Marketers Diary: Pricing, Differentiation, Profiling, Segmentation and Targeting - Case Study Example

Marketer’s diary Marketer’s Diary Situation Pricing Wal-Mart is a global company with large scale operations in the USA, Canada, Europe, UK and Japan (Walmart.com, 2009). A visit to any of the Wal-Mart stores gives a glimpse of the company’s business philosophy – to be the world’s largest retail chain operator. Lower prices and the ability to reach customers on a wide scale appear to be Wal-Mart’s chosen marketing strategies. Price of a product or service is dependent upon many inputs and the ability to control the costs of such inputs gives a business its strategic advantage vis-à-vis competitors. Wal-Mart is a leader in the market place. Analysis Marketing is about building customer relations and customer satisfaction through four P’s – product, price, promotion and place. Customer relations are achieved through a good understanding of the needs, wants and demands of the customers and meeting them even as they change over a period of time. Customer satisfaction is achieved when the customers sense that they are getting good value for their money when they exchange it for the products or services offered by a business. Wal-Mart’s value proposition to its customers is to offer the best quality products at the lowest possible prices (Walmart.com, 2009). Product quality is directly linked to a product’s price on the one hand and customer satisfaction on the other, both of which are critical for long term growth and profitability of a business. Inferior quality products and hence cheap prices may temporarily attract buyers but the bad publicity associated with such products will make Marketer’s diary 2 it impossible for marketing people to meet growth targets. Dissatisfied customers spread adverse word-of-mouth publicity. Coming to product prices, high prices may not always mean correspondingly better quality; it may simply mean products that are meant for ego satisfaction of a select few customers or prices to reap the first entrant advantage for a new product. For a retail chain operator like Wal-Mart, scale of operations and offering good value for money are important factors. Wal-Mart achieved this objective by setting up large scale retail stores in suburban areas where the price of real estate is lower and outsourcing its standard quality products from China where labour costs are low (Case study, Rugman & Collinson, 2009, pp.30 &31). Discussion Wal-Mart has the objectives to retain status as the world’s largest retail chain stores and to offer best quality products at the lowest prices and hence the marketer must also function as the eyes and ears of the company and alert it on the way competitive forces are shaping up from time to time. The strategy being followed by Wal-Mart to control costs through outsourcing or setting up stores in low cost areas can also be copied by competitors. Thus, the theory of pricing can have limitations unless the underlying factors for low prices can be controlled through other barriers e.g., scale of operations, market reach, promotion, or simply preventing subcontractors to work for others by exclusive contracts and establishing long term buyer-seller relations, etc. In the medium to long term perspective, Wal-Mart needs to take into account the possibility that cheap sources from China may become more expensive as that country develops and its own Marketer’s diary 3 domestic demand picks up. Further, demographic shifts and changing economic prospects of other major markets when compared to the existing markets in North America, UK, Europe and Japan need to be factored into its future growth plans. As Michael Porter says, “… the bargaining power of customers, bargaining power of suppliers, threat of substitute products or services, rivalry among existing competitors and threat of new entrants” are important factors for strategy development and a marketer must be alive to these issues (HBR, January 2008). Situation 2: Differentiation Domino’s Pizza is a typical fast food business that offers a menu of quality products with little variation in markets around the world. Retail outlet franchisees serve customers on the spot as well as through home deliveries within strict time limits. Company exploits the lifestyle of younger generation that is typified by higher level education, secure jobs, disposable incomes, Internet, music and fast food. It competes with the other major global player viz., Pizza Hut both in the US and around the world. Its USP is product differentiation i.e., taste which is the essence of a choice for fast food. Analysis With over 8000 company owned and franchisee outlets around the world, Domino’s Pizza is in the business of delivering pizzas, associated fast food items and beverages, and is in direct competition with Pizza Hut (Dominbiz.com, 2009). It exploits technology extensively to reach customers and enabling them online/on phone ordering for home deliveries. To this extent its operations revolve around keeping track of Marketer’s diary 4 customers, their contact information, locations etc. through telephone and online registration process. Periodic communications through fliers advertising special offers form the backbone of enticing customers. Fast food and soft drinks business is all about taste and service. The subtle difference in the experience or satisfaction level of the customers is an important factor when businesses compete on similar product lines. For example, some customers prefer Coke over Pepsi and vice versa; some customers prefer Dominos over Pizza Hut; etc. In other words, product