Marketing targeting as “where we compete” serves to prolong the Competitive Advantage (CA) or strength by: driving sales volume throughput into the CA, inhibiting rival entry, focusing reinvestment of resources and keeping the CA or strength relevant with the changing market.
The following is a 3-point process to deciding specifically where to compete as targeting, that draws the CA or strength closer to the market:
1. Decide growth options.
In order to achieve each broad segment’s sales volume and % margin objective, we decide a more specific ‘where to compete” targeting from these options:
a. Increase retention of existing customers.
b. Grow share of spend of existing customers.
c. Win new customers in existing markets.
d. Develop new products in existing markets.
e. Enter new markets with existing products or with new products
g. Enter new distribution channels.
h. International growth.
(Above combines Doyle ‘growth ladder’ with Ansoff matrix).
Example: For this __ broad target segment, we will invest to penetrate it and set a marketing objective of __ sales and __ % margin.
This objective will be achieved by: 1. seeking to win new customers in the existing market and 2. develop a new product for the existing market.
The broad strategic objective is to serve all possible customer demand that the CA or Strength could enable the company to better meet over rivals.
The CA audit, marketing objectives and Doyle/ Ansoff growth ladder aids the marketer to achieve this, by systematically:
– Seeking all possible variations of customer needs that could benefit from the CA or strength.
– Selecting growth options that could make use of many existing underlying CA sources, and
– Innovating new solutions for customers, made possible as a result of the CA sources.
For example, if the company’s CA type is:
• Distribution toll- seek to develop new products that could be best delivered as a result of the company’s distribution ownership.
• Learning curve- Win new customers by identifying their nascent, emerging needs that could be met by your technological advances.
• Or a strength in customer service- Grow share of existing customers’ spend, by making it easier for them to switch their other related purchases to yourself via your customer service.
2. Decide the subsequent ‘product- market interface.’
All companies’ product or services move towards the right along the ‘product-market interface’ below, stopping at a stage where a high customer value can be most economically delivered by that company to deliver shareholder value:
The table identifies a shift along 2 dimensions:
1. Increasingly tailoring the product to the target (or the target better selects the ideal product from a wider range), and
2. Increasingly targeting smaller customer segments.
On the left side is targeting to a broad product or service segment need. To the right is a more finely defined targeting to a customer group’s needs within such a product or service segment.
We achieve the Doyle/ Ansoff growth paths of increase retention, grow share of spend, win new customers etc. in part by increasing the targeting or tailoring and so moving to the right along this product-market interface, thereby better adapting the company’s output to the market’s changing needs.
3. Option to conduct Market Research (MR) and segmentation.
MR and segmentation serve to shift a company’s products further to the right along the product-market interface. Therefore MR and segmenting is an option that can better fit the company to the market, to achieve its Doyle growth ladder path to reaching marketing objectives.
However, a large percentage of companies do not segment the market nor target defined customer segments. The reason is because it is more economical for the company to offer a less costly product range to a larger volume audience, than it is to tailor products propositions to multiple smaller volume audiences. And the market may lack sufficiently differentiated needs for a company to target a need cluster and raise customer utility quality beyond the cost involved to do so.
The combination of which means that the ‘utility to the customer – cost to the company’ gap is not sufficiently widened by MR and segmenting as to generate enough profit to grow shareholder value:
The product-market interface highlights this fundamental issue with marketing.
Nevertheless, markets over time tend to become more diverse in their needs and the cost of tailoring products to defined segments decreases over time too, offering the opportunity to apply MR and segmentation to develop products that better serve a niche over rivals.
MR and segmentation seeks to either:
1. Segment the market by behavioural variables (e.g. behaviours, benefits sought, needs and desires, purchasing criteria), cluster them together and hope to find descriptive variables that would help identify and reach them, or
2. Segment the market by descriptive variables (e.g. demographics, geographic variables, media usage, end user variables) and hope to find behavioural variables that are specific and exclusive to any descriptive cluster, to build a proposition fitting them.
If changes in the market are observed along behavioural variables (“we see this new behaviour emerging”), choose route 1 to researching and segmenting.
If the market changes can be described along descriptive variables (“we see this new buyer type emerging”), route 2 would be chosen.
In deciding whether to target a newly identified segment, the ‘customer utility- cost to the company’ gap (i.e. customer value + unit % margin) has to be widened beyond existing competitor offerings, to enable profitable pricing.
Therefore the segment’s attractiveness criteria- in roughly ranked importance- are based upon:
a. Extent to which CA sources may exist in serving that segment; are there assets specific to serving that need segment, unique distribution, unique processes, extensive learning headroom or other CA sources as detailed in starting a Niche advantage in serving that new segment?
b. Degree of alignment of the new segment’s needs with your existing ebbing CA or Strength relative to rivals,
(If no CA sources can be identified and the company has only a minor strength, then the following define an attractive segment):
c. Extent to which the segment’s needs will uniquely differ over the rest of the market (‘segment heterogeneity’), since this enables raising utility by marketing’s better fitting of the mix to the target. In turn this leads to low price sensitivity, low price elasticity and the ability to gain decent margins and even raise prices and not affect volume sold.
d. Larger rivals are not motivated to enter the segment due to its relatively small size. And the segment is not currently served by a strong rival.
e. A large enough segment to offer sufficient sales volume as to lower marketing cost in serving the segment as a cost per unit sold below utility raised per unit (yet not a large enough segment such that it draws rivals in).
f. Low marketing cost to serve the segment, based on:
i. ease of identifying the segment,
ii. accessibility cost to reach the segment with media,
iii. little deviation to existing business structure that would increase the cost to tailor a proposition (i.e. no significant new investment and can fit in the existing ‘product-market interface’).
With the targets decided, how the company will differentiate from existing rivals competing to serve the same customers will be considered.