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1

Principles of Marketing

Part 2

Lesson 5

STP procedure

S - T - P

Outline

� market segmentation

� market targeting

� positioning

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� Segmenting� Dividing market according to some set of criteria into

relatively homogeneous groups of customers

� Targeting� Involves determining the atracttiveness and profitability

of created segments and then choosing the strategy

� Positioning� Creating value and image of company’s offer, which

should lead to getting a distinguished and importantplace in consumers’ minds through differentiation anddeveloping competitive advantage

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STP – What Is It?

Phases in STP Procedure

Segmenting 1. Identification of segmentation criteria2. Dividing the market3. Defining a profile of each segment

Targeting 1. Segment attractiveness assessment2. Segment profitability assessment3. Choosing market strategy

Positioning 1. Differentiation tools2. Positioning process

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SEGMENTATION

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� Adjusting product to consumer’s needs

� Greater effectiveness of financial means

� Noticing market changes and faster

adaptation

Segmentation Benefits

Segmentation: Conditions

Do customers have similar

needs and wants?

Can we collect information

about the segment?

Are the segments profitable?

Can the segments

be reached?

SEGMENTATION

SENSITIVITY

MEASURABILITY

ACCESSABILITY

SIZEABLE

Internally homogeneous, externally heterogeneous

� Segmentation criteria (basis)� Characteristics used for describing

customers, which allow distinguishing different market segments

� Descriptors� Additional consumer characteristics

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Criteria and Descriptors

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• Gender, age, family size, family life cycleDemographics

• Size of town, administative, climateGeographic

•Education, job, social class, religion, race, nationality, incomeSocio-economical

•Personality, lifestyle, innovativeness, risk taking

Psychographic

•Status, consumption level, brand loyalty, attitude towards the product, purchase readinessBehavioral

• type of preferred benefits, place of purchase, reason of purchasePreferencial

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Segmentation Criteria 4 B2C

•Organization size, geographical scope, industry, type of organization, user status, locationMain

•technology, average product usage, average order size, financial capabilitiesOperational

•Organizational structure, supply funcion, way of dealing with transactions

Attitude towards purchase

•Preferred benefits, ways of obtaining products, length of contract Preferrences

•Buyer-seller likeliness, loyalty, risk taking

Personal qualities

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Segmentation Criteria 4 B2B

Matrix Segmentation - Sweetener

Health issues No health issues

Age and consumptionplace

diabetics overweight dieting innovators other

Adults –

home DIABETICS

OVER

WEIGHT

ON DIET

INNOVA

TORS

X

Kids –

home X X X

Adults -

HORECA

HORECAKids -

HORECA

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Segment Attractiveness

Demand Criteria

Current size

Growth dynamics

Potential size

Competition Criteria

Number of competitors

Exit barriers

Offerdifferentiation

Substitutes

Accessability Criteria

Company awareness

Access to distribution

Adjustment

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Segment Attractiveness Assessment

Mass marketing

Full-scopemarketing

quality

No problems

Low costs

Selectivemarketing

No problems

Low costs

Concentrated marketing

– big segment

Low costs

Concentrated marketing

– smallsegment

quality

Nichemarketing

Niche A

1-2-1 marketing

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Market Service Strategy

POSITIONING

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Identification of attributes which distinguishthe offer on the market

Defining competitors’ market position

Market position selection – positioning process

Matching the offer with positioning strategy

Communication

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Positioning - Phases

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Choosing Market Position – Positioning

• 1 dimension

• 2 dimensions

• Multidimentional

How many differences

• Important

• Out-standing• Safe

• Connected

• Additional criteria

Whatdifferences

• Strengthening current position

• Seeking new position

• Competition repositiongHow

Positioning 1D

Creation of UniqueSelling Proposition –focus on one quality/attribute and try to become a leader in that field

Ferrari„Number 1 among sport cars”

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Positioning 2D

� Positioning is based on two attributes which distinguish the offer on the market, there should be logical connection between those attributes

EtopirynaFast� „W lot usuwa ból”

(‘Removes pain in a blink of an eye’)

Popular� „Goździkowa przypomina

na ból głowy Etopiryna”

(‘Goździkowa reminds: Etopiryna for headache’)

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Multidimential Positioning

� Positioning based on 3+ attributes – risk of losing credibility and expressiveness

GlaxoSmithKline

AQUAFRESH3 benefits:

� Protection against decay

� Fresh breath

� White teeth

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� Important

� Outstanding

� Safe

� Logically connected

� Other: profitable, easy to communicate

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What Differences

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Main issue:� Design the content of promotion

Complementing elements:� Forms and tools of promotion

� Distribution channels

� Points of sale and customer service

� Product

� Packaging

� Price

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Communicating

� Wrong positioning

� Product/brand do not have a desired place on the market (in consumers’ minds)