differentiation comes into play in the absence of major price difference. Although both Dominos and Pizza Hut offer very similar and even identically named pizzas, each company has built its own die-hard customers based on their experience of taste difference. This preference is reinforced through marketing communications in print and electronic media. Customer base for Dominos and Pizza hut is the same – educated, technology savvy and fast life loving youngsters. Competition is intense and the two firms can be considered both leaders as well as challengers in select products. Discussion When price differences are not significant for competition, product differentiation, innovation and service quality come into play. Global businesses (even in the fast food business) have to reckon with competition both with other global players and local players. Product differentiation being the watchword for Dominos (or Pizza Hut), it is debatable as to the extent of global market penetration that can be achieved by Marketer’s diary 5 sticking to international recipes and flavours. Dominos customer base is predominantly young and upwardly mobile generation. In the developed Western countries and Japan, demographics factors like aging populations impose limits to growth. Hence, companies like Dominos have to look to newer and younger markets like China, India or African countries for long term growth. Here the marketer will face a more intense competition as well as a large opportunity in catering to the local tastes and preferences. Lifestyles of the developed world is still a major force for young people around the developing world but this could change with more countries prospering and newer businesses promoting competing lifestyles that are attuned to local tastes. It happened to the TV music channels like MTV, which had to reinvent themselves as the local versions of their international offerings (Czinkota, 2009). Keeping such trends in mind, in order to insure long term growth, Dominos have to introduce subtle variations in its product offerings in the different regions if not countries, even as it retains and expands its delivery mechanism. For this purpose, its business can be reorganised on regional basis, the tastes and preferences of the regional population becoming the determining factors in redesigning its recipes. Situation 3: Niche product marketing/Profiling, Segmentation & Targeting ‘Just Do It’ is the slogan of Nike, the giant global foot ware, sports equipment and sportswear firm (about.com/shoes, 2009). This slogan best fits the younger generation which enjoys sports and adventurous life more than others. Nike’s marketing is based upon market profiling and segmentation in order to do very specific promotional efforts to the target groups. Nike offers high quality and high price niche products and hence its Marketer’s diary 6 customers are well-heeled, literally. It faces competition from Adidas and Reebok for high-end products and from firms like Bata for lower range products and chooses sports, sportspersons and events as the major channels for promotion. Analysis Niche product marketing needs clear market profiling, segmentation, and targeting. Of the potential market (out of the total population), chunks are accounted for by those who are already buyers (penetrated market) and those who are most likely to be the future buyers (available market). Profiling helps in arriving at market segments. Specific plans and strategies for each segment are put into practice and several product lines are developed and promoted to serve different segments (Kotler, 2006, pp.264 & 265). Nike’s promotional message is that young people who may not be actively involved in sports are just as attractive as any sports star. This is directly targeting their desires and aspirations. Since pricing is not a deterrent factor, the target customers are the relatively affluent ones – well educated, white collar jobs, disposable incomes etc., who prefer the products for their superior quality and brand value. The target market size in each segment is relatively small but business revenues and profits are high due to the premium prices charged for the products. Thus, market segments for Nike products can be based on demographic and psychographic factors. These segments are measurable, accessible and actionable, with size and growth potential easily established based upon regional socio-economic survey data. Finally niche products are marketed through up-market outlets as does Nike. Marketer’s diary 7 Discussion Market profiling and segmentation helps to keep track of size, preferences and growth rates based on which different product lines can be specifically developed. After identifying the market segments, a firm decides on the specific segments for targeting by evaluating them for attractiveness in terms of size, growth, profitability, economies of scale etc. (Kotler, 2006, p.201). Premium quality products meant for small but significant buyers need to be always updated in terms of specifications and appeal so that the buyers are induced to go in for the latest products in the market without bothering too much about the price paid for the previous purchase. This process is assisted by highly focused promotional efforts to reach the identified buyer segments. Trade-in of the pre-owned items before their lifetime is one of the frequently used marketing techniques as in the case of cars. Nike has identified educated and employed young persons with a liking for adventure as the target market for its products. Major sports like soccer, football, base ball and adventure sports like surfing and river