Marketing Strategy Lecture 2: The Playing Field

overview of strategic marketing decisions

comes down to three blocks

1. where is the relevant market (the playing field or where do we compete?)

2. what products/services are we competing on (the behavior of the players)

3. what are the rules of the game (which requirements to obey/break)

the playing field

1. definition of the relevant market

2. market segmentation (if necessary but mostly is as a heterogeneous solution does not get you very far)

through these two steps we reduce heterogeneity

the two dimensions of market segmentation

market reaction measurement

market cultivation

the two dimensions of market reaction measurement

customer segmentation

competitor segmentation

customer segmentation

suitable need fulfillment (homogenous customer behavior)

the identification of customer groups that respond differently from other groups to competitive offers

competitor segmentation

strategic groups (homogenous competitor behavior)

are the decisions on where to compete and what to compete on independent of each other?

no

disadvantages of narrowly defining your relevant market

you neglect competitors that you need to keep an eye on

example of narrowly defining the relevant market

railway industry thought they were competing in a monopoly but a consumer would just take a car if they can’t take a train

example of a very wide definition of the relevant market

Sony says they are in the happiness business, therefore they are competing with anything that makes people happy

how does netflix define their relative market

very wide by saying they are competing with other entertainment systems and even sleep

strategic positioning depends on

how you define the relevant market

subjective substitutability

how likely another product is to replace our product from the POV of consumers

this helps us define our market

decision to cut off

company decides where to cut off or set the boundary for the market

subjective substitutability + cut off

defined market

approaches to defining the relevant market

demand based

supply based

SSNIP test

the smallest number of companies that can push through a significant price increase without demand reacting too elastically

market segmentation

splitting up the relative market

the main goal is to reduce heterogeneity

market reaction measurement

splitting the market into smaller pieces

market cultivation

deciding if you want to address all segments in different ways or address some and not others

from one segment to segment of one

the extreme points on a continuum of market segmentation

one segment: undifferentiated customers (think Ford and his black car)

segment of one: individual customers (think “everybody gets their own”)

which segmentation is what many companies are striving for and is also coming closer with technology?

segment of one

segmentation criteria examples

geographic

demographic

socio-economic

psychographic

behavioral

product-specific

which customer characteristics are most informative in making marketing strategies

product specific ones like needs, desires, preferences.

the harder ones are the most informative while the easier ones are less informative

benefits segmentation

1. asses customer preferences/benefits and additionally also other (easy to observe) variables such as age, sex,…

2. Define clusters of customers based on preferences/benefits (e.g., through cluster analysis)

3. Describe clusters based on preferences (identify attribute (preferences/benefits) that are important) and additional variables (understand customer groups to define segment-specific strategies)

strategic groups

groups that move similarly in the market, therefor occupy similar positions

competitor segmentation “mobility barriers”

• inhibit or prevent businesses from entering or moving from one strategic group to another

• influence profit potential

• examples: brand reputation, product quality, manufacturing knowledge, customer base

cluster analysis

specify the research goal

1. evaluate the proximity

2. select an algorithm

3. determine the number of clusters and interpret the results