BRAND DIFFERENTIATION & POSITIONING FOR MAXIMUM COMPETITIVE ADVANTAGE

CHAPTER TWO

LITERATURE REVIEW

2.1 HISTORICAL BACKGROUND

Markets are not homogeneous. A company cannot connect with all customers in large, broad or diverse markets. Customers vary on many dimensions and often can be grouped according to one or more characteristics. A company needs to identify which market segments it can serve effectively.

Marketers have not always had this view of marketing as their thinking passed through three distinct stages; mass marketing (undifferentiated marketing), product variety (product differentiation marketing), and target marketing.

(A) MASS MARKETING/UNDIFFERENTIATED MARKETING:

Here, the seller engages in the mass production, mass distribution and mass promotion of one product for all buyers. The firm ignores segment differences and goes after the whole market with one offer. It designs a product and a marketing program that will appeal to the broadest number of buyers. It relies on mass distribution and advertising and aims to endow the product with a superior image. Typical examples are Henry Ford motor company and the model T car in only one colour and coca-cola company when it sold only one kind of coke in one bottle size and taste. The apparent appeal of this strategy is cost economies resulting into lower prices to customers enabling it to win the price sensitive segment of the market.

(B) PRODUCT VARIETY/ PRODUCT DIFFERENTIATION MARKETING:

In differentiated marketing, the firm operates in several market segments and designs different products for each segment. Sellers produce products that exhibit different features, styles, qualities and sizes etc. These products are supposed to offer variety to buyers, rather than appeal to different segments of the market with products with real differences. Cosmetics firm Estee lauder appeal to women and men of different taste: Clinique was for middle-aged women, M.A.C for youths and origins for customers with taste for natural ingredients. This strategy is based on the premise that customers have different tastes which change overtime and that these customers need variety.

(C) TARGET MARKETING:

Here, the seller distinguishes the major market segments or groups, selects one, two or more of these as intended customers and develops offering and marketing programs packaged to suit each selected group or segment. Target marketing is the basis of niche marketing. It recognises the existence of “multiple group of needs” within a market and focuses on specific group or groups. This strategy helps companies to better identify opportunities, mass markets are being selected as mini-markets requiring different product features, distribution channels, promotion and pricing inputs for efficient-effective performance. Target marketing requires three major steps. The first is market segmentation, the act of dividing a heterogeneous market into homogenous subsets, that is, distinct groups of buyers who might require separate products or marketing mixes. The second step is market targeting, the act of measuring the attractiveness of the different segments and selecting one or more segments to attack. The third step is product differentiation and positioning, the act of establishing a viable competitive positioning of the firm and its products on the selected target market.

1. MARKET SEGMENTATION:

A market segment consists of a group of customers who share a similar set of needs and wants. Markets consist of buyers, and the buyers differ in one or more ways. Through market segmentation, companies divide large heterogeneous markets into smaller segments that can be reached more effectively and efficiently with products and services that match their unique needs. The bases for segmenting a consumer market are; geographic- region/state, country size, city size, density and climate. Demographic segmentation- age, gender, family size, family life cycle, income, occupation, education, religion, race, generation and nationality. Psychographic segmentation- social class, lifestyle and personality. Behavioural segmentation- occasions, benefits, user status, user rates, loyalty status, readiness stage and attitude toward product.

1. MARKET TARGETING

Market segmentation reveals the firm’s market segment opportunities after which the firm must now evaluate the various segments and decide how many and which segment it can serve best. In evaluating different market segments a firm must consider three factors; segment size and growth, segment structural attractiveness, and company objectives and resources. After evaluating different segments, the company must now decide which and how many segments it will target.A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. However, although some companies do attempt to serve buyers individually, most face larger numbers of smaller buyers and do not find individual targeting worthwhile. Market targeting can be carried out at several different levels. Companies can target very broadly (undifferentiated marketing), very narrowly (micro marketing) or somewhere in between (differentiated or concentrated marketing).

Companies need to consider many factors when choosing a market targeting strategy, when the firm’s resources are limited, concentrated marketing is the best, as regards product variability, undifferentiated marketing is more suitable, the product’s life cycle stage must also be considered, in introducing a new product, undifferentiated or concentrated marketing may make the most sense. Another factor is market variability for which undifferentiated marketing is appropriate.

