Segments

MARKETING MATERIAL

What is a Market Non-Profit Making Organizations

Who is the Market Channels Market Boundaries

Customers, Prospects & Penetration Penetration

Brand or Market Share Pareto, 80:20, Effect Market Segments

Segmentation Segmentation by Benefit

Segmentation by Consumption Profile Segment Viability

Size Identity Relevance Access Segmentation Methods

Market Research Analysis Implementation Segmentation/Positioning

Product/Service Positioning Positioning over Time Position Drift

Consumer Drift Competitor Drift Ego Drift

Approaches to Segmentation Customized Marketing

Multiple Segments Cross Segment Full Coverage Mass Marketing

Horizontal & Vertical Markets Niches Counter-Segmentation

Differentiation & Branding Brand Monopoly Branding Policies

Derived Brands Cannibalism Own Brands & Generics

Differentiation of Services

9434 MARKETING Chapter 4

- Market Positioning and Segmentation

Introduction

The interface between the consumer and the supplier is the

`market'. The `position' chosen in that market, by the supplier,

for the product or service --against the `map' of consumer needs

--defines all of the marketing actions thereafter. Whether

decided formally or by default, it is at the heart of marketing.

The initial stage, however, may be to `segment' the market

itself; to choose a smaller part on which to concentrate the

organization's resources --to gain control over the competitive

position. However, the segment has to be viable; and

sophisticated marketing research is needed to optimize the

`segmentation'.

Positioning, or targeting, then places the product or service in

the optimal position, mapped against the competitors, on the

`dimensions' which are most critical to users.

The focus for this activity is often a `brand', and the

alternative branding policies are investigated. Branding,

combined with positioning, usually offers the most sophisticated

and powerful application of marketing principles.

What is a Market?

To a producer or service provider, the most practical feature of

a market is that it is `where' the product or service is sold or

delivered --and the profits generated. On the other hand, it can

be defined in terms of the product or service (where the `market'

describes all the buyers and sellers for that product or service

--the automobile market, the money market, and so on) and this

is the framework favoured by many economists. It can also be

defined geographically or demographically.

The key for a marketer, however, should be that the market is

always defined in terms of the ' customer' . Philip

Kotler - 1 - sees ' buyers' (actual and potential) as

constituting the ' market' , whereas ' sellers' constitute

the ' industry' , and he defines it as follows:

A market consists of all the potential customers sharing a

particular need or want who might be willing and able to engage

in exchange to satisfy that need or want.

AUDIT 6.1

What market is your organization in?

Non-profit-making Organizations and the Market

This concept is clearly just as applicable to services as to the

products around which the theory normally revolves. But, in this

context, the term `market' can even represent a powerful concept

in the `non-profit' sectors. Although the word `market' itself

might sound strange emerging, say, from the mouths of civil

servants, the idea of defining the `set' of `customers' who are

the focus of their activities is a powerful one. It helps to

concentrate their attention, externally, on the needs that they

are meant to be addressing.

Every non-profit organization has clients or `customers'. Some,

such as the International Monetary Fund, may have just a few very

powerful clients; while others, such as a government department,

may deal with millions of individuals. But defining exactly who

these clients are, in relation to the activities of the

organization itself, is just as important an exercise as for a

commercial organization. This `market', albeit not usually

complicated by the same competitive overtones as its commercial

equivalents, is ultimately just as powerful a force on a non-

profit organization.

Who is the Market?

The market is, thus, the group of customers. However, in many

practical respects it is still defined in the short term by the

suppliers. They say, in effect, what is to be supplied to whom,

and hence where the initial boundaries are to be set. After all,

the consumer cannot make his or her wishes

known if there is no suitable product on offer; and this lack of

short-term feedback became a major long-term problem for the

planned (command) economies of Eastern Europe --hence one of the

reasons there for Western market capitalism.

In the long run it is the customers, however, who will decide

what the market really is; by their buying patterns. They set the

boundaries, and by their purchases choose what products or

services will remain in the market.

The inevitable outcome is that to understand the market, the

producer must understand the customer: hence my concentration on

market research in chapter 2 --it provides the cornerstone for

effective marketing.

' Remember that the basis of sound marketing practice is the

ability to identify with the customer or client --to be able to

adopt the consumer's viewpoint' .

AUDIT 6.2

Who are your organization's customers or clients, and how does

this define your market?

Is this different from your answer in audit 6.1?

Channels

One complication is that the producer may not sell direct to the

end-user, but may be forced to sell through distribution

channels, which act as intermediaries. This may be as true of

services as of products: Commercial Union and the Prudential need

their brokers to act as intermediaries. Even in the non-profit

sector the universities, which are independent of government,

have a major impact on the delivery of its higher education

policy.

The `producer' thus has consumers who are unseen, and customers,

those in the distribution chain, who are met face to face. As we

shall see later, these customers have different needs from the

consumers; and, although they are conventionally seen as part of

the same market, these marked differences have to be allowed

for.

AUDIT 6.3

What are the differences in market requirements posed by your

organization's customers in the distribution channels, as opposed

to the end-users?

In setting its strategies, how does your organization cope with

these differences?

Market Boundaries

We have seen, in earlier chapters, that consumers --of both

products and services --can be grouped on the basis of a number

of factors. Their position against these factors, which may be

different for each market, `maps', the true boundaries of that

market; and the market is defined by the consumers' view of it,

and in their `language'.

On the other hand, producers, especially those without marketing

expertise, tend to have much more `physical' ideas of where

markets lie. They want to be able to go and `touch' them; and

often feel somewhat uncomfortable when trying to deal with what

they see as an ephemeral `life-style'. Despite all the very sound

marketing theory, therefore, the practical definitions of markets

tend to revolve around the following factors:

' Product or service category' . This sets out what is bought,

as defined in the `physical' terms of the producer. To reverse

Leo McGinneva's example, often quoted by marketing theorists, the

product is the 2 mm drill, not the 2 mm hole that the end-user

wants to make.

' Geography' . Where the product or service is sold or

delivered is another clearly understood concept.

`Physical' customer groupings' . Producers do recognize

obvious groupings of customers. In industrial markets, for

example, suppliers of medical diagnostics recognize that

hospitals have different needs to those of corporate health

centres.

