principles of marketing
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Segmentation targeting and positioningTRANSCRIPT
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Kotler, Brown, Adam & Armstrong: International Marketing 3e © 2006 Pearson Education Australia
PowerPoint to accompany
Philip Kotler, Stewart Adam,Linden Brown & Gary Armstrong
Kotler, Brown, Adam & Armstrong: International Marketing 3e © 2006 Pearson Education Australia
Chapter 7
Market segmentation, targeting and positioning
Kotler, Adam, Brown & Armstrong: International Marketing 3e © 2006 Pearson Education Australia 3
Chapter objectives
1. Explain market segmentation, and identify several possible bases for segmenting markets.
2. Distinguish between the requirements for effective segmentation: measurability, accessibility, substantiality, actionability.
3. Outline the process of evaluating market segments and suggest some methods for selecting market segments.
4. Illustrate the concept of positioning for competitive advantage by offering specific examples.
5. Discuss choosing and implementing a positioning strategy, and contrast positioning based on product, service, personnel and image differentiation.
Kotler, Adam, Brown & Armstrong: International Marketing 3e © 2006 Pearson Education Australia 4
Markets
1. Organisations that sell to consumer and business markets recognise that they cannot appeal to all buyers in those markets, or at least not to all buyers in the same way.
2. Buyers are too numerous, too widely scattered and too varied in their needs and buying practices.
3. Different companies vary widely in their abilities to serve different segments of the market.
4. Rather than trying to compete in an entire market, sometimes against superior competitors, each company must identify the parts of the market that it can serve best.
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Three Major Steps in Target Marketing
1. Market segmentation• dividing a market into distinct groups of buyers with
different needs, characteristics or behaviour who might require separate products or marketing mixes.
2. Market targeting• evaluating each market segment’s attractiveness
and selecting one or more of the market segments to enter.
3. Market positioning• setting the competitive positioning for the product
and creating a detailed marketing mix.
Kotler, Adam, Brown & Armstrong: International Marketing 3e © 2006 Pearson Education Australia 6
Market Segmentation
Markets consist of buyers, and buyers differ in one or more ways.
They may differ in their wants, resources, locations, buying attitudes and buying practices and preferences for buying channels such as ordering by mail, phone, the Internet or from a physical location. Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally, then, a seller might design a separate marketing program for each buyer.
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Figure 7.1: Steps in Segmentation, Targeting, and Positioning
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Bases for Segmenting Consumer Markets
CHARACTERISTICS
1. Demographic
2. Geographic
3. Behavioural
4. Psychographic
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Kotler, Adam, Brown & Armstrong: International Marketing 3e © 2006 Pearson Education Australia 9
Bases for Segmenting Consumer Markets: Geographic
Geographic segmentation calls for dividing the market into different geographical units such as:
NationsRegions StatesMunicipalities Cities Neighbourhoods.
Kotler, Adam, Brown & Armstrong: International Marketing 3e © 2006 Pearson Education Australia 10
Bases for Segmenting Consumer Markets
Demographic segmentation consists of dividing the market into groups based on variables such as:
AgeGenderFamily sizeFamily life cycleIncome occupation, educationRace and nationalityReligion
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Bases for Segmenting Consumer Markets
Psychographic segmentation buyers are divided into different groups based on:
Socioeconomic status Lifestyle Personality characteristics
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Bases for Segmenting Consumer Markets
Behavioural segmentation divides buyers into groups based on their knowledge of the product, their attitude towards it, the way they use it, their responses to it :
OccasionsBenefits soughtUser statusUsage rateLoyalty statusBuyer-readiness stageAttitude
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Requirements for Effective Segmentation
Requirementsfor
EffectiveSegmentation
Measurable
Substantial
Actionable Accessible
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Requirements for Effective Segmentation
There are many ways to segment a market—but not all segmentations are effective To be useful, market segments must have the following characteristics:
Measurability- the degree to which the size and purchasing power of the segments can be measured. Certain segmentation variables are difficult to measureAccessibility- the degree to which the segments can be reached and served.Substantiality - the degree to which the segments are large or profitable enough. A segment should be the largest possible homogeneous group worth going after with a tailored marketing programActionability - the degree to which effective programs can be designed for attracting and serving the segments.
Kotler, Adam, Brown & Armstrong: International Marketing 3e © 2006 Pearson Education Australia 15
Market Targeting: Evaluating Market Segments
Marketing segmentation reveals the market segment opportunities facing a firm. The firm now has to evaluate the various segments and decide the number of segments to cover and the ones to serve.
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Selecting Market Segments
After evaluating different segments, a company hopes to find one or more market segments worth entering. It must then decide which and how many segments to serve. A target market consists of a set of buyers sharing common needs or characteristics that the company decides to serve. The company can adopt one of three market-coverage strategies:
undifferentiated marketing, differentiated marketing or concentrated marketing.
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Selecting Market Segments
Undifferentiated marketinga company might decide to ignore market segment differences and go after the whole market with one market offer. It focuses on what is common in the needs of consumers rather than on what is different.