1. DIFFERENTIATION AND POSITIONING:

Beyond deciding which segments of the market it will target, the company must decide on a value proposition- on how it will create differentiated value for targeted segments and what positions it wants to occupy in those segments.

According to Philip Kotler and Gary Armstrong (2008), differentiation involves actually differentiating the firm’s product to create superior customer value. To be branded products must be differentiated and at one extreme we find products that allow little variation; steel, noodles and air-conditioners. Yet, even here some form of differentiation is possible; Dangote Noodles, Indomie Noodles, and Golden Penny Noodles etc. At the other extreme are products capable of high differentiation such as mobile phones, electronics and automobiles, here, the seller faces an abundance of design parameters, including form, features, performance quality, conformance quality, durability, reliability and reparability style. The obvious means of differentiation and often the most compelling ones to consumers relate to the aspect of product and service.

According to Kotler and Keller (2006), the other dimensions a company can use to differentiate its products are personnel, channel and image.

1. Product Differentiation: brands can be differentiated on the basis of a number of different product or service dimensions, such as product form, features, performance, conformance, durability, reliability, reparability, style and design as well as such service dimensions as ordering ease, delivery, installation, customer training, customer consulting, and maintenance and repair. Apart from all these, one more positioning for brands is as “best quality”. The strategic planning institute studied the impact of higher relative product quality and found a significantly positive correlation between relative product quality and return on investment (ROI). High quality business units earned more because premium quality allowed them to charge more; they benefitted from more repeat purchase, consumer loyalty and positive word of mouth; and the cost of delivering more quality were not much higher than for business units producing low quality. Quality depends on actual product performance but it is also communicated by choosing physical cues and signs such as, a car manufacturer makes sure its car doors make solid sound when slammed shut because some buyers in the showroom slam the door shut to test the cars’ built. Quality is also communicated through other marketing elements. A high price usually signals premium quality, quality image is also affected by packaging, distribution, advertising and promotion, a manufacturer’s reputation also contributes to the perception of quality.

b) Personnel Differentiation: companies can gain a strong competitive advantage through having better trained people. Better trained personnel exhibit six characteristics; competence, courtesy, credibility, reliability and communication. IBM enjoys excellent reputation because the people there are professionals.

c) Channel Differentiation: firms that practice channel differentiation gain competitive advantage through the way they design their channel’s coverage, expertise and performance. Caterpillar’s success in the construction equipment industry is based on superior channel development. It dealers are renowned for their first rate services.

d) Image Differentiation: Buyers response to company or brand images differs. Companies must work hard to develop distinctive images for their brands. Identity and images needs to be distinguished. Identity is the way a company aims to identify or position itself or its product. Image is the way the public perceives the company or its products. An effective identity establishes the product’s character and value proposition, conveys this character in a distinctive way and delivers emotional power beyond a mental image. This image must be supported by everything the company says and does.

After a company has discovered several potential differentiations that provides competitive advantages, it must now choose the ones on which it will build its positioning strategy. It must decide how many difference to promote and which ones.

How Many Differences To Promote: Ad man Rosser Reeves said a company should develop a unique selling proposition (USP) for each brand and stick to it. Each brand should pick an attribute and tout itself as “number one” on that chosen attribute because buyers tend to remember number one better especially in this over communicated society. Other marketers think that companies should position themselves on more than one differentiator which may be necessary in a situation where two or more firms are claiming to be best on the same attribute. However, as companies increase the number of claims for their brands, they risk disbelief and loss of clear positioning.

Which Differences to Promote: not all brand differences are worthwhile or meaningful. Each difference has the potential to create company costs as well as customer benefits. A difference is worth promoting if it is important, distinctive, superior, communicable, pre-emptive, affordable and profitable. Thus, choosing competitive advantages upon which to position a product or service can be difficult, yet such choices may be crucial to success.

If a company does a poor job of positioning, the market will be confused but if a company does a good job of positioning, then it can work out the rest of its marketing planning and differentiation from its positioning strategy.

Kotler and Keller (2006), defines positioning as “the act of designing the company’s product and image to occupy a distinctive place in the mind of the target market.” The goal is to locate the brand in the minds of the consumers to maximize the potential benefit of the firm. A good brand positioning helps guide marketing strategy by clarifying the brand’s essence, what goals it helps the consumers achieve and how it does so in a unique way. The result of positioning is the successful creation of a customer focused value proposition- which according to Kotler and Armstrong (2008) is the full mix of benefits upon which the brand is differentiated and positioned. The positioning strategies are; more for more, more for the same, the same for less, less for much less and more for less.