� Limited

� Do not manage to convey the real and full image of a product/brand

� Misleading

� Product/brand do not have an obvious and clear image (frequent changes)

� Doubtful

� Attributes used in positioning strategy are not convincing

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Positioning Mistakes

Lesson 6-9

Marketing mix

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Lesson 6-9

� Product decisions

� Promotion

� Distribution

� Price

Product

� Product – everything (set of functional, social & psychological benefits for a customer), which can be offered for consumption, usage, spending time, etc., in order to satisfy customer’s needs in the exchange process

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Product – definition

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� Tangible goods

� Services

� Celebrities

� Organizations

� Places

� Ideas

� Events

� Symbols

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Types of Product

1. Market assortment planning

2. Individual product attributes

3. New product planning

4. Product life cycle

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Marketing Decisions Regarding Product

� Assortment width

� Length of product line

� Depth of product type

� Assortment integrity

� Product system

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Market Assortment

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number of assortment groups in the company

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Assortment Width

variety of product types and brands within each of the assortment group

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Assortment Length

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Assortment Length

Brand A

Brand B

Startingpoint

Brand C

Brand B

Brand A

Up-stretching

Down-stretching

Brand A Brand A

Brand B Brand B

Brand D Brand D

Brand C

Up&downstretching

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Assortment Length

Brand A

Brand B

Startingpoint

Brand C

Brand B

Brand A

Filling-in theline

Modernizingthe line

Brand A

Brand A

Brand C

Brand B

Brand B

Brand D

Brand C

Deleting productforms

� Variety of item options within a particular product type

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Assortment Depth

� customer� Are the products offered to the same customer group?

� functional� Are assortment groups complementary or satisfy different needs?

� technological� Can the same machines, technology, know how be used to produce these goods?

� supply� Can the same materials, resources and components be used?

� distribution� Cant the same distribution channels and sales methods be used?

� promotional� Can the same promotion forms and tools be used?

� logistics� Can the goods be offered, transported, stored in the same way?

� vertical� Is company’s activity a part of the same market system (industry, branch)?

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Market Assortment Integrity

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� Set of products and services (usually complementary) sold together (in one ‘package’ or collection under one brand) used to satisfy a particular consumer’s need and generating synergy effect

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Product System

Product - levels

Product Levels

Core productTangible(formal)

product

Augmented

(enhanced) product

packaging

brand

quality

features

styling

core benefit ...

installation

delivery

credit

warranty

after sale service

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� Set of benefits offered to consumers within a particular product

� basic benefits

� supplementing benefits

drill – making holes

car – transportation

beer – entertaining way of satisfying thirst

Core Product

Sum of utilitarian and functional value (quality) in a particular project offered in a packaging(sometimes) and under a certain brand name –which allows realization of a particular set of benefits delivered in a product

� Technical characteristics� Technical parameters� Accordance of quality with technical parameters� Style� Size � Identification, instruction� Packaging � Brand (name, logo)

Formal Product

Brand

Brand - name, sign, symbol, pattern or a combination of all the above, given by a seller in order to identify and differentiate the product among the competition

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Functions:

� Identification

� Guarrante

� Promotional

Meaning of a brand:

� qualities

� benefits

� values

� culture

� personality

� user

Brand: Decisions

� YES

� NO –GENERIC products

1. Shall We Brand?..

� Producer

� Intermediary

� Mixed

2. Who Is The Sponsor?

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� create own

� buy

� licence

3. How Can We Obtain a Brand?

� individual brand name

� family brand (the same for all the assortment)

� mixed brand

4. How To Brand?

� Higher price

� Convenient ordering

� Allows legal protection of a product

� Helps building customer loyalty

� Facilitates market segmentation

� Helps building company’s image

Benefits From Branding

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� Pre&post sales services

� Guarantee – length and scope

� Service – speed and scope

� Alternative usage forms

� Loans

� Return policy

� Re-buying of the used product

� Sale of certified products

Enhanced Product

time

introduction growth maturity decline

profit

Cycle - Profit Relationship

The Process of NPD

� idea generation

� screening

� concept development and testing

� marketing strategy

� business analysis

� product development

� market testing

� commercialisation

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Designing Marketing Strategies

Promotion

Promotion

� promotion tools- advertising- sales promotion- public relations- personal selling- direct selling

Direct

Marketing

Advertising

Public

Relations

Personal

Selling

Sales

Promotion

Principle Methods

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Communication at Work

� Differentiates

� between competitors, substitutes and alternatives.

� Reminds

� and re-enforces past transactions. Makes future dealings desirable.

� Informs� makes potential customers / users aware of offer. Essential to

diffuse information.

� Persuades

� influences the decision making process. Makes the exchange desirable.

A management process through which an organisation

enters into a dialogue with its various audiences ….

