Marketing Concepts and Philosophies

• Purpose of this part of the course: build a foundation for understanding how marketing works in practice.
• Four-part definition of marketing (as discussed in class):
  • It is an organizational purpose, function, and a collection of processes designed to plan for creating, communicating, and delivering to customers and to build effective customer relationships.
  • The goal is to establish and sustain relationships with customers.
  • The overarching aim is to benefit the organization and its stakeholders.
• Four Ps (Marketing Mix): product, price, promotion, and place.
  • Also known as the marketing mix.
  • These are the levers firms use to execute marketing strategy.
• Most ultimate goal of marketing:
  • Make exchange happen (facilitate value exchange between the firm and customers).
• Marketing philosophies (historical perspectives):
  • Production orientation: focus on internal efficiency of operations and product excellence; assumes demand will follow if the product is good enough; vulnerable to competition once multiple players enter.
  • Sales orientation: focus on selling techniques (promotion, advertising, personal selling) to push products regardless of market needs.
  • Market orientation: focus on understanding and satisfying customers' wants and needs.
  • Societal orientation: extend beyond satisfying customers to enhancing individual and societal well-being (ethical, environmental, and broader social considerations).

STP Framework (Segmentation, Targeting, Positioning)

• Core question addressed: how to identify who to serve, what to offer, and how to position it in customers’ minds.
• Process overview:
  • Segmentation (S): divide the market into meaningful and distinct groups based on shared characteristics.
  • Targeting (T): evaluate and select the most viable segments to enter.
  • Positioning (P): tailor the marketing mix (Four Ps) to occupy a clear, desirable place in the minds of the chosen target segments.
• Contextual example discussed in class:
  • Are college students a viable market for Mercedes? Reasons they are often not a preferred target (affordability, insurance, maintenance costs, etc.). Yet, some stories suggest firms can target future markets (e.g., banking relationships with youth) or cultivate future users (e.g., Facebook/Messenger Kit).
  • The idea is to think about who you want to target now versus who you want to cultivate for the future.

The Four Parts of a Market (Definition and Scope)

• A market consists of:
  • People or organizations who will purchase the product (customers or business buyers).
  • With needs or wants that the product can satisfy.
  • Having the ability to purchase (money, access) and the willingness to purchase.
  • If any of these four are missing, it is not a market.
• Example discussion:
  • Sushi restaurant in a town: market size depends on age distribution, preferences for raw fish, budget, and willingness to dine out.

Segmentation Bases (Bases to Segment the Market)

• The goal of segmentation is to divide a market into groups that are meaningful and distinct.
• Four primary bases:
  • Demographics: objective, factual attributes (age, family size, family life cycle, ethnicity, occupation).
  • Psychographics: values, lifestyle, personality, interests, opinions.
  • Behavioral: usage, purchase occasion, loyalty, and engagement (how often, how much, and in what context the product is used).
  • Needs/Benefits: the different benefits customers seek from a product (benefit-based segmentation).
• Meaningful vs. distinct (illustrated with the chair exercise):
  • Meaningful: segmentation that matters to the firm’s product or service (e.g., whether a chair needs to support kids, adults, or seniors; materials, cushion, armrests may be meaningful for certain products).
  • Distinct: groups should be clearly separable in terms of needs or characteristics; if a factor is not meaningfully distinct, it may not justify a separate segment.
• Importance of bases:
  • The chosen bases should be relevant to the product and target customers; the same attribute may be meaningful for one product (e.g., eye color for contact lenses) but not for another (shoe size for shampoo).
• Why segmentation matters:
  • Markets have diverse needs and preferences; segmentation helps define customer needs more precisely, enabling better resource allocation and competitive advantage by serving groups more effectively.
• Four segmentation bases in practice:
  • Demographics
  • Psychographics
  • Behavioral
  • Needs (Benefits)

Demographics (Details and Examples)

• What it covers: age, family size, life-cycle stage, ethnicity, occupation, gender (example: Victoria’s Secret focuses on female demographics).
• Relevance to product decisions (e.g., chair affordability and size may align with family size; SUV vs. small car decisions can reflect family life-cycle).