Company and brand positioning should be summed up in a positioning statement- a statement that summarizes company or brand positioning. Once it has chosen a position, the company must take strong steps to deliver and communicate the desired position to the target consumers.

All the company’s marketing mix efforts must support the positioning strategy. After building the desired position, a company must take care to maintain the position through consistent performance and communication, a product’s position should evolve gradually as it adapts to the ever-changing marketing environment.

Fig 2.2.1

Steps in market segmentation, targeting and positioning source: Philip Kotler & Gary Armstrong “principles of marketing” 12e ch.7 pp185-206

2.3 CURRENT LITERATURE BASED ON THE MODELS

Figure 2.2.1 shows the four major steps in designing a customer- driven marketing. In the first two steps, the company selects the customers that it will serve while the last two deals with differentiation and positioning.

SEGMENTATION:

Companies today recognize that they cannot appeal to all buyers in the market or at least not to all buyers in the same way. Buyers are too numerous, too widely scattered and too varied in their needs and buying practices. Moreover, the companies themselves vary widely in their abilities to serve different segments of the market. Instead like Dunkin’ Donuts, a company must identify the parts of the market that it can serve best and most profitably. Thus most companies have moved from mass marketing and towards target marketing – identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each. Instead of scattering their marketing efforts (the “shotgun” approach), firms are focusing on the buyers who have greater interest in the values they create best (the “riffle” approach). Market segmentation involves dividing a market into smaller groups of buyers with distinct needs, characteristics or behaviours who might require separate products or marketing mixes. Through market segmentation, companies divide large heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that satisfy their various needs. There is no single way to segment a market. The variables that might be used in segmenting consumer markets are; geographic, demographic, psychographic and behavioural variables.

Geographic Segmentation: According to Kotler and Armstrong (2008), geographic segmentation calls for dividing the market into different geographical units such as nations, regions, states, countries, cities or even neighbourhoods. A company may decide to operate in one or a few geographical areas, or do operate in all areas but pay attention to geographical differences in needs and wants. Many companies today are localizing their products, advertising, promotion and sales efforts to fit the needs of individual regions, cities, and even neighbourhoods. For example, coca-cola developed four ready-to-drink canned coffees for the Japanese market, each targeted to a particular geographic region and other companies are seeking to cultivate untapped geographic territory. In contrast, retailers are developing new store concepts to enable them have access to higher-density urban areas.

i) Demographic Segmentation: Here, the market is divided into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation and nationality. Demographic factors are the most popular bases for segmenting customer groups because consumer needs, wants, and usage rates often vary closely with demographic variables, also demographic variables are easier to measure than other types of variables. Consumers needs and wants change with age, hence the use of age and life cycle as a bases for segmenting the market. Some companies use age and life cycle segmentation, offering different products or using different marketing approaches for different age and life cycle groups. Marketers must be careful to guard against stereotypes when using age and life cycle segmentation. For example while some 70-years olds require wheelchairs others play tennis. Similarly, whereas some 40-year-old couples are sending their children off to college, others are just starting new families. Thus, age is often a poor predictor of a person’s life cycle, health, work or family status, needs and buying power. Gender segmentation has long been used in clothing, cosmetics, toiletries and magazines. An example is Procter & Gamble been among the first with secret, a brand designed for women and packaged and advertised to boost the female image. But recently, many mostly women’s cosmetics maker have begun marketing men’s lines, also some companies catering to men exclusively have stepped up its efforts to capture the women’s market. An example is Nike opening Nike-women stores in several major cities. Income segmentation has long been used by the marketers of products and services such as automobiles, clothing, cosmetics, financial services and travel. Many companies target customers that are rich with luxury goods and convenience services. Other companies that use income segmentation target low and middle income groups and these low income strategies have made companies successful such that giant discounters are taking notice. An example is supermarkets such as Kroger to A & P launching “10 for $10” promotions.

