-Business market segmentation -Steps in segmenting markets -Strategies for selecting target markets -CRM as a tool -Positioning [SLIDE 1] Just as with consumer markets, marketing must understand the key bases for business markets. B2B marketing has the advantage that there are fewer bases, though they can be very complex to analyze. Those bases are company characteristics and buying processes. Company Characteristics Characteristics such as company size (by revenue, employees and other factors), type of products they create, and geographic coverage all combine. Single person operations have very different requirements than global corporations. A local business most likely does not have the logistical challenges of a state-wide or national company. Volume of purchase is often a top factor in business segmentation, as it changes not only revenue, but purchase process, decision time, and other buying factors. Buying Processes Understanding the complexity of a market’s buying processes can have a major impact on how a supplier sets up everything from the sales process to production of its own products. In addition, the type of personality involved in the purchase has an impact on the process. Researchers have defined two key purchasing profiles: -Satisficers: Business customers who place an order with the first familiar supplier to satisfy product and delivery requirements -Optimizers: Business customers who consider numerous suppliers (both familiar and unfamiliar), solicit bids, and study all proposals carefully before selecting one. Additional personal factors, such as level of risk aversion, demographic characteristics, confidence level, and more, can also have an impact on buying decisions on top of corporate purchasing policies. [SLIDE 2] Whether you are working in B2C or B2B, there is a clear flow of steps in segmenting a market: 1.-Select a market or product category for study: Define overall market. 2.-Choose a basis or bases for segmentation: There are no scientific specifications -- insight and creativity are needed. 3.-Select segmentation descriptors: Define the segmentation variables. For instance, which specific demographic variables matter. 4.-Profile and analyze segments: Define segment size, growth rate, revenue potential, etc; then rank segments by potential. 5.-Select markets: Choose the market segments to address. 6.-Design implement and maintain appropriate marketing mixes: Remember, if the marketing is the same for multiple segments, they are not really individual segments. Markets are dynamic, so marketing must always review the segment definitions and the opportunities they present. The Internet helps markets change even faster, with flash sales on web sites and publicity through social media. In addition, an empty market at the beginning of the year could end up with too many competitors before the end of the year, and that requires adjusting the marketing mix. [SLIDE 3] A target market is group for which an organization designs, implements and maintains a marketing mix in order to meet the group’s needs, resulting in mutually satisfying exchanges. There are three general types of strategies, undifferentiated, concentrated, and multisegment. [SLIDE 4] Undifferentiated targeting means viewing the market as one big market with no individual segments and thus uses a single marketing mix. Advantages -Potential savings on production/marketing costs Disadvantages -Unimaginative product offerings -Company more susceptible to competition Coca-Cola used this strategy for many decades, selling a single soda in a single size with a consistent message. As markets mature, the need to segment increases, as Coca-Cola showed. In the 1950s, PepsiCo began selling several sizes of containers and became the leading cola in supermarkets. Coca-Cola had to adapt by first addressing size and then adding addition cola options such as sugar free, and now with many non-cola drinks. Commodities such as flour and sugar can often be undifferentiated in the consumer market, but even there, there has been a growth in recent decades in the types of products aimed at different types of cooks. [SLIDE 5] Concentrated targeting is the strategy of selecting one segment of a market for targeted marketing efforts. A narrow segment is a market niche. Advantages -Concentration of resources -Can better meet the needs of the segment -Allows some small firms to better compete -Strong positioning Disadvantages -Segments too small or changing -Large competitors may more effectively market to niche segment Because a company is looking at a niche, a narrow segment, it can concentrate on understanding the needs, motives, and satisfactions of that segment’s members. Enterprise Rent-a-Car, now the largest company in the car rental industry, began by focusing on the segment of consumers who needed to rent a car while their own was in the shop. That led to free delivery and return of the car at your shop, something the larger players at the time (Hertz, Avis, etc) had not thought was a serious market. [SLIDE 6] Multisegment targeting means choosing two or more well-defined market segments and developing a distinct marketing mix for each. Advantages: -Greater financial success -Economies of scale Disadvantages -High costs -Cannibalization P&G offers almost 20 different laundry detergents, each aimed at a different market segment using different marketing mixes. Zipcar began with a single market segment: people living in urban centers who did not need