…. the objective of the process is to (re)position the

organisation and/or their offerings, in the mind of each

member of the target audience in a consistent and

likeable way.

Source: Fill, 1999

Marketing Communications

Website

Direct

marketingExhibitions Branding Perception

Public

relations

Corporate

identity

Commerce

Personal

selling

Word of

mouth

AdvertisingField

marketing

Packaging

Sponsorship

Internal

marketing

Sales

promotion

Point of

Purchase

?

�Consumer Audience

�Channel Audience

�Stakeholder Audience

The ‘Promotional’ Toolbox - a Bag of

Marbles

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Push and Pull Strategy

� Push strategy - decision to concentrate communications effort on the members of the distribution channel, i.e. the wholesaler and retailers

� Pull strategy - in contrast to the push, creating demand for the product through direct communication with the customers

� both push & pull strategy - in order to assert as much influence as possible on the supply chain and the customer

Possible Communications Objectives

� clarification of customer needs

� increasing brand awareness

� increasing product knowledge

� improving brand image

� improving company image

� increasing brand preference

� stimulating search behaviour

� increasing trial purchase

� increasing repeat purchase

� increasing word-of-mouth recommendation

� improving financial position

� increasing co-operation from the trade

� enhancing the reputation with key stakeholder

� building up management ego...

Advertising

� Is any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor

� Major decisions (5 Ms):

- Mission: What are the advertising objectives?

- Money: How much can be spend?

- Message: What message should be sent?

- Media: What media should be used?

- Measurement: How should the results be evaluated?

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� Wide range

� Low cost of reaching a single customer

� High control

� Appeals to emotions

� Feedback may be delayed

� Highly standardized message

� Some forms very expensive

� Limited information capacity

Pros Cons

• High visibility� Appeals to emotions� Close in time and space� Originality…

• Accessible information� repetitive� Associated with info already known:

memories, tradition, stereotypes

• Persuasive

Good Advertisement:

� TV commercials

� Radio commercials

� Newspaper and magazine ads

� Exhibition and POS

� Outdoor

� Internet

Advertising Tools

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Sales Promotion

A range of tactical marketing techniques

designed within a strategic marketing

framework to add value to a product or service

in order to achieve specific sales and marketing

objectives

Short-term incentives motivating customers to

(faster) purchase decision or buying more;

intermediaries are encouraged to sell more and

more actively

Customer incentives

- Free samples

- Lotteries and contests

- Discounts

- Coupons

- Refunds

- Presentations, degustation, demonstrations

- Prizes for loyalty

Intermediaries’ incentives

- Price discounts

- Help with exhibitions

- Product samples

- Information and promotion materials

- Influencing the staff

- Exhibitions, trade shows, etc

- Refunds

Sales Promotion

+ quick feedback

+ liked by buyers

+ increases impulse shopping

+ adds value to a product

+ develops cooperation in distribution channels

- Can be used in short-term

- Later customers do not want to buy products on regular conditions

- Worsens company’s image

- May push customer’s attention towards less important factors (price-payment)

Pros Cons

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Public Relations

PR is a planned and sustained efford to establish

and maintain goodwill and mutual understanding

between an organization and its publics (e.g.

Customer groups, local and central government, the

general public, financial institution, the media,

employees)

Public Relations Objectives

� to create and maintain the corporate and brand image

� to enhance the position and standing of the organization in the eyes of public

� to communicate the organization’s ethos, philosophy, corporate values

� to disseminate information to the public

� to undertake damage limitation activities to overcome poor publicity for the organization

� to raise the company profile and forge stronger, lasting, customer and supply chain relationships

+ high credibility+ lower costs+ can be used when

advertising is prohibited

+ mass receiver+ can reach customers

avoiding advertising

- Low control over the place, time, and content of information presented

- Difficulty in planning activities

- Impossible to familiarize customers with offer details

Pros Cons

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Public Relations

� publicity

� internal communication and with co-

operators

� sponsoring

� corporate identity

� lobbying

� crisis communication

Personal Selling

An interpersonal communication tool which involves

face-to-face activities undertaken by individuals, often

representing an organization, in order to inform,

persuade or remind an individual or group to take

appropriate action, as required by the sponsor’s

representative

+ Fast feedback

+ Information range can be easily adjusted

+ Possibility of info exchange

+ Relatively high effectiveness of seller’s personal influence on purchase decisions

- High cost of reaching a customer and passing the info

- Low effectiveness when a customer does not know much about the offer

- Only a very limited number of customers can be reached

Pros Cons

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Direct Marketing

� Direct Marketing

� Personal, persuasive communication by people both employed and not employed by the company

� OR

� An interactive system of marketing which uses one or more advertising media to effect a measurable response and or transaction at any location (US Direct Marketing Association)