ii) Psychographic Segmentation: involves dividing a market into different groups based on social class, lifestyle or personality characteristics. (Kotler & Armstrong, 2008. P188). Marketers often segment their markets by consumer life styles and base their marketing strategies on lifestyle appeals. For example, American Express promises “a card that fits your life.” Marketers also have used personality variables to segment markets. For example the marketing for Honda motor scooters appears to target hip and trendy youths but it is actually aimed at a much broader personality group.

iii) Behavioural Segmentation: divides buyers into groups based on their knowledge, attitudes, uses or responses to a product. Buyers can be grouped according to occasions (occasion segmentation) when they get the idea to buy, actually make their purchase or use the purchased item. It can help build up product usage. Benefit sought is a powerful form of segmentation that groups buyers according to the different benefit that they seek from the product. It requires finding the major benefits people look for in the product class, the kind of people who look for each benefit and the major brands that deliver each benefit. Thus, companies must target the benefit segment that it can serve best and most profitably using appeals that match each segment’s benefit preferences. Markets can also be segmented into; non-users, ex-users, potential-users, first time users, and regular users of a product (user status). An example is P&G seeks out parents-to-be and gives them product samples of it pampers and other baby products so as to capture a share of their future purchases. Markets can also be segmented into; light, medium, and heavy product users (usage rate segmentation). A market can also be segmented by consumer loyalty (loyalty status). Consumers can be loyal to brands, stores and companies. Buyers can be divided into groups according to their degree of loyalty. Some consumers are completely loyal- they buy one brand all the time, others are somewhat loyal- they are loyal to two or more brands of a given product or favour one brand but sometimes buys others. Some buyer show no loyalty to any brand, they either want something different each time or they buy whatever is on sale. A company can learn a lot by analyzing loyalty patterns in its market.

TARGETING

According to Kotler and Keller (2006), the target market is the part of the qualified available market the company decides to pursue. After dividing up the market into segments, a marketer identifies and profile distinct groups of buyers who might prefer or require varying products and services mixes by examining demographic, psychographic and behavioural differences among buyers. The marketer then decide which segment present the greatest opportunity- which are its target markets. Companies do best when they choose their target market carefully and prepare tailored marketing programs.

Market segmentation reveals the firm’s market segment opportunities after which the firm must evaluate the various segments and decide how many and which of the segment it can serve best. In market segment evaluation, firms consider three factors; segment size and growth, structural attractiveness and company objectives and resources. A company should enter into only segments in which it can offer superior value and gain advantages over competitors. Once segments have been evaluated, a firm then decide which and how many segments it will target. Seller can give each buyer as a separate target market due to the uniqueness of buyers’ needs and wants and then the seller many design a separate marketing program for each buyer. Market targeting can be carried out on four different levels:

i) Undifferentiated marketing- when a firm targets the whole market with one offer. Most modern marketers have strong doubts about this strategy because difficulties arise in developing a product or brand that will satisfy all consumers and besides mass marketers have trouble competing with more focused companies that satisfy needs of specific segments.

ii) Differentiated Marketing- is another level of market targeting which firms that decides to target several market segments with separate offers for each employs. Here companies hope for higher sales and a stronger position within each market segments.

iii) Concentrated Marketing- a market coverage strategy in which a firm goes after a large share of one or a few segments or niches. Firms using this strategy achieve strong market position due to its knowledge of consumer needs in the niches it serves. This strategy can be highly profitable but involves higher-than-normal risks because if the segment turns sour, companies practising this strategy will suffer greatly or big competitors may decide to enter the same segment with greater resources. Therefore companies tend to diversify in several market segments to avoid these pitfalls.

iv) Micro-Marketing is the practice of tailoring products and marketing programs to the needs and wants of specific individuals and local customer groups. Micro-marketers see the individual in every customer.

After evaluating different segments, the company can consider five patterns of target market selection, shown in figure 2.2.2

a) Single-Segment Concentration: Through concentrated marketing, the firm gains a strong knowledge of the segment’s needs and achieves a strong market presence. Furthermore, the firm enjoys operating economies through specializing its production, distribution and promotion and if it captures segment leadership, the firm can earn a high return on its investment. However, there are risks. A particular market segment can turn sour or a competitor may invade the segment; when digital camera technology took off, Polaroid’s earnings fell sharply. Companies can try to operate in super-segments rather than in isolated segments. A super-segment is a set of segments sharing some exploitable similarity.