' Intangibles' . The only intangible which is widely

recognized, and then only as differentiating commercial markets,

is price; although even then many, if not most, marketers would

treat price as if it was fully tangible. Thus there is often seen

to be a `cheap' market, often described rather patronizingly as

`down market' (which also carries some class connotations) as

opposed to a `quality' market.

You need to recognize that this myopia exists, because it is

highly prevalent. Even committed marketers still talk about the

market for replacement drills; a much easier concept to handle

than that of selling the potential for holes. But, even so, you

also need to recognize that it is ultimately the customer who

decides `where' your market will be.

AUDIT 6.4

In the light of what you have now read, where does your

organization draw the boundaries of its markets? How would you

modify these, to make its marketing more effective?

Customers, Prospects and Penetration

Taking this myopia one stage further, producers or service

providers mainly see markets in terms of where they themselves

are in these markets. This means that they often look at them

specifically in terms of their own existing customers and

potential customers:

' Customers' . In commercial markets it might seem an easy

task to define who your customers are; they are simply the buyers

of your brand. But the dividing line is often not quite so clear.

Where do those lie who have now switched to another brand? Where

do you put very loyal users who have most recently bought another

brand just for a temporary change? How do you categorize a

consumer of a particular durable, when their last purchase might

have been half a decade ago? In the public sector, the boundaries

may be even more blurred; unemployment benefit is paid to those

out of work, but is intended just as much to support their

dependents.

' Users' . Sometimes users are not quite the same as

purchasers. It may be the children in the family who actually

consume the cornflakes; and they will usually make their brand

preferences very well known, even if it is only because they want

to collect the free gifts in the packets. The difference is most

noticeable in the case of newspapers and magazines, where

readership figures (the number of those who read a given issue,

as determined by market research surveys) can be much higher than

those for circulation (the number of copies actually sold, from

special audits of the publishers' own accounts).

' Prospects' . The term `prospects' is most often used in

face-to-face selling, `potential customers' often being used in

mass markets, but the meaning is the same; those individuals in

the market who are not the organization's customers. Again,

however, the boundaries are not quite so clear. Are lapsed

customers to be included? Is everyone in the market a prospect,

or should only those who are likely to buy the particular brand

be included? The concept of `prospects' may sometimes be just as

applicable in the public sector. A government will undertake

extensive advertising campaigns because as few as 50 per cent of

those entitled to family benefits actually claim them. The

government is here attempting to convert prospects into

customers.

In practice, however, these are seen as broad categories, so the

fine distinctions questioned above do not normally pose critical

limitations. The important fact is that some of the individuals

in the market buy the producer's brand and some do not. The

measure of this difference is often given by brand

' penetration' .

Penetration

This is the proportion (percentage) of individuals in the

' market' who are users of the specific (brand) product or

service, as determined by the numbers who claim in response to

market research to be users. In the non-profit sector it can

often be used just as effectively as, for example, a measure of

the number of clients receiving help as a proportion of the total

population who might need the service.

The measure of `penetration', however, does not allow for the

rate of usage or purchase by different individuals. The most

commonly used measure, therefore, is market share or brand

share.

Brand (or market) share

This is the share of overall ' market sales' taken by each

brand. In the consumer field, this is usually measured by audit

research on panels of retail outlets, such as that undertaken by

A. C. Nielsen; and hence represents consumer purchases and not

necessarily usage --although the distinction is usually not

important. In the industrial field it is usually a `guesstimate'

based on research of a limited number of customers; although in

some fields government departments audit total output.

Once more there are complications. The share can be quoted in

terms of volume (the brand has a 10 per cent share of the total

' number' of units sold) or in terms of ' value' (at the

same time the brand took 15 per cent of the total money being

paid out for such products, since it was a higher priced brand).

This difference can sometimes be dramatic. Amstrad claimed at one

time to have achieved the same market share as IBM, which was

then the market leader in the PC market. But this was in terms of

volume --in terms of value Amstrad had less than a third of

IBM's share, and was actually in fourth or fifth place.

The results of Andrew Ehrenberg's research have complicated matters further. He shows that - unlike the traditional view that customers buy just one brand - they actually buy a 'portfolio' of brands. Their brand loyalty is, therefore, measued in terms of the share of overall purchases over time, within that portfolio, held by the brand in question!

The measure of share, and the concept of prospects, are important

because they delineate the extra business that a producer can

reasonably look for, and where he or she might obtain it. On the

other hand, the evidence in many markets is that most business

comes from repeat purchasing by existing customers.

AUDIT 6.5

What problems, if any, are there in defining who are your

organization's users or prospects? How does your organization

resolve these problems?

Approximately what `penetration' of users or clients does your

organization achieve (to the nearest 10 per cent, say)? Are there

significant groups still to be addressed?

Approximately what market share does it hold in terms of volume

and of value?

The Pareto, 80:20, Effect

We identified above the fact that there may be heavy and light

users, the former being that much more important to the

producer.

At the end of the nineteenth century, Pareto noted that the bulk

of the wealth of Italy was in the hands of 10 per cent of the

population. This principle has since been adopted by management

in general, and enshrined as a very valuable `rule of thumb', the

80:20 Rule, which can be applied to a wide range of situations,

in mass consumer markets as well as industrial ones.

It applies to groupings of customers; in the industrial sales

field the top 20 per cent of customers will often account for 80

per cent of sales. It also applies to groupings of products,

where there is an extended product list; the best-selling 20 per

cent of products will often take 80 per cent of the volume or

value of overall sales.

The importance of the principle is that it highlights the need

for most producers, often against their natural inclinations, to

concentrate their efforts on the most important customers and

products.

AUDIT 6.6

Who are the five most important customers or clients (or groups

of these) of your organization? Approximately what proportion of

its business (or activity) do they account for? What special

steps does your organization take to reflect the importance of

these customers?

What steps does your organization take to review which are

unprofitable customers, and what actions does it then take?

What proportion of its sales are accounted for by the five best-

selling brands, and what strategies recognize the importance of

these?

What procedures are in place to discontinue low-selling products

or services?