a car frequently enough to own one. They have since expanding by adding new marketing mixes for universities and for business customers. One key threat or disadvantage to multisegment targeting is cannibalization, a situation where sales of a new product cut into sales of a firm’s existing product. For instance, larger screened iPhones cannibalized iPad sales as many customers decided they no longer needed both a small phone and a larger tablet, but could get by with a single, larger phone. Cannibalization is not always a disadvantage and fear of cannibalization can be detrimental to a company’s growth into future industries and products. The now classic example is the team at Xerox Parc, in Palo Alto, California, that invented the core hardware and software that drove the personal computing era. However, Xerox executives in Rochester, New York, were afraid the idea would cannibalize copier sales. Instead of Xerox marketing the PC, IBM and a couple of guys named Steve Jobs and Steve Wozniak (Apple founders) were the first to mass produce desktop computers. [SLIDE 7] Early lessons mentioned that CRM (Customer relationship management) is the process of tracking interactions with customers to optimize customer satisfaction and long-term company profits. A better understanding of customers is a key method of better defining target markets. Four trends continue to be key drivers in the growing use of CRM systems: -Personalization: Consumers want to be treated as individuals -Time savings: Direct, targeted, marketing saves the consumer and the company time -Loyalty: Reinforcing relations with the best customers builds loyalty -Technology: Mass media will decline as direct communications grows [SLIDE 8] Positioning is targeting a market with a message that is not directly about a sale. It is the process of developing a marketing mix to influence potential customers’ overall perception of a brand, product line, or organization. Positioning assumes that consumers compare products on the basis of important features. Marketing efforts that address irrelevant features do not work. Successful positioning involves competitive analysis in order to understand where a company and its products are positioned in the market relative to other companies and products. Product differentiation is a method of positioning where a product is clearly distinguished from those of competitors. For instance, KFC differentiates itself from other fast food chicken establishments with its secret blend of herbs and spices, as well as creating unique menu items. There are three key components to creating positioning: -Perceptual map -Positioning bases -Repositioning [SLIDE 9] Positioning is targeting a market with a message that is not directly about a sale. It is the process of developing a marketing mix to influence potential customers’ overall perception of a brand, product line, or organization. Positioning assumes that consumers compare products on the basis of important features. Marketing efforts that address irrelevant features do not work. Successful positioning involves competitive analysis in order to understand where a company and its products are positioned in the market relative to other companies and products. Product differentiation is a method of positioning where a product is clearly distinguished from those of competitors. For instance, KFC differentiates itself from other fast food chicken establishments with its secret blend of herbs and spices, as well as creating unique menu items. There are three key components to creating positioning: -Perceptual map -Positioning bases -Repositioning [SLIDE 10] Perceptual mapping is the process of displaying, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds. The goal is to understand how different factors interact to create customer needs that can be addressed by a marketing mix. Saks Incorporated, for instance, saw a large drop is its department store sales when it tried to attract a younger customer segment. The management invested in research to analyze that segment’s spending levels and preferred styles to better define the mix of clothes and accessories to include in each of its fifty-four stores. [SLIDE 11] Just as with targeting, positioning requires analyzing a variety of bases (variables). Some of the key bases are the following: -Attribute: A specific feature that provides a customer benefit. -Price and quality: A mix of the two where companies can focus on a different mix of the two. Neiman-Marcus and Walmart aim at different mixes. -Use or application: Focusing on the specific ways to consume the product. Many food and drink companies advertise recipes. -Product user: Aiming at a specific demographic of the type of customer to attract. -Product class: Associating with a type of product, such as margarine being “like butter”. -Competitor: Competing directly against a competitor, as Apple and Google Android vendors directly claim to be better than each other. -Emotion: Evoking feelings to attract customers, Nike’s “Just Do It” campaign being one of the most successful examples. [SLIDE 12] Repositioning is when a company works to change a consumer’s perception of a brand in relation to other brands. Hyundai first entered the American market as a low cost, low quality, automobile manufacturer. Once it achieved penetration, it redesigned cars, improved warranties, and changed promotions to change market perceptions to be seen as a higher quality while still lower priced competitor.