Kotler stated that, the formula segmenting, targeting and positioning is an essence of strategic marketing. (Kotler, 1994, p.93). STP in combination comprise a three stage marketing strategy as to determine the customers that exist, target the focus groups and intelligently choose between the appropriate strategies as to get on with the market.
Segmentation is the basis to know about the target markets and aids in developing contingent marketing strategies. It aims at effectively answering the questions pertaining to a specific industry segment at a particular market place. Analyzing the market segments is crucial for understanding the targeted market which indeed helps in the decision making process. It gives scope for implementing market plans which are unique for various market segments. The notion of advantages of market segmentation holds good even from the consumer perspective. It holds true that “you can’t be all things to all people”, and with experience it shows that firms that meet the needs of one group of customers tend to be more profitable. For instance, Dell categorizes its website by customer groups like privates, small or large business, public organizations etc rather than by product groups as desktops, notebooks etc.
The products that are specific to a particular segment increase the chances of cross selling. Through market segmentation the businesses can create their own niche products and can hence attract additional customer groups. Some of the roots of the product development process lie in the market segmentation hence the segments enable to plan the development of new products as it provides information of the similar units in the market that share particular needs. This raises the productivity of an organization and in turn and obviously the profit margins. The organizations always have better chances to increase their market share, as segmentation supports development of niche strategies and marketing activities can target attractive segments in the initial stages.
The concept of target marketing would be essential as it focuses on a specific market area that which can be cost and time efficient. Market specialism can bring about a unique brand image and enhances the credibility and reputation of an organization. Promotion material is always relevant to the customer needs hence it is less likely to be junked. This target marketing can make an organization stand out from its competitors by differentiating the activities from them through which profit margins can be enhanced as the prospective customers focus more on product standards than on price issues.
The positioning strategy deals with creating concepts, advertising and packaging. According to Ries (1996), positioning is that which is done to the mind than that is done to the product. As Brooksbank (1994) said, positioning strategy should include customer targets, competitor’s targets and competitive advantage. Without such clear and strong strategy significant amount of time and money are spent in vain. If an organization cannot articulate its positioning and if it doesn’t have real and differentiated value to the market place and organization, the chances of success are diminished greatly. It not only drives marketing but also operations as to where to go, what to invest, what’s important and what’s not. Identifying proper positioning strategy is not easy but will certainly make life easier.
STP in Relation to the WM Company
The ‘WM’ company is a producer of soft drinks and markets its products mainly through retail stores. “Phun!” is a well established brand of the company which is produced targeting children, the lower age groups. The company is looking forward to launch another new brand by the name “first-fruits” which is ought to be launched targeting teenagers and adults. From the available information about the company and its products it is evident that the WM Company follows a demographical market segmentation strategy. Its product ranges gave the scope for WM to segment the market based on the demographics.
The company has identified the segments in the market which are classified basing on the age groups and the next step is to target these segments with products that closely match the needs of the customers within those segments. In this context, the existing range “Phun” matches the lower age group segment. There are a number of targeting strategies, including niche/ concentration marketing which is the strategy adopted for the existing range. It is concerned with targeting one particular well defined group, here, children. The main disadvantage here is that potential for sales growth and economies of scale may be limited and would affect the organization if sales begin to decline.
Another strategy deals with selling a single product to the whole market. This is being followed by WM, that is, only “Phun” existed for all the range of customers though it is majorly marketed for children. This would be beneficial if the firm is producing on a large scale with low production costs such that high sales volume would generate profits overall. The disadvantage is that customers are less interested in standardised products as the food industry consumers always look upon variety of choices.
The adoption of a differentiated or selective marketing strategy would be feasible for the new brand that is ought to be launched. It deals with targeting each segment with a product. Here, children segment with “Phun” and adults segment with “First-fruits” where the products are designed according to the needs of each segment. This would increase customer satisfaction and generate greater degree of consumer loyalty. This would spread risk and will be less affected even if sales in one segment are declined. Disadvantages include if there are more segments and more products as consumers would be confused and additional costs would incur for advertising. But in this case, as there are only two segments and products, this strategy would be the best feasible option for the WM Company.
Classically positioning can be defined as designing as an offer which occupies a distinct valued place in the minds of the target customer. Currently the WM company has build up a unique position in the lower age consumer groups and this is the reason why the launch of new brand is planned; as for positioning the company in the all the market segments of soft drinks.