Market Segments

As we have seen, producers tend to define markets quite broadly,

in terms of the physical characteristics which are important to

themselves. The result is that these larger markets often contain

groups of customers with quite different needs and wants, each of

which represents a different `segment', with different

characteristics in terms of its consumers. This process is called

`segmentation'; or sometimes `target marketing', because the

supplier carefully targets a specific group of customers.

If we look at the personal computer market we may see how

segmentation works.

ACTIVITY 6.1

How would you define the personal computer market?

Within this overall market what segments, separate groupings of

customers, can you think of?

This overall market is often loosely defined in terms of being

that for self-contained, stand-alone, computers which are used by

one person. However, a number of alternative criteria may be

employed. `Segments' within this market can be defined in terms

of the physical hardware. Those based on the Intel range of

`chips', and following the conventions originally chosen by IBM

for its PC, form the `IBM compatible market' or segment,

depending on how you define each of these terms. There are other

segments, however, one based on the Motorola 68000 series of

chips and yet another on the PowerPC range, while another is almost exclusively the province of Apple.

Personal computers can also be defined in terms of use. There are

those in the home, used mainly for games, and those used as

integral parts of other systems, such as some retail systems or

process control applications. Mainly, though, they are used in

office systems --but even here their use can be further

segmented. There are the basic work-horses (the main IBM

compatible market), but there are also `desktop publishing'

systems, a segment very effectively exploited by Apple. Then

there is the multi-media approach being developed by Compaq, amongst others.

There is also segmentation by price and quality. The early

IBM PC clones, for example, were clearly aimed at a market

which could not afford the IBM and Compaq machines, which were

then up to ten times the price.

The value of discovering such separate segments, each with rather

different characteristics, is that they allow producers to offer

products that address the needs of just ' one' segment, and

hence are not in direct competition with the overall market

leaders.

While IBM and Compaq still offer a comprehensive range, with almost universal applicability, unbranded clones specifically target the price-sensitive segment. Despite their aggressive posturing, these are actually avoiding head-on confrontation with IBM and Compaq --and by concentrating on the specific segment can offer users in that segment a better match to their needs.

Once again, although the concept of segmentation is classically

described in terms of products, it can be just as applicable to

services. In the PC market, there are dealers who provide support

for the smaller organizations and those who specialize in

supporting the large multinationals --each totally different

segments of the overall market.

Segmentation can even be a powerful concept in the non-profit

sector, although it tends to be a device for focusing resources

rather than dealing with competition. Thus, for example, there

may be seen to be a number of possible segments of the

`unemployed'. Each of these `segments' has different

characteristics and offers correspondingly different

opportunities for government action.

Segmentation

In one sense, `segmentation' is a ' strategy' used by vendors

to concentrate, and thus optimize, the use of their resources

within an overall market. In another sense, it is also that group

of ' techniques' which are used by these vendors for

segmenting the market.

One focus for segmentation may be that of consumer behaviour. In

this context, the factors that we discussed earlier --the

influences on the consumer --provide one set of starting points.

These are often grouped as follows:

geographical --region, urban or rural, etc.

demographic --age, sex, marital status, etc.

socio-economic --income, social class, occupation, etc.

psychological --attitudes, life-styles, culture, etc.

Philip Kotler - 3 - distinguishes between two major

approaches:

consumer (inherent) characteristics

--geographical

--demogrpahic

--psychographic

consumer (product-related) responses

-- occasions (when used)

-- benefits

-- usage (including heavy or light)

-- attitudes (including loyalty)

The first of these categories reflects `who buys'. The second, on

the other hand, is generally based on `what is bought'. If the

emphasis is on the supplier's viewpoint, which it often is, this

can be expanded to include elements of the 4 Ps:

price

distribution channels

physical characteristics of product or service

packaging

However, these patterns are probably unrelated to the customers'

own perceptions. The customer may genuinely believe, like a

supplier, that a disinfectant bought in a plastic bottle from a

supermarket belongs to a different segment of the market than one

in a glass bottle bought from a pharmacy. On the other hand, the

consumer may actually be making the choice on totally different

grounds; that it offers specially gentle protection for the baby

in the family, say. It behoves a supplier to know what the true

reasons are; not least because the promotional message often

determines what the product is in the eyes of the consumer.

The characteristics that are important to a specific market may,

however, be much more closely defined. The aim of much market

research is to identify what are the ' exact'

characteristics, which are the most important (conscious or

subconscious) delineators of buying behaviour. It is then these

specific characteristics which are the most powerful tools for

segmentation.

In practice, the picture may be much more complex; with the truly

meaningful segments based on intangible benefits which only the

consumer sees, or based on natural consumer groupings which

emerge from much more deep-seated social processes. In some

consumer markets it may need the use of significant amounts of

research, using the `factor analysis' and `cluster analysis'

techniques mentioned in the earlier section on market research,

just to start to identify what the key segments are.

'Intangibles' represent the type of

characteristic most often used in the segmentation of consumer

markets (services as well as products). Those used in industrial

markets may be more directly related to the product or service

characteristics (for example, powerful single-use cleaners rather

than general cleaners), or at least to product usage

characteristics (cleaners to be used on floors rather than on

upholstery); but also to `customer set' characteristics (cleaners

to be used in workshops in heavy industry, rather than in

operating theatres in hospitals).

Segmentation by Benefit

The use of generalized factors as the basis for segmentation has

its limitations. It is much more productive to relate

segmentation to the specific characteristics of the market for

the product or service. Different customers, or groups of

customers, look for different combinations of benefits; and it is

these groupings of benefits which then define the segments. It is

these differences which the producers can use to target their

brands --or the public service providers their offerings --on

the segment; to position them where they most clearly meet the

needs of the consumers in that segment.

Walters and Knee - 5 - show very clearly how segmentation is

applied by one UK fashion retailing chain, in terms of a

different outlet for each segment (Evans for larger sizes,

Dorothy Perkins for the `Young') (figure 6.1).

Referring back to the earlier example, in order to meet the needs

of the `desktop-publishing' market, Apple provided graphics-

oriented hardware and software --which offered the benefit of

very easy `typesetting' to users in the ordinary office

environment --and told them about it with particularly effective

commercials on television. Atari, on the other hand, offered very

sophisticated screen-handling hardware; which is ideal for the

fast-moving images demanded by computer games.