b) Selective Specialization: a firm selects a number of segments each objectively attractive and appropriate. There may be little or no synergy among the segments but each promise to be source of revenue. This multi-segment strategy has the advantage of diversifying the firm’s risk. An example was when P&G launched crest white-strips; initial target segments included newly engaged women and brides-to-be as well as gay males.

c) Product Specialization: The firm makes a certain product that it sells to several different market segments. An example would be a microscope manufacturer who sells to university, government, and commercial laboratories. The firm makes different microscopes for the different customer groups and builds a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology.

d) Market Specialization: the firm concentrates on serving many needs of a particular customer group. An example would be a firm that sells an assortment of products only to university laboratories. The firm gains a strong reputation in serving this customer group and becomes a channel for additional products the customer group can use. The downside risk is that the customer group may suffer budget cuts or shrink in size.

e) Full Market Coverage: the firm attempts to serve all customer groups with all the products they might need. Only large firms such as IBM (computer market), General Motors (vehicle market), and Coca-Cola (non-alcoholic beverage market) can undertake a full market coverage strategy. Large firms can cover a whole market in two broad ways: through undifferentiated marketing- the firm ignores segment differences and goes after the whole market with one offer. It designs a product, and a marketing program that will appeal to the broadest number of buyers and relies on mass distribution and advertising and aims to grant the product with a superior image. Or the second way, which is through differentiated marketing- firms operate in several market segments and designs different products for each segment. Differentiated marketing typically creates more total sales than differentiated marketing but it increases the cost of doing business.

DIFFERENTIATION AND POSITIONING

After deciding on the segments of the market it will target, the company decides on how it will create differentiated value for targeted segments and the positions it intends to occupy in those segments. For each chosen target market, the firm develops a market offering, the offering is positioned in the minds of the target buyers as delivering some central benefit(s). Companies address needs by putting forth a value proposition, a set of benefits they offer to customers to satisfy their needs. Consumers are loaded with information about products and services, thus, to simplify the buying process, consumers organize products, services and companies into categories and “position” them in their minds with or without the help of marketers. Therefore marketers must plan position that will give their products the greatest advantage in selected target markets. Figure 2.2.3 shows the possible value propositions upon which a company might position its products. In the figure, the five cells that contains more-for-more, more-for-the-same, more-for-less, the-same-for- less, and less-for-much-less represent winning value propositions- differentiation and positioning that gives the company competitive advantage. The cells which contain lines drawn across them represent losing value proposition. The centre cell represents at best a marginal proposition. The following is the discussion on the five winning value propositions upon which companies can position their products: more for more, more for the same, the same for less, less for much less, more for less.

i) MORE FOR MORE: “more-for-more” positioning involves providing the most upscale product or service and charging a higher price to cover the higher costs. Consumers are sometimes surprised, even delighted, when a new competitor enters a category with an unusually high-priced brand. In general, companies should be on the lookout for opportunities to introduce a “more-for-more” brand in any underdeveloped product or service category. More-for-more brands can be vulnerable because they are sure to invite imitators who claim the same quality but at a lower price.

ii) MORE FOR THE SAME: companies can attack a competitor’s more for more positioning by introducing a brand offering comparable quality but at a lower price. An example is when Toyota introduced its Lexus line with a “more for the same” value proposition versus Mercedes and BMW.

iii) THE SAME FOR LESS: offering “the same for less” can be a powerful value proposition- everyone likes a good deal. For example, Dell offers equivalent quality computers at a lower “price for performance” other companies develop imitative but lower-priced brands in an effort to lure customers away from the market leader.

iv) LESS FOR MUCH LESS: A market almost always exists for products that offer less and therefore cost less. Few people can afford “the very best” in everything they buy. “Less-for-much-less” positioning involves meeting consumer lower performance or quality requirements at a much lower price.

v) MORE FOR LESS: the winning value proposition would be to offer “more for less”. Many companies are known to claim that is what they do and in the short run, some companies can actually achieve such lofty positions. But in the long run, companies will find it very difficult to sustain such best-of-both positioning. Offering more usually costs more thereby making it difficult to deliver on the “for less” promise.

Each brand must adopt a positioning strategy designed to serve the needs and wants of its target markets. “More for more” will draw one target market; “less for much less” will draw another and so on. Thus, in any market, there is usually room for many different companies, each successfully occupying different positions with each developing its own winning positioning strategy, one that makes it special to its target customers.