Notes Week 2 Marketing LM4

LM4: Approaches for Managing Customer Heterogeneity Process for Managing Customer Heterogeneity To convert the inputs into outputs, marketers conduct a series of process steps  Segmenting: To initiate the segmentation, managers need to identify the key purchase attributes, that is the needs and desires that a potential customer evaluates when making a purchase decision for this category. It is important to focus not primarily on existing customers but rather on all potential customers of this product. The ideal approach depends on the stability of the category and the firm's existing knowledge in it.  Targeting: The targeting process follows naturally from segmentation, to identify which segments the firm wants to sell to, based on the attractiveness of each segment and the firm's competitive strength in each segment. The firm must choose the factors and weights of each factor to determine a rating of the attractiveness and competitive strength of the segments. In some cases, the ratings can be mined from secondary sources (e.g., census data on size and growth of certain groups); in other cases, questions in the segmentation survey aid the targeting (e.g., price sensitivity, growth rate, relative perceptions of firm's brand). An average of managers' rating of factors across each segment also might be informative. In turn, these ratings can be analyzed in the GE matrix. Firms often want to select multiple segments to target, to access a larger share of the market, but the number of segments a firm can effectively target often is limited. o First, customers' preferences may be mutually exclusive, such that one segment wants low prices and few features (value segment) and another segment wants high status and exclusivity (status-seeking segment). It would be hard for a firm to develop a brand image consistent with each group's preferences. o Second, firms may be limited by their core competencies and available resources. A firm that has always been a follower in an industry and offers very good service and support may find it hard to become a technology leader, because it simply lacks the internal R&D capabilities to innovate radically. o Third, firms can lose focus if they attempt to satisfy too many market segments; they end up not committed to or knowledgeable about any one segment, because they simultaneously target too many different segments. The ultimate judges of whether a firm is effectively targeting a segment are customers in that segment, who choose the firm's product over a competitor's. But it can be difficult to compete in multiple segments against multiple different firms, each of which might focus solely on that one segment.  Positioning: The separation between targeting and positioning is often blurry. Many of the factors used to evaluate competitive strengths to select a target segment also impact the difficulty of executing an effective positioning strategy for that segment. In its simplest form, positioning involves adjusting a firm's offering (tangible and intangible factors) to match the targeted segment's preferences, so a key first step is to identify any existing gap between desired attributes and perceived attributes. If the gap is too large or too difficult to overcome, the firm may not want to target the segment, even if it seems very attractive. If it decides to target this segment, the firm must recognize that significant resources and time will need to be devoted to the execution of this strategy.

o Perceptual maps are an excellent tool for visualizing both gaps in the offerings for a target market and the firm's relative position. o Positioning or repositioning involves moving the firm or its offering to the center of the target segment, using marketing activities such as the 4Ps. Firms should account for both the benefits (i.e., moving closer to customers' ideal points) and costs (i.e., resources spent to move) of repositioning. o Writing a positioning