Segmentation by Consumption Profile

In recent times, a number of research agencies have started to

characterize consumer segments in terms of the buying choices of

the consumers in them. Thus, they are characterized by their

purchases of a range of key products and, in particular, by a

range of media read and television programmes watched. The data

for this may be provided in some depth by MRB's TGI

survey, or in less (but still adequate) depth by less

wide-ranging surveys. Whatever the set of key products chosen,

the profile as described in terms of the bundle of brands

purchased is supposed to be more meaningful to marketers than the

relatively esoteric categories offered by life-styles.

AUDIT 6.7

What are the benefits of the products or services that your

organization provides for its customers or clients? Are there

different groups (or clusters) of customers who have the same

responses to these as one another, but different from other

groups?

What segments do you think your organization may be addressing?

Do you think they are the right ones? How does the organization

use this segmentation?

Segment Viability

There is a pure, customer-oriented, marketing reason behind

segmentation. By designing products or services which are

narrowly targeted on the needs of one specific segment, it may be

possible to offer them the best match to their needs. In

practice, however, producers usually target segments rather than

the overall market because this allows them to concentrate their

' resources' on a limited group of consumers; so that the

brand can be made to dominate that segment --and gain the

benefits of segment leader.

In the public sector, greater efficiency may be the justification

for such concentration; but in the commercial world, the ultimate

objective is, of course, to make a profit. To be viable, a

segment has generally to meet a number of broad criteria:

Size

The first question to be asked is simply whether the segment is

substantial enough to justify attention; will there be enough

volume generated to provide an adequate profit? As segmentation

is a process, at least in the short term, that is largely under

the control of the producer, it might be possible to find an

increasing number of ever smaller segments which could be

targeted separately. In general, however, it is best to choose

the ' smallest' number of segments, and hence the largest

average size, which still allows the resources to be concentrated

and head-on competition with the market leaders avoided.

In part, the viable size will be defined in terms of the

producer's cost structures. The car market is heavily segmented,

with Ford targeting a wide range of separate segments, but even

the smallest of these (sharing the same assembly line as others)

has to be worth some tens of thousands of cars a year simply to

earn its place on that assembly line. On the other hand, Aston

Martin, with its custom hand-building, can very effectively

target a segment which is worth just a few hundred cars a year.

Identity

The segment has to have characteristics which will enable it to

be separately identified (and measured by market research) by

both the producers and the consumers. In the car market there is,

for example, an identifiable segment for small cars; against

which Renault targets the Clio, Peugeot the 205, and so on.

Relevance

The basis for segmentation must be relevant to the important

characteristics of the product or service --it must be

`actionable'. For example, the type of pet owned will be highly

relevant in the pet food market, but will rarely be so in the car

market.

While this may seem obvious, much marketing is still undertaken

(mistakenly) on the basis of overall population characteristics

rather than those directly relating to the specific product or

service. Thus, for example, in many markets the tacit

segmentation has been made in terms of social class: yet the

major manufacturers' segmentation of the car market, to give one

example, no longer follows these lines.

Access

Finally, the producer must be able to gain access to the segment

that has been found. If tapping that segment is too difficult,

and accordingly too expensive, it clearly will not be viable. Let

us say, for the sake of argument, that there might be a small

segment of the general low-priced car market which could be met

by a small manufacturer using hand-building techniques. If the

consumers within the segment were, however, diffused evenly

throughout the population the producer might face difficulties on

two levels. The first would be in obtaining national

distribution on the low volumes. Setting up a separate dealership

network, to provide the maintenance facilities, would be almost

impossible (even some of the smaller existing manufacturers, such as Peugeot and Fiat, have incomplete

networks). The second would be finding the means of delivering

the promotional message to these potential buyers.

All of these criteria are equally applicable to the segmentation

available in the non-profit sector, and if they can be met

segmentation is a very effective marketing device. It can allow

even the smaller organizations to obtain leading positions in

their respective segments (`niche' marketing) and gain some of

the control this offers. ' It is worth repeating that the most

productive bases for segmentation are those which relate to the

consumers' own groupings in the market' , and not to

artificially imposed producers' segments. In any case, it must be

remembered that segmentation is concerned only with dividing

' customers or prospects' (and not products or services) into

the segments to which they belong.

Segmentation Methods and Practical Segmentation

In order to achieve a genuine consumer-based segmentation.

Richard Johnson - 7 - suggests that three `technical' problems

need to be addressed:

1. To construct a product space, a geometric representation of

consumers' perceptions of products or brands in a category.

2. To obtain a density distribution by positioning consumers'

ideal points in the same space.

3. To construct a model which predicts preferences of groups of

consumers towards new or modified products.

In practice, segmentation is so very clearly bound up with the

market research programmes described in chapter 2 that it often

almost becomes one element of this aspect of marketing activity.

To discover, and use, these `natural segments' requires a number

of steps:

Background investigation

Qualitative research

Quantitative research

Analysis

Implementation

Segmentation/positioning

Market research

The basis for almost all effective segmentation must be sound

market research.

' Background investigation' . The first stage is to undertake

the desk research which will best inform the researcher, and the

marketer, as to what the most productive segments are likely to

be. This essential stage will lead to the `hypotheses' to be

tested, but it must not be the only one used to define the

segments. At each stage, the marketer must be prepared to abandon

any preconceptions or prejudices, in the light of actual data

about the customer's view of such segments.

' Qualitative research' . It is vital, in particular, that all

the characteristics which are important to the consumer are

measured; and that these are described in terms that are

meaningful to him or her. The `language' which is used by these

consumers should be first investigated in the group discussions

which are frequently used to pilot major research projects --and

which are best conducted by psychologists who are trained to

recognize the important nuances. However, other techniques can

also be used. One particularly effective one is that of

`repertory grids' or `Kelly Grids'.

It is this research that discovers the `dimensions' that are

important to the consumer (and which are described in their

language), from which the later strategies will be developed.