Psychographics (Details and Examples)

• What it covers: values, lifestyle, personality, interests, opinions.
• Examples:
  • Chick-fil-A’s brand aligns with value-based attributes (e.g., family-friendly, certain values).
  • Patagonia emphasizes environmental values as part of its appeal.

Behavioral Segmentation (and the 80/20 Principle)

• What it covers: frequency of purchase, usage intensity, loyalty, product benefits sought via usage patterns.
• The 80/20 principle (rule of thumb): often, a small percentage of users account for a large share of revenue. In practice: a minority of customers may drive most sales.
  • Expressed as: ext{20 ext{ extasciitilde } of users generate } ext{approximately } 80 ext{ extbackslash% revenue}.
• Practical examples from the lecture:
  • Starbucks loyalty program illustrates segmentation by usage intensity (heavy users, light users, nonusers).
  • Spectrum example shows targeting new customers with promotional pricing to win them over, then facing churn as they become regular customers.
• Determining behavioral vs. psychographic:
  • Who asks the question matters: if the company asks about consumption frequency, it’s behavioral; if a separate party (e.g., school, a third party) asks about consumption, it could be psychographic (lifestyle/values).

Needs (Benefit) Segmentation

• Also called benefit-based segmentation.
• Focuses on the different benefits customers seek from the product (e.g., toothpaste varieties: whitening, sensitivity, cavity protection, flavor).
• Rationale: customers are drawn to products that deliver specific benefits they value.

Why Segment? Benefits and Implications

• Markets have diverse product needs and preferences.
• Segmenting helps marketers:
  • Define customer needs more precisely.
  • Allocate limited resources efficiently.
  • Achieve competitive advantage by satisfying needs better than competitors.
• Segmentation bases are chosen based on product relevance and strategic goals.

Targeting Strategies (How to Choose Which Segments to Serve)

• Definition: evaluating and selecting the most viable market segments to enter after segmentation.
• Four targeting approaches:
  • Undifferentiated (mass marketing): treat the market as one segment with a single marketing mix. Historical example: early Coca-Cola era, Ford Model T era. Today, this approach is rare due to diverse customer needs.
  • Differentiated (multi-segment): target two or more well-defined market segments with different marketing mixes for each segment.
  • Niche (concentrated): focus on a single, well-defined segment to serve with specialized offerings (barbershop example focusing on men).
  • Micro (one-to-one): highly tailored, individualized offerings (mass customization, e.g., personalized products, tailor-made services).
• Cannibalization risk (undifferentiated or poorly differentiated strategies can cannibalize own products when new variants steal demand from existing ones).
• Example: Tesla targets multiple vehicle segments with different models (Model S, Model 3, Model X, Model Y, Cybertruck, etc.) to cover diverse needs and lifestyles.
• Practical exercise: given a product like shampoo, teams brainstorm different targeting strategies (undifferentiated: 3-in-1 shampoo; differentiated: by hair type; niche: organic or dandruff-focused; micro: customized formulas).

Positioning (How to Place the Product in the Mind of the Target)

• Positioning definition: the placement of a product or service in the minds of the target markets.
• Key concept: develop a unique selling proposition (USP) that makes the brand stand out from competitors.
• Examples:
  • Subaru: safety plus family-friendly, generation-spanning messaging (the “love” and safety angle).
  • Volvo: historically safety-focused, later repositioned toward luxury; challenges with changing brand associations.
• Positioning factors to consider (must-haves):
  • Distinct from competitors (differentiation).
  • Easily communicated to customers.
  • Profitable and valuable to the target market.
  • Difficult to copy by competitors.
  • Affordable to target market (consider budget constraints of the segment, e.g., college students).
• Real-world positioning cases:
  • Brand repositioning can be dramatic (KFC’s AI-generated campaign) to stay relevant and modern while maintaining core identity.
  • The importance of aligning positioning with the needs and values of the target segment (e.g., safety-focused brands vs. luxury-focused variants).