Direct Marketing

� Includes

� Direct Mail

� Telemarketing

� Magazine Inserts

� Door to Door Distributions

� Mail Order

� Features

� Advertising and selling combined

� Results are measurable

� High degree of flexibility

� Easily controllable

� Highly selective

� Economic

Direct Marketing Benefits

� ability to target to the ‘individual’

� allows personalisation

� supplies a response mechanism and

reinforcement for other media

� scope for vast use of different creative

formats

� highly sophisticated testing

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The Principal Characteristics of

Communications Tools

Advert. Salespromotion

PR Personalselling

Directmarketing

Communications

Ability to deliverpersonalmessages

Low Low Low High High

Scope forreaching largeaudiences

High Medium Medium Low Medium

Degree ofinteraction

Low Low Low High High

Perceivedcredibility bytarget audiences

Low Medium High Medium Medium

The Principal Characteristics of

Communications Tools

Advert. Salespromotion

PR Personalselling

Directmarketing

Costs

Absolute costs High Medium Low High Medium

Cost per contact Low Medium Low High High

Wastage levels High Medium High Low Low

Level ofinvestment

High Medium Low High Medium

The Principal Characteristics of

Communications Tools

Advert. Salespromotion

PR Personalselling

Directmarketing

Control

Scope fortargeting specificaudiences

Medium High Low Medium High

Management’sability to adjustthe deploymentof the tool wscircumstanceschange

Medium High Low Medium High

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Distribution

Distribution

Outline

� selecting marketing channels- direct vs. indirect channels- number of channel levels- number of intermediaries- vertical marketing systems

The distribution channel consists of agroup of individuals or organizations thatassists in getting the product to the rightplace at the right time.

Distribution channels

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• What are the product characteristics and how do they affect methods of distribution?

• Who are our customers?

• Where are our customers?

• What are our customers requirements?

• How, when and where do they want to buy our products?

• What are our competitors doing by way of distribution?

• What is the cost of distribution?

• What are the legal and regulatory constraints of distribution?

Selecting the Channels of Distribution

Company Sales Force or Manufacturer’s

Sales Agency?

Selling costs ($)

Level of sales ($)

Company sales force

Manufacturer’s sales agency

• channels levels

• number of intermediaries at each channel level

• vertical marketing systems

Channel Design Decisions

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• short vs. long channel (from one to three level)

• key factors:

- average order size

- geographic concentration of customers

- seasonality of sales

- geographical distance from producer to market

- perishability of the product

Channel Levels

Three strategies:

• intensive distribution - as many available outlets as possible hold this product; products for which consumers require a great deal of location convenience

• selective distribution - more than a few but less than all of the intermediaries

• exclusive distribution - severely limiting the number of intermediaries; even only one outlet in a certain geographic area supplies a product

Number of intermediaries

Key characteristic include:

• maximum number of outlets covered to maximize availability

• target outlets in as many geographical regions as possible

• consumer convenience products

• high number of purchasers

• high purchase frequency

• impulsive purchase

• low price

Intensive distribution

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Key characteristic include:

• medium level of customers - but likely to be significant

• less intensive distribution f outlets

• retailers may require specialist knowledge

• shopping based products

• purchase is occasional

• purchase is more likely to be planned

• medium price

Selective distribution

Key characteristic include:

• relatively few customers

• limited retail outlet

• close retailer/customer relationship

• speciality products

• infrequent purchase

• high involvement and planned purchase

• high price

Exclusive distribution

• VMS (vertical marketing systems) or horizontal

• Vertical - two or more channel members from different levels coordinate or manage channel activities to achieve efficient, low-cost distribution (aimed at satisfying target market customers)

• Horizontal - combination of institutions at the same level of channel operation under one management

Channel integration

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. Designing Marketing Strategies

Price

Price

Outline

� setting price

- calculation of price range- selecting the final price

Price decisions

� selecting the pricing objective

� determining demand

� estimating costs

� analyzing competitors’ costs, prices and

offers

� selecting a pricing method

� selecting the final price

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Selecting the Pricing Objective

� survival

� maximum current profit

� maximum current revenue

� maximum sales growth

� maximum market skimming

� product-quality leadership

Determining Demand

� price sensitivity

� price elasticity of demand

Estimating Costs

� fixed costs

� variable costs

� total costs

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Analyzing Competitors’ Costs,

Prices and Offers

� typical methods

� main findings

Selecting a Pricing Method

� markup pricing

� target-return pricing

� perceived-value pricing

� value pricing

� going-rate pricing

� auction-type pricing

� group pricing

Selecting the Final Price

� psychological pricing

� gain-and-risk-sharing pricing

� influence of other marketing-mix elements

� company pricing policies

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Adapting the Price

� geographical pricing

� price discounts

� promotional pricing

� discriminatory pricing