' Quantitative research' . Frequently making use of `semantic

differentials' based upon the dimensions (the key descriptive

words), revealed by the qualitative research, this research will

usually attempt to measure attitudes to the brand (and to its

competitors). This work may also, perhaps, extend to the

consumer's `ideal brand'. The validity of such `idealizations' is

often questioned, since they are artificial conceptualizations

which are not easy for the consumer to handle; and the results

can be ambiguous. In practice, though, the concept (of the ideal)

usually appears to work well; especially when the questions are

carefully phrased and are specific (and are `mapped' on the

specific dimensions involved in the positioning exercise).

Analysis

This stage is critical, and is now almost invariably dependent

upon the use of considerable computing power to undertake the

complex analyses involved. Some form of `factor analysis' is

usually used to separate out those variables that are highly

correlated, and hence are almost interchangeable in the

consumers' eyes.

The news that these variables are related is often very

enlightening to the suppliers. In some pioneering work undertaken

in the 1960s, the `strength' of pipe tobacco was seen to be

related mainly to the `darkness' of the tobacco (rather than to

the actual strength which the manufacturers were --without great

success --trying to reduce). This allowed Gallahers to

reposition its main brand (Condor) to appear milder, simply by

making the colour lighter.

Only when this factor analysis is complete is `cluster analysis'

used to create a specified number of maximally different

clusters, or segments, of consumers. The number of such clusters

specified is that which can reasonably be handled in marketing

terms (but which still adequately describes the significantly

different segments in the market). Each of these clusters of

consumers is then homogeneous within itself, but as different

from other clusters as possible. The typical outcome will be a

set of prioritized position maps, preferably limited to the six

to eight most important dimensions.

Implementation

These clusters (typically no more than half a dozen in number)

then need to be described in terms of the key characteristics

which differentiate them. In the case of Condor pipe tobacco, for

example, the factors which differentiated the cluster on which it

was targeted included the colour of the product and the colour of

the pack (which was seen as almost as important), but --

crucially --it also included `psychographic' elements (in this

case the consumers saw themselves as significantly more mature

than other pipe smokers).

Then, and only then, can the supplier's products (and the

competitors) be mapped onto these dimensions; and the product

`positioning' exercise begun, so that the target segments are

optimally addressed.

Segmentation/positioning

The marketer must then pore over these `maps' to decide exactly

what his or her `battle plans' should be; taking into account the

available resources as well as the competitive and consumer

positioning on the `map'. Which will the target groups be? Which

will the chosen segments be? Where will the products or services

be repositioned (if this is needed) to compete most effectively

and/or to be most attractive to consumers? ' This is probably

the most important set of decisions that any marketer has to

make, and from it most other decisions will emerge naturally. The

intellectual effort which needs to be committed to this process

cannot, therefore, be underestimated' .

The complexity of this whole process does mean that marketer and

researcher must work closely together. They must each have a

sound appreciation of what the other is doing and --most

importantly --confidence in the other's ability to handle the

complexities. It is a time-and resource-consuming process, but

the benefits to be derived far more than outweigh this. For

example, Tony Lunn - 9 - reports (on the basis of a major

unpublished review of market structure projects from several

European subsidiaries of a multinational corporation) that:

In all cases examined in the review, marketing men volunteered

the information that the benefits more than justified the time

and expenditure involved. In some cases the findings were held to

have contributed to substantial gains in market share, in others

to arresting decline in share in the light of fierce

competition.

ACTIVITY 6.2

Identify a small segment of the `market' which your organization

has not yet exploited. Then, using the four criteria given above,

decide whether that segment is viable in terms of bringing in

enough income to justify the effort and costs involved.

AUDIT 6.8

Examining, as far as the information you have at your command

will allow, the segments in which your organization has chosen to

operate, are all of these viable in terms of the above factors --

if not, why not?

Product (or Service) `Positioning'

There can be some confusion between `segmentation' and

`positioning', and indeed the two processes often overlap. The

key difference is that the former applies to the market, to the

customers (or occasionally `products') who are clustered into the

`natural' segments which occur in that market; while the latter

relates to the product or service, and to what the supplier can

do with these `products' to best `position' them against these

segments.

A further complication is that `positioning' can sometimes be

divorced from `segmentation'; in that the supplier can choose

dimensions on which to position the brand that are not derived

from research, but are of his or her own choosing. Indeed, such

positioning can be applied (to differentiate a brand, for

instance) even when segmentation is not found to be viable.

Further confusion can arise when the process is associated with

`product differentiation' --the practical `positioning' of

products or services so that they are recognizably different from

their competitors --as measured in terms of their positions on

the `product space', the `map' of competitive brand positions

against the dimensions which matter to the consumer.

As we have already seen, the most effective `segmentation' of a

market is usually based on sets of characteristics that are

specific to that market. The spread of users across these

characteristics may, however, differ quite significantly:

Both the homogeneous example, where all the users have similar,

closely grouped, preferences (for example, a commodity such as

sugar) and the diffused example (where they have requirements

evenly spread across the spectrum) tend to specify treatment of

the market as one single entity (but for very different reasons);

and segmentation is not relevant --unless competitors in a

diffused market have left part of it uncovered.

It is in the `clustered' market --which is often encountered in

practice --where segmentation can be most successfully used.

Ideally, the marketer would choose to place the product exactly

in the centre of the cluster that he or she is aiming for:

Another approach, though, where the clusters may be too small to

justify a segmentation policy (or the marketer simply wants to

have a more general product/brand which can be correspondingly

larger) is to launch the product or service so that it is

equidistant from several clusters that the marketer wishes to

serve:

It may, thus, not exactly match the needs of any one group, but

is close to meeting those of several groups. However, such

`positioning' may be vulnerable to attack from a competitor who

positions his or her brand exactly on one of the clusters.

Conventionally, product positioning (`product space') maps are

drawn with their axes dividing the plot into four quadrants. This

is because most of the parameters upon which they are based

typically range from `high' to `low' or from `+' to `-' (with the

`average' or zero position in the centre). This is best shown by

a typical example:

The value of each product's (or service's) sales (or `uptake'),

as well as that of each cluster of consumers, is conventionally

represented by the ' area' of the related circle.