rafting are the channels for reaching the targeted market segments. Its concentration is significantly on the association of its products with sports, adventure and young persons and its offerings are premium products. To this extent, Nike appears to have restricted its future business opportunities. Diversification into the larger and more price sensitive market may impact its premium brand equity. In order to overcome this situation, Nike may promote a parallel line of products under a different brand name and such products can be offered to a much wider market segment. Marketer’s diary 8 Situation 4: Marketing in oligopoly competition Competition among the few large companies marketing fast moving consumer goods (FMCG), typically for personal care, hygiene and toiletry is intense. Every available avenue for market expansion, segmentation, targeting, product differentiation and pricing opportunity is utilised by companies like Procter & Gamble (P&G), Unilever and Colgate-Palmolive. These companies operate under oligopoly competition where the market is large and only a few companies compete intensely. Keeping track of competitors’ moves, responding with own initiatives and maintaining balance between customer and competitor orientation are the typical issues in such situations. P&G’s global business strategies are a case in point. Analysis FMCG products serve a large and diversified consumer base across the globe because of which, it becomes necessary to develop and market products that cater to the different segments and different preferences on a large scale. P&G’s Tide, Duracell, Pampers, Head & Shoulders etc. (P&G.com) are household names around the world. Marketers working under oligopoly conditions face competitors who follow almost similar strategies in their fight for market share. ‘In an oligopoly, a small number of large firms produce products that range from highly differentiated to standardized’ (Kotler, 2006, p.171). While the exotic and premium products are largely targeted to urban consumers, market expansion into semi-urban and rural areas becomes necessary when the urban Marketer’s diary 9 markets are saturated until new products are introduced. Prime consumers are always looking for new product offerings since the FMCG industry caters to ‘buy & consume’ needs. This will mean large R&D investments and successfully marketing the new products at a premium price until competition catches up and the product lifecycle reaches its end. Profiling, segmentation and targeting are essential in view of the variations in consumer needs as mentioned before. Product branding and promotion is the norm and the brands cover a wide spectrum of segments. As pointed out by Michael Porter, the five forces of competition viz., existing competitors, new entrants, substitute products, buyers and suppliers need to be factored into a firm’s strategy since global firms face similar challenges from small but local firms ( HBR, Jan. 2008, pp. 78-93). FMCG majors face such competition all the time and the challenge for the marketer is to conduct competitor analysis and design strategies either to retain position as the leader or to emerge as the challenger. Discussion Continuous evaluation of competition and customer preferences forms the basis for evolving marketing strategies and product innovation ideas. This means that there is no obsession either with competition or with customer satisfaction; rather it is a balancing act that supports the larger corporate objectives like growth, profitability and brand power. Competitor analysis is carried out by accessing information in a number of ways – through published documents, talking to suppliers & customers etc. – and this is used to make a SWOT analysis and formulating strategies for each product and for each market segment. Marketer’s diary 10 In each segment of the market, P&G prices its products close to those of its rivals – in some cases lower and in others, higher. In the premium category, product attributes are highlighted to emphasize the differentiation and to attract the target market. In the general category, price, packing convenience (smaller packs) and other economical aspects like longer usage & shelf life, refilling possibility etc. are promoted. P&G and similar other global firms are bound to face local competition especially on price front and in expanding into the interior markets that are not logistically well situated. Local firms have edge in effectively communicating in local languages and tactically using folklore and anecdotes in promotion. Global firms can face this challenge only if they also tap local advertising and communications firms. In times to come, firms like P&G have to create special brand names for really large markets like Brazil, China or India in addition to the international brand names that can be limited to urban markets. Marketer’s diary 11 References About.com, “Nike, From Greek Myth to Sports and Fitness Powerhouse”. Available at: http://shoes.about.com/od/athleticshoes/a/nike.htm [accessed on November 4, 2009]. Czinkota, (2009), “MTVs Cross Cultural Reach”. Available at: http://michaelczinkota.blogspot.com/2009/10/mtvs-cross-cultural-reach.html. [Accessed on October 23, 2009]. Dominosbiz.com, (2009). Kotler, P. (2006). “A framework for marketing management”, (2nd Ed.), Pearson Education, NJ. P&G.com (2009). Porter, M.E., (2008), “The five competitive forces that shape strategy”, Harvard Business Review, January 2008 (pp.78 to 93). Rugman, A. M. & Collinson, S. C., (2009), “Wal-Mart, Case study”, International Business, (5th Ed.), Prentice Hall (Ch.1). Walmart.com (2009). Read More