The positioning strategy plays a vital in developing an appropriate marketing mix. The presumed strategic position of a company can be determined by the positioning strategy. In this case, it is determined by the product attributes that is for the existing range, the ingredients mainly are prepared for children such as flavouring, colouring etc and the new range included organic and pure fruit based. It is not only the segmentation but also the product development process has a key role to play as in shifting the company’s manufacturing trend from artificial flavours and colours to natural fruit essences. Here, Positioning is also done by product class and product user. The new range is been launched also considering the competition in the market and hence WM Company considered different segments in the market and increased its range such that a greater market place is covered.
Evaluation of Strategic Options
Ansoff’s growth matrix
The Ansoff’s growth matrix is used in deciding the product and market growth strategy for a business. It suggests that the growth of a business depends on whether it markets new or existing products in new or existing markets. The output is a series of suggested growth strategies that provide crucial hints in adopting a strategy. The growth matrix can be illustrated as follows;
Product Development
The product development strategy aims at introducing new products into the existing markets. This requires developing products that are appealing to existing markets. The new range of drinks that are being launched by WM Company falls under this growth strategy as it is a new product in the existing market.
Customer Penetration
This strategy aims in bringing out more and more consumers under the company’s loyalty group. In brief it is selling the product in high volumes in the existing target markets. The prime motive behind this is to increase the sales volume and eventually the profit margins. Advertising and campaigning are the tools for accomplishing this strategy.
Diversification
The diversification strategy aims in exploring new markets and this can be done either by entering new markets with the existing product ranges or introducing an entirely new product catalogue. Chance plays a major a role and hence it is a risk bounded strategy. The WM Company in one perspective is diversifying its business from artificial flavoured soft drinks to natural fruit drinks. This is a desired act as to capture the untapped market potentials.
Market Development
It is concerned when a business intends to sell its products into new markets. Possible ways of approaching this strategy include having new geographical markets, new product dimensions, new distribution channels, different policies to attract different customers or segments.
Porter’s Generic Competitive Position
The relative position of a firm within its industry determines whether a firm’s profitability is above or below industry average. A firm that has above average profitability would sustain competitive advantage in long run. There are there generic strategies for achieving above average performance in an industry.
Cost Leadership
In cost leadership, a firm sets out to become low cost producer in its industry. All the sources of cost advantage must be found and exploited by a low cost producer. If a firm can achieve and sustain overall cost leadership then it will be an above average performer in the industry. Considering the case of WM Company’s new product range, it should include economies of scale, proprietary technology, preferential access to raw materials and other factors can be taken as the sources of cost advantage and exploit them.
Focus Strategy
The market analyst selects a segment and tailors its strategy in serving them to exclude from others.
The focus strategy has got two variants. In a cost focus a firm seeks a cost advantage in its target segment while in differentiation focus a firm seeks differentiation in its target segment. Overall, it depends on the target segment. In the case of WM Company, cost focus exploits differences in cost behaviour for existing and new range while differentiation focus exploits the special needs for the new range of products for the new segment.
Differentiation
In this strategy a firm seeks to be unique by selecting attributes that many buyers perceive to be important and positions itself to meet those needs. Considering this strategy, WM Company is launching its new range of products to meet the needs of different segments (adults and teenagers) though it is successful with the existing range of products such that these dimensions are valued widely by the buyers.
Market Awareness and Sales Objectives – Problems and Strategies to overcome them
Problems Involved With Setting Up Market Awareness
Firms input a significant amount of time and resources into winning projects and a number of them are lost. According to the AMR Research alert, firms rarely know the reasons of why they are unsuccessful or what they should change. Lack of strategic plans at firms, result in failures. Many businesses face the challenge of building market awareness and intelligence to support their business development aspirations. Certain companies are unsure about their competitors and capabilities and skills that are believed in by the customers and opportunities to know about their competitors. Poor performance resulting from lack of market awareness will lead to plethora of problems that include lost opportunities, high costs, high prices, inability to forecast future revenues, poor staff morale.
These problems can be overcome by gathering marketing intelligence, data collection and analysis, competitor analysis, market positioning, marketing and public relations, objectives, sales / revenue target setting. Optimising these procedures and processes enables the firm to position itself confidently in the marketplace by having good knowledge of taking effective decisions.
Sales Objectives and Suggestions
Sales objectives play an important role in inducing the consumer to buy the product. According to a research, consumer goods companies spend more in sales promoting than in advertising. The main targets include consumers, wholesalers and retailers, sales force. Building product awareness is a major objective for sales. While launching the new range of products, “First-fruits”, several promotional techniques would be highly effective in exposing the product to the customer. These enable capturing customer information which can then be used to follow up marketing efforts.
Creating interest is another objective that is considered most important in sales. This can be done by moving the customer to experience “first-fruits” by letting them try the product at a low cost or free as a promotion technique. Providing information is another technique where the customer has access to products information, the difference between “Phun” and “First-fruits” etc., next to building initial product awareness, important sales objective is to build demand by convincing the customer to make a purchase.
Price reduction etc can be employed to stimulate sales. Once the customers have made a purchase, sales objectives can be used to encourage additional purchasing. Monitoring site that provide information about good deals and products through which marketers can have an insight into how customers feel about certain promotions. Marketers face the challenge of finding creative ways which separates them from the promotions that are provided by the competitors.
Tracking customer response to marketer’s promotional activity is also an important measure of success. For example, a store that has loyalty cards can match with the sales data to coupon use. This information can then be sold to coupon marketers who may use this information to understand the buying patterns of the ones responding to the coupon.
Sales promotion can be classified into various types. Promotional pricing include price reductions, free goods, tied offers, money off next week. For example, as “first-fruits” is a new product, it can either have price reduced or offered free with “Phun” or a one plus one offer. This promotional pricing can be adopted until the new product becomes familiar to the market and the consumers. The other type is non price promotions where contests and free gifts are provided. This can be done depending upon the competitors or during seasonal sale. Sampling is the other procedure which is the most effective for a new product launch. This would be a great use for coupons.
Sales objectives can also be classified based on the target audience to whom the promotion is directed. Consumer market directed is the most common method where the promotion is intended to appeal the final customer. Trade market directed is to target all the customers including the partners within the distribution. Here, once when products are stocked, marketers use the promotions to strengthen the relationship with the channel. Business to business market directed is another method where sub set of sale promotions are targeted to business to business market. These are generally used in many industries. Considering the case of WM company’s new products, promotion can be classified based on this classification such that different techniques can be adopted which makes the process easier.
Elements of Marketing Mix – Impact Scenarios between the Existing and New Brand of Products
Marketing mix is developed to meet the needs of target market. Hence determining the elements of marketing mix is crucial as it would aid in achieving the goals of a company. The impact scenarios of the marketing mix elements are elucidated as follows;
Product
In the case of WM Company, “Phun” is a product that is segmented to children and “First-fruits” is the one that is segmented to adults and teenagers. These are considered as intangible products that are manufactured on a large scale. Existing range of products are usually produced on a large scale where as the new range of products are not manufactured on large scale but rather would depend on the customer response from the promotion.
Price
It is the amount that a customer needs to pay for the product. Pricing decisions are complex and various considerations evolve such as market share, customer demand, material costs, information availability, competition, profit motives, product considerations and legal considerations.
For the existing product “Phun”, the price remains the same and may vary according to the market share, offers available etc., but for the new range of products, initially the cost of depends upon the response from the promotion, competitive products and slowly the cost can be raised once the product has attracted the segment. Complete decline in the cost may also incur loss as large scale will not be produced initially. Hence, pricing should depend both upon customer perceived value of the product such that the customer meets the needs as well as considering the material costs and market share such that the firm has a significant profits and reputation.
Place
Place is the location where the product can be purchased. It is referred as distribution channel. It can be any physical or a virtual store. In WM Company, the places of purchase are usually local stores, sweet shops, super markets etc. For both new and existing products the place remains the same as it is beneficial for new products as the customers would already exists and the promotion becomes easier. Entering into a new place is considered as a risk for a new product as the customers are not familiar with the existing product and it requires additional promotion.
Promotion
It represents all of the communication elements in the market place such as advertising, publicity, sales promotion, sponsorship marketing, one to one communication, public relations. For existing products, promotion is required based on the competition, existing offers in the market, customer demand, sales, profit margin. For the new range of products, aggressive promotion is required such that it avoids competition, gains consumer demand, loyalty which would be cost effective to the company. Certain sales objectives as mentioned above should be followed for the success of the new product and the firm.