In the above case there are just two clusters of consumers, one

buying mainly on the basis of price (and accepting the lower

quality that this policy entails) and one on the basis of quality

(and prepared to pay extra). Against these segments there are

just two main brands (A and B), each associated with a cluster or

segment. There is also a smaller brand (C), associated with

cluster 1; offering an even higher quality alternative, but at an

even higher price.

Real-life product positioning maps will, of course, be more

complex, involving a number of such dimensions; and drawn with

less certainty as to where the boundaries might lie. But they do

offer a very immediate picture of where potential may lie, and

which products or services are best placed to tap it.

They also offer a sound basis for `re-positioning' existing

products (or launching a complementary new product), so that they

better match the requirements of the specific `clusters' on which

they are targeted. In the above example, Brand C might be content

to remain a `niche' product. Alternatively, the positioning map

shows that if it were reduced in price slightly (and were backed

by sufficient promotion) it might become a very competitive

contender for Brand A's market share.

It is, of course, possible --at least in theory --to use

promotion to move the consumer ideal closer to the brand rather

than the other way around; and this technique is much favoured by

`conviction marketers' (discussed in some detail in chapter 11).

Equally, the launch of a really innovative new product (such as

the compact disc audio player) may change the dimensions of the

whole market. Such approaches, however, while very effective

indeed when they succeed, are very difficult to achieve.

Positioning over Time

So far we have been discussing the `positions' at one point in

time --the `current' position. However, if the positioning

research is carried out regularly, over time, the map can also

show that these positions are changing, hopefully in line with

the strategy:

Here we can see that Brand C has only moved slightly (in line

with strategy), but in so doing it has improved its competitive

position significantly (helped by the fact that Brand A's

competitive response, also reducing price, has moved it

' away' from the ideal).

The Cadillac Division of General Motors may provide an example of

an organization failing to track such market changes over time.

Even when it finally revamped its range, in 1985, its slimmed-

down models actually seemed to move away from where the core of

its market was; offering Ford's Lincoln-Mercury Division, which

continued to produce larger cars, a major competitive advantage.

Tracking changes in position is thus a very powerful marketing

tool.

POSITION DRIFT

Indeed, positioning over time is a very important task for any brand owner. Thus, if we take the example of a very simplified positioning map, covering some possible elements behind a set of product/service strategies;

You will remember that this map to position should be used to position the brand as close to the ideal as is possible for the segment(s) you wish to address (and hopefully dominate). The problem is that this shows only a static picture. Over time 'position drift' can significantly change the picture. This may come about for three main reasons;

1) CONSUMER DRIFT

As consumer tastes change the segment (cluster) which contains them will shift its position. Its centre of gravity will move - and is size may change as consumers switch to other, perhaps newer, segments.

The position of your brand relative to the ideal position, within this cluster, will reflect this drift.

2) COMPETITOR DRIFT

Alternatively, your competitors may shift their positions - so that your own relative position, your competitive advantage, may become less than optimal.

This may pose a particular problem if you are trying to target several segments with just one brand, since any move to respond to a competitive threat in one segment may leave the rest of the segments exposed.

3) EGO DRIFT

Perhaps the most prevalent drift of all, however, occurs where 'brand managers' (or their advertising agencies) gratuitously reposition their own brand in a less optimal location. This is usually justified on the basis that consumers are bored with the existing messages, and an exciting new approach is needed. The real reason often is that members of the management team, frequently persuaded by an agency creative team itching to make their own distinctive mark, are themselves bored.

The biggest problem caused by drift, of any of these types, is that it usually occurs so slowly that it is not noticed by the brand manager - in the timescales that he or she works to the changes are imperceptible. It is for this reason that brand positioning maps must be updated regularly, and the changes plotted as accurately as possible - so that the trajectory of any drift may be determined, and corrected.

It is likely, therefore, that most product/service packages will need to be redeveloped, from time to time, to compensate for this drift.

AUDIT 6.9

What are the main dimensions against which your organization's

products or services are positioned? Do they include price and

quality? Do they cover more sophisticated, more complex factors

(such as image).

Draw the positioning diagrams (two for each product or service,

using the four main dimensions that apply to each of these) for

each of the main products or services (four products or services

should suffice). On each diagram show where (in your opinion or,

if available, where research indicates) your own product or

service is positioned, as well as the positions of its main

competitors and the ideal position as seen by the consumers (or

the various ideal positions if there are several clusters of

consumers).

What does this tell you about the strength of each `brand' in

relation to its competitors? How could the `brand' be

repositioned to improve its competitive position?

Possible Approaches to Segmentation

Clearly, there may be a wide range of detailed actions which are

suggested by the outcome of a segmentation analysis. In overall

terms, though, there are four main strategies which may be

adopted:

Single segment

Multiple segments

Cross-segment

Full coverage

Single Segment

The simplest response --often the case where limited funds are

available --is to concentrate on one segment, and position the

product firmly within that segment (sometimes described as

`niche' marketing). This is a very effective form of marketing,

especially for the smaller organization, since it concentrates

resources into a very sharply focused campaign. It is perhaps

more risky, since there may be a greater likelihood of the

`niche' disappearing than of the whole market being subject to

catastrophic change. On the other hand, it is considerably less

risky than spreading resources too thinly across a number of

segments.

Customized marketing

In recent years two trends have combined to allow for ever

narrower segments or niches:

increasing variety demanded --consumers have come to demand more

variety from their suppliers, so that their `exact' needs are

catered for; as against accepting a more uniform product (even if

this means that a higher price has to be paid by the consumer)

flexible manufacturing methods -- delivering a much greater variety of

products without reducing productivity to any significant extent

The outcome has been that even some `mass marketers' can now

provide individually customized products (at least to some

degree). With the use of `precision marketing' techniques,

described in chapter 12, the supplier is now able to `talk to'

and deliver a `product' specifically designed for an individual.

At the other extreme, however, there was a move in the 1980s to

`head-on positioning' --challenging the main competitor on

' exactly' the same terms.