Differentiated marketinga company decides to target several market segments, and designs separate offers for each. By offering product and marketing variations, it hopes for higher sales and a stronger position within each market segment
Concentrated marketingis especially appealing when company resources are limited. Instead of going after a small share of a large market, the company goes after a large share of one or a few sub-markets.
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Figure 7.3: Alternative market-coverage strategies
Segment 1Segment 1
Segment 2Segment 2
Segment 3Segment 3
CompanyMarketing
Mix
CompanyMarketing
Mix
Segment 1Segment 1
Segment 2Segment 2
Segment 3Segment 3
CompanyMarketing
Mix
CompanyMarketing
Mix
Company Mix 1Company Mix 1
Company Mix 2Company Mix 2
Company Mix 3Company Mix 3
MarketMarket
A. Undifferentiated Marketing
B. Differentiated Marketing
C. Concentrated Marketing
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Market Positioning
Once a company has decided which segments of the market it will enter, it must decide which ‘positions’ it wants to occupy in those segments.
Product position is the way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products
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Positioning Strategies
Against aCompetitorAgainst a
CompetitorUsage
OccasionsUsage
Occasions
Away fromCompetitorsAway from
Competitors
ProductAttributesProduct
AttributesProduct
ClassProduct
Class
BenefitsOffered
BenefitsOffered
UsersUsers
BB
AA
EE DD
CCHH GG
FF
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Choosing and Implementing a positioning strategy
Identifying a positional direction consists of three steps:
Identifying a set of possible competitive advantages on which to build a positionSelecting the right competitive advantagesEffectively communicating and delivering the chosen position to the market
Perceptual mapping: Identifying the ‘position’ of the brand in the mind of the consumers. This involves consumers or prospective consumers rating brands against each other in terms or similarity or dissimilarity
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Identifying Possible Competitive Advantage
Consumers typically choose products and services that give them the greatest value. The key to winning and keeping customers is to understand their needs and buying processes better than competitors and to deliver more value.
If a company can position itself as providing superior value to selected target markets—either by offering lower prices than competitors or by providing more benefits to justify higher prices—it gains competitive advantage
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Figure 7.5: Brand re-positioning strategies
HIGH perceived quality and status
Extensive personalised service
LOW perceived quality and status
Limited service
Less personal
David Jones
Myer
Target
Kmart
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Identifying Possible Competitive Advantage
ProductProduct ServiceService
PersonnelPersonnel ImageImage
Areas for CompetitiveDifferentiation
Areas for CompetitiveDifferentiation
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Selecting the right competitive advantage
Criteriafor
DeterminingWhich
Differencesto
PromoteAffordableAffordable SuperiorSuperior
ProfitableProfitable
Pre-emptivePre-emptive
DistinctiveDistinctive
ImportantImportant
CommunicableCommunicable
Kotler, Brown, Adam & Armstrong: International Marketing 3e © 2006 Pearson Education Australia
Chapter 10
Pricing considerations and approaches
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Chapter Objectives1. Discuss how marketing objectives, marketing-mix strategy
and costs and other company factors affect pricing decisions.
2. List and discuss factors outside the company that affect pricing decisions.
3. Explain how price setting depends on consumer perceptions of price and on the price-demand relationship.
4. Compare the four general pricing approaches.
5. Describe the major strategies for pricing new products.
6. Comprehend the way in which companies establish a set of prices that maximises the profits from the total product mix.
7. Explain how companies adjust their prices to take into account different types of customers and situations.
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What is Price?
Price is the amount of money charged for a product or service, or the sum of values consumers exchange for the benefits of having or using the product or servicePrice is the only element of the marketing mix that produces revenue-all other elements represent costsA company does not usually set a single price, but rather a pricing structure that covers different items in its product lineThe company adjusts product prices to reflect changing costs and demand and to account for variations in buyers and situations
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Figure 10.1: Factors affecting price decisions
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Factors to Consider When Setting Prices
Marketing objectivesSurvivalCurrent profit maximisationMarket share leadershipProduct quality leadershipOther objectives
Marketing mix Strategy
CostsVariable costsTotal costsProduction levels costsExperience curve costsOrganisational Considerations
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Example: Moores’ Bakery
Moores’ Bakery positions itsproducts at the quality end of the price spectrum, leaving others to occupy the low-cost position.
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External factors affecting pricing decisions
The Market and Demand
Pricing in different types of marketsConsumer Perceptions of Price and ValuePrice and Demand RelationshipPrice Elasticity of DemandCompetitor’s Prices and OffersOther External Factors
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Pricing For Different Types of Markets
Pure competition, the market consists of many buyers and sellers trading in a uniform commodity No single buyer or seller has much effect on the going market price
Monopolistic competition, the market consists of many buyers and sellers. A range of prices occurs because sellers can differentiate their offers to the buyers
Oligopolistic competition, the market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies. The product can be uniform or non-uniform. The sellers are few because it is difficult for new sellers to enter the market
A pure monopoly consists of one seller. The seller may be a government monopoly, a private, regulated monopoly or a private, non-regulated monopoly. Pricing is handled differently in each case
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Consumer Perceptions of Price and Value
Pricing requires more than technical expertise. It requires creative judgment and awareness of buyers’ motivations …The key to effective pricing is the same one that opens doors …in other marketing functions: a creative awareness of who buyers are, why they buy and how they make their buying decisions.The recognition that buyers differ in these dimensions is as important for effective pricing as it is for effective promotion, distribution or product development.