Case Study: Candy Market and Nerds

• Background on Nerds brand and product evolution:
  • Original Nerds product targeted at kids (Halloween candy, ice cream toppings).
  • Introduction of new variants expanded target markets: Nerds Gummy Clusters, Big Chewy Nerds, Nerds Rope, etc.
  • Revenue impact:
  • 2002: Nerds sales were around 40{,}000{,}000.
  • 2018: After introducing new products, sales grew to about 800{,}000{,}000.
• Target market evolution:
  • Original target: kids (primary).
  • New products broadened appeal to young adults and other segments.
• In-class activity setup (as presented):
  • Each group designs a new candy product, identifies the target market, describes the product, pricing, and distribution channels.
  • Create a marketing campaign for the new product.
  • Presentation format emphasized a competitive, Shark-Tank style pitch.
• Example group ideas discussed:
  • A diabetic-friendly hard candy caramel (sugar-free), targeting older adults (60+) with diabetes; price around 5.99 for an 8 oz bag; easy-to-open packaging.
  • An alcohol-infused lollipop concept for 21+ (college-age/young adults); price and distribution discussed in class context.
  • A sushi-roll-inspired candy concept with chopsticks and bite-sized portions; priced for grocery and gas stations; seasonal flavors and influencer tie-ins suggested.
  • Nostalgic “Fruit Roll Bites” concept: bite-sized version of classic Nerds flavors to appeal to both kids and adults who remember the original candy; discussed placement in front-of-store or cashier areas to build awareness.
• Observations from the exercise:
  • Teams used case-based thinking to connect segmentation, targeting, and positioning to real product ideas.
  • Emphasis on discovering multiple segments and tailoring the product and marketing mix accordingly.

Practical Takeaways for Exam Preparation

• Four pillars of marketing philosophy to anchor understanding:
  • Production orientation, Sales orientation, Market orientation, Societal orientation.
• The STP framework is the core of market strategy:
  • Segmentation: create meaningful, distinct groups using Demographics, Psychographics, Behavioral, and Needs bases.
  • Targeting: choose the viable segments using undifferentiated, differentiated, niche, or micro strategies.
  • Positioning: craft a USP and a marketing mix that creates a clear, valuable, and hard-to-copy mental image in the target.
• Positioning criteria to audit a plan:
  • Distinct and relevant to the target, easily communicated, profitable, hard to copy, and affordable for the target market.
• Real-world applications and caveats:
  • Cannibalization risk in differentiated strategies must be managed.
  • Repositioning is possible, but it requires consistent messaging and market alignment (e.g., traditional brands updating their image).
• Quantitative takeaway:
  • The 80/20 principle in behavioral segmentation (a small subset of customers can drive a large share of revenue) highlights the importance of identifying and prioritizing the most valuable segments.

Quick Recap of Key Terms

• Market: a group of potential buyers with needs, ability, willingness, and a defined segment.
• Segmentation: dividing a market into meaningful, distinct groups based on bases.
• Targeting: selecting which segments to pursue.
• Positioning: crafting a perceptual map in the minds of the target customers using the marketing mix.
• Marketing Mix (Four Ps): ext{Product}, ext{Price}, ext{Promotion}, ext{Place}
• USP: unique selling proposition – the compelling reason to choose a brand over competitors.
• Cannibalization: new products stealing sales from existing products within the same brand.
• Micro targeting: one-to-one customization for individual customers.

Notes for the Exam

• Be able to define each circle of STP and describe how they connect.
• Be able to identify segmentation bases for a given product and explain why they are meaningful and distinct.
• Be able to compare undifferentiated, differentiated, niche, and micro targeting, including advantages, disadvantages, and examples.
• Be able to explain positioning and articulate what makes a strong positioning statement (distinct, easily communicated, profitable, affordable, hard to copy).
• Be able to discuss the role of case examples (Mercedes college market, Subaru vs Volvo, KFC repositioning) as demonstrations of STP in action.
• Be able to analyze a scenario and propose a candied product idea with target market, pricing, channels, and a basic promotional concept (e.g., a Shark-Tank style pitch).

End of Notes