Multiple Segments

A more complex response is to address several major segments with

one brand, or to launch several brands each targeted against

different segments. This latter strategy is adopted, for example,

by Nestl<130>, which has brands to meet the `ground coffee',

`continental' and `decaffeinated' segments, as well as the main

brand itself which --in line with the former strategy --spans a

number of segments.

This technique may also be adopted by an organization which

ultimately intends to achieve full coverage, but is approaching

this by invading the market, segment by segment.

Cross-segment

Most suppliers resolutely ignore the segments and pattern their

marketing on other factors. This is almost invariably the case in

the more bureaucratic responses of the public sector, which are

based on the demands of the `delivery systems' rather than on the

needs of the clients. But, in the commercial field, this often

represents a successful strategy. For example, a company may

specialize in a particular type of product which covers a number

of segments, with a band of devoted supporters; who recognize the

specialized expertise embodied. This is a particularly prevalent,

and successful, strategy in the industrial area. A more

sophisticated approach would be based upon deliberately targeting

across segments which have similar characteristics (such as

similar production technologies).

Full Coverage (`Mass Marketing')

Full coverage, limited to those organizations that can afford the

strategy --and with the intention of addressing the whole market

--can take two forms:

' Undifferentiated' . A few organizations attempt to address a

whole market (including its segments) with a single product or

non-segmented range. Coca-Cola is arguably such a company.

' Differentiated' . Where the organization covers the market

with a range of products or services (under the one brand) which

are more or less individually targeted at segments, the coverage

may to some extent be differentiated. IBM, for example, covers

almost the whole range of computer products and services, but

with individual products aimed at each segment.

The most sophisticated approach would match the pattern to the

stage of development of the market. In a new market, typically

being developed by one supplier, just one brand is launched to

cover the whole market. As the

market develops, and competitors enter (usually targeting

specific segments in order to obtain a foothold), the major

supplier may move to pre-empt this competitive segmentation by

launching its own new brands targeted at the most vulnerable

segments. On the other hand, a competitor seeking to enter a

market may initially target a particularly vulnerable segment,

and then use this as a base from which to grow incrementally by

taking in more segments.

Horizontal and Vertical Industrial Markets

At a much less sophisticated level, some markets for industrial

products are described as `horizontal' or `vertical'.

`Horizontal' markets are those in which use of the product or

service stretches across a wide range of industries. Thus, the

use of `word-processing' or `spreadsheet' software is general,

across most businesses. `Vertical' markets are those in which use

of the product or service is strictly limited to a single

industry (or a limited number of industries). Software designed

to support dairy herd management, for example, has a very narrow

(`vertical') market, that of dairy farmers.

Niches

A specialized, and indeed extreme, version of segmentation is

that of creating `niches'; practised especially by some

organizations in the retail sector. In this form the `niche' (the

segment) chosen is barely viable for one `supplier'. The

organization then sets out to capture this segment (and possibly

to expand it), confident in the knowledge that no competitor will

subsequently be able to follow profitably. The danger, as was

discovered by `Sock Shop' for instance, is that competitors based

in other segments may still be able to draw sales from the niche

market and --in the process --reduce the viability of the niche

operation itself.

Counter-segmentation

Segmentation has been a very popular strategic marketing device

in recent years. There is an argument, therefore, that it may

have been taken too far in some areas. The response could,

accordingly, be to consolidate several segments; launching a

brand (or repositioning a brand or integrating several existing

brands) to cover several segments. This may allow economies of

scale, without major reductions in benefits; and, on balance,

increase competitive advantage. This process has been called

`counter-segmentation'. Although it may only rarely apply, it

should not be forgotten in the enthusiastic rush to segment.

AUDIT 6.10

Which of these segmentation policies, if any, does your

organization follow?

Differentiation and Branding

Another technique, which is more normally considered under

`product' or `product strategy', is `product differentiation'.

Usually seen as specifically applicable to commercial

organizations, it is used to give products unique identities to

distinguish them from their competitors (in particular, between

competitors in the same market from the same company).

The epitome of this process is `branding'. The product is given a

`character', an `image', almost like a personality. This is based

first of all on a name (the brand), but then almost as much on

the other factors affecting image; the packaging and, in

particular, advertising. This all attempts to make the brand its

own separate market, or at least its own segment; so that

shoppers buy Heinz Baked Beans rather than ordinary baked beans.

This sometimes succeeds to the extent that brands (such as

Kleenex, Hoover and Biro) become generic.

Trevor Watkins - 12 - specifies branding in the following

terms:

The firm's strategy is to make its products different from its

competitors in such a way that customers can be convinced that

they are superior. This can be done by making the physical

product different or by making the way in which the customer

perceives the product different, i.e. by psychological or

emotional differences. These factors can be achieved by packaging

differences, by having a range of sizes, shapes, qualities etc.,

by gimmicks, by after-sales service provision or perhaps most

importantly by promotional activity --usually linked to at least

one of the other differences. In monopolistic competition

promotion is very often ' the' main form of competition. The

main aim of media advertising or `above the line' promotion is to

create a definite and distinct brand image.

In recent practice, branding is also being applied to non-profit

activities. In this case it is usually not for competitive

reasons (although `competition' between charities can sometimes

be as cut-throat as any in the commercial sector) but as a means

of improving awareness of what is available, and of

differentiating between alternative offerings designed for

different segments. It has even reached the stage where

government departments, such as the DTI, have adopted expensively

created `logos'.

Brand Monopoly

In economic terms the `brand' is, in effect, a device to create a

`monopoly' --or at least some form of `imperfect competition' --

so that the brand owner can obtain some of the benefits which

accrue to a monopoly, particularly those related to decreased

price competition. In this context, most `branding' is

established by promotional means. However, there is also a legal

dimension, for it is essential that the brand names and

trademarks are protected by all means available. The monopoly may

also be extended, or even created, by patents and intellectual

property (or copyright, as it used to be called in a narrower

context).

In all these contexts, retailers' `own label' brands can be just

as powerful. The `brand', whatever its derivation, is a very

important investment for any organization. RHM (Ranks Hovis

McDougall), for example, value their international brands at

anything up to twenty times their annual earnings!

AUDIT 6.11

Does your organization `brand' any of its products or services?

If so, how does it achieve this (for example, advertising or

packaging) and how does it make use of this branding?