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General Pricing Approaches
The price the company charges will be between one that is too low to produce a profit and one that is too high to produce any demandProduct costs set a floor to the price; consumer perceptions of the product’s value set the ceiling. The company must consider competitors’ prices and other external and internal factors to find the best price between these two extremes.
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Figure 10.8: Major considerations in setting price
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General Pricing Approaches• Cost-based pricing:
Cost-Plus PricingBreakeven Analysis and Target Profit Pricing
♦ Value Based Pricing• Competitor Based Pricing
Economic Value PricingGoing-rate PricingSealed-bid Pricing
• Relationship PricingSpecial RelationshipEnrichmentShared Risk and Reward
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Cost-Plus Pricing
The simplest pricing method is cost-plus pricing—adding a standard mark-up to the cost of the product. Construction companies, for example, submit job bids by estimating the total project cost and adding a standard mark-up for profit.
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Cost-Plus Pricing
PerceivedFairness
IncreasedCertainty
MinimisePrice
CompetitionKey
Reasons forCost-PlusPopularity
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Breakeven Analysis and Target Profit Pricing
The company tries to determine the price at which it will break even or make the target profit it is seeking
Target pricing is used by many Australian importers as a means of setting prices to yield a given profit on investment. This pricing method is also used by public utilities, which are constrained to make a fair return on their investment.Target pricing uses the concept of a breakeven chart. A breakeven chart shows the total cost and total revenue expected at different sales volume levels
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Value-Based Pricing
Value-based pricing uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing. The company uses the non-price variables in the marketing mix to build up perceived value in the buyers’ minds. Price is set to match the perceived value.
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Cost Vs Value Based Pricing
Product
Cost
Price
Value
Customers
Customer
Value
Price
Cost
Product
Cost-Based Pricing Value-Based PricingSTART
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Competition-Based Pricing
Economic Value PricingFor many industrial products, the costs perceived by customers extend well beyond the price charged. An industrial purchaser perceives the cost of equipment as including installation, maintenance, training and use of consumables, as well as the basic purchase price. Equipment purchases are evaluated over their economic lives and comparisons between competitors go beyond straight price assessment.
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Competition-Based PricingGoing-Rate Pricing
The company bases its price largely on competitors’ prices, with less attention paid to its own costs or demand. The company might charge the same, more orless than its major competitors. In oligopolistic industries that sell a commoditysuch as steel, paper or fertiliser, companies normally charge the same price. The smaller firms follow the leader: they change their prices when the market leader’s prices change, rather than when their own demandor cost changes.
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Competition-Based PricingSealed-bid/Tender
Using sealed-bid pricing, a company bases its price on how it thinks competitors will price rather than on its own costs or demand. The company wants to win a contract, and winning the contract requires pricing lower than other companies.Yet the company cannot set its price below a certain level. It cannot price below cost without harming its position. On the other hand, the higher it sets its price above its costs, the lower its chance of getting the contract.
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Figure 10.13: Three levels of relationship
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New-product pricing strategies: Pricing and innovative product
Market-skimming pricing: setting a high price for a new product to skim maximum revenue from the segments willing to pay the high price, the company makes fewer but more profitable sales
Market –penetration pricing: setting a low price for a new product in order to attract a large number of buyers and a large market share
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New-product pricing strategies: pricing an imitative product
A company that plans to develop an imitative product faces a product-positioning problem
It must decide where to position on quality and priceIt must consider the competition
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Product/Service-mix pricing strategies
Product/Service Line PricingSetting Price Steps Between Product Line Items
Optional-Product PricingPricing Optional Products Sold With The Main Product
Captive-Product PricingPricing Products That Must Be Used With The Main Product
By-Product PricingPricing Low-Value By-Products To Get Rid of Them
Product-Bundle PricingPricing Bundles Of Products Sold Together
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Price-adjustment strategies
Discount pricing and allowances: cash discounts, quantity discounts, functional discounts, seasonal discounts and allowancesSegmented pricing: setting different prices for different clients, product forms, places or timesPsychological pricing: adjusting the price to communicate the product’s intended competitive position
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Price-adjustment strategies
Promotional pricing: loss leader pricing, special and psychological discountingValue pricing: right combination of quality at fair pricesGeographic pricing: different pricing for distant customers, zone pricing, basing point pricing and freight absorption pricingInternational pricing: the company adjusts its price to meet different conditions and expectation in different world markets