplier end their relationship. This may be done for a
number of reasons, such as poor performance, changes in the market, or a merger or acquisition.
This model is a more complex model that takes into account a number of different factors, such as
the level of trust, commitment, and interdependence between the buyer and supplier. The model
identifies four different types of relationships:
Transactional: This is a low-trust, low-commitment relationship. The buyer and supplier are
simply interested in exchanging goods or services.
Contractual: This is a higher-trust, higher-commitment relationship. The buyer and supplier have
a formal contract that outlines their expectations and obligations.
Collaborative: This is a high-trust, high-commitment relationship. The buyer and supplier work
together closely to achieve common goals.
Partnership: This is the highest level of trust and commitment. The buyer and supplier see each
other as strategic partners and are willing to share resources and information.
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Selection of firms for collaboration :
Backward linkage exist when foreign affliates acquire goods and service from domestic
firms, forward is when foreign affiliates sell in domestic
Horizontal involve interaction with domestic firms engaged in competing activity
PRM is similar to customer relationship management (CRM) in that companies use CRM
systems to monitor the marketing, sales and service process of customer relationships. When
working directly with a customer, a sales rep can target the consumer and work one-to-one
with that potential customer. While CRM does help with the relationship between a business
and a customer, it's much more focused on the C and M of CRM -- once it converts a lead
into a customer, it's about managing that next purchase. When working with partners,
companies need to put more emphasis on the relationship aspect, as it's the goal of both the
partner and the managing company to profit from the relationship. To effectively do that
requires a different type of management and thinking, including more negotiation in the
selling process.
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