Branding Policies

There are a number of possible policies:

Company name

Family branding

Individual branding

' Company name' . Often, especially in the industrial sector,

it is just the company's name which is promoted (leading to one

of the most powerful statements of `branding'; the well-known

saying `No-one ever got fired for buying IBM').

' Family branding' . In this case a very strong brand name (or

company name) is made the vehicle for a range of products (for

example, Mercedes or Black & Decker) or even a range of

subsidiary brands (such as Cadbury's Dairy Milk, Cadbury's Flake

or Cadbury's Wispa).

' Individual branding' . Each brand has a separate name (such

as Seven-Up or McDonald's), which may even compete against other

brands from the same company (for example, Persil, Omo and Surf

are all owned by Unilever).

DERIVED BRANDS

A recent development has been that the supplier of a key component, used by a number of suppliers of the end-product, may wish to guarantee its own position by promoting that component as a brand in its own right. The most frequently quoted example is Intel (in the PC market, with the slogan 'Intel Inside'), but the sweetener Aspertane used much the same approach (to lock in the soft drinks manufacturers who represented a major market for the product).

In terms of existing products, brands may be developed in a

number of ways:

' Brand extension' . The existing strong brand name can be

used as a vehicle for new or modified products; for example,

after many years of running just one brand, Coca-Cola launched

`Diet Coke' and `Cherry Coke'. Procter & Gamble (P & G), in particular,

has made regular use of this device, extending its strongest

brand names (such as Fairy Soap) into new markets (the very

successful Fairy Liquid, and more recently Fairy Automatic).

According to David Aaker: - 13 - `Each year from 1977 to 1984,

120 to 175 totally new brands were introduced into America's

supermarkets. In each of these years, approximately 40 percent of

the new brands were actually brand extensions.'

Interestingly, P & G - arguably the biggest brand owner of all - seems to have even tried to bring together separate families, by using a shared component ('Excel'), across these.

' Multibrands' . Alternatively, in a market that is fragmented

amongst a number of brands a supplier can choose deliberately to

launch totally new brands in apparent competition with its own

existing strong brand (and often with identical product

characteristics); simply to soak up some of the share of the

market which will in any case go to minor brands. The rationale

is that having 3 out of 12 brands in such a market will give a

greater overall share than having 1 out of 10 (even if much of

the share of these new brands is taken from the existing one). In

its most extreme manifestation, a supplier pioneering a new

market which it believes will be particularly attractive may

choose immediately to launch a second brand in competition with

its first, in order to pre-empt others entering the market. As

Roberts and McDonald - 14 - point out:

Individual brand names naturally allow greater flexibility by

permitting a variety of different products, of differing quality,

to be sold without confusing the consumer's perception of what

business the company is in or diluting higher quality products.

Once again, Procter & Gamble is a leading exponent of this

philosophy, running as many as ten detergent brands in the US

market. This also increases the total number of `facings' it

receives on supermarket shelves. Sara Lee, on the other hand,

uses it to keep the very different parts of the business separate

--from Sara Lee cakes through Kiwi polishes to L'Eggs pantyhose.

In the hotel business, Marriott uses the name Fairfield Inns for

its budget chain (and Ramada uses Rodeway for its own cheaper

hotels).

Cannibalism

This is a particular problem of a `multibrand' approach, in which

the new brand takes business away from an established one which

the organization also owns. This may be acceptable (indeed to be

expected) if there is a net gain overall. Alternatively, it may

be the price the organization is willing to pay for shifting its

position in the market; the new product being one stage in this

process.

AUDIT 6.12

Which of these branding policies, if any, does your organization

use?

Own brands and generics

With the emergence of strong retailers there has also emerged the

`own brand', the retailer's own branded product (or service).

Where the retailer has a particularly strong identity (such as

Marks & Spencer in clothing) this `own brand' may be able to

compete against even the strongest brand leaders, and may

dominate those markets which are not otherwise strongly branded.

There was a fear that such `own brands' might displace all other

brands (as they have done in Marks & Spencer outlets), but the

evidence is that --at least in supermarkets and `department'

stores --consumers generally expect to see on display something

over 50 per cent (and preferably over 60 per cent) of brands

other than those of the retailer. Indeed, even the strongest own

brands in the UK rarely achieve better than third place in the

overall market. - 17 - Therefore the strongest independent

brands (such as Kellogg's and Heinz), which have maintained their

marketing investments, should continue to flourish. More than 50

per cent of UK FMCG brand leaders have held their position for

more than two decades, - 18 - although it is arguable that

those which have switched their budgets to `buy space' in the

retailers may be more exposed.

The strength of the retailers has, perhaps, been seen more in the pressure they have been able to exert on the owners of even the strongest brands (and in particular on the owners of the weaker third and fourth brands). Relationship marketing, which is described in more depth in the later chapter on selling, has been applied most often to meet the wishes of such large customers (and indeed has been demanded by them as recognition of their buying power). Some of the more active marketers have now also switched to 'category marketing' - in which they take into account all the needs of a retailer in a product category rather than more narrowly focusing on their own brand.

At the same time, probably as an outgrowth of consumerism,

`generic' (that is, effectively unbranded goods) have also

emerged. These made a positive virtue of saving the cost of

almost all marketing activities; emphasizing the lack of

advertising and, especially, the plain packaging (which was,

however, often simply a vehicle for a different kind of image).

It would appear that the penetration of such generic products

peaked in the early 1980s, and most consumers still seem to be

looking for the qualities that the conventional brand provides.

As Harris and Strong - 19 - comment, `for generics to continue

to attract the consumer, they will need to be positioned by the

retailer as a sensible value alternative and backed by the

retailer's guarantee of acceptable and consistent quality'.

Differentiation of Services

In the case of services, in particular (but not exclusively),

marketers may have difficulty in differentiating their own

offering from those of their competitors. The service company can

add `innovative features' to distinguish its offering (where the

primary service package is identical for all suppliers in the

market). Unfortunately, such `service innovations' are relatively

easy to copy. Perhaps the most frequent, and effective, means of

such differentiation is, once more, branding; or a similar

`intangible' benefit which cannot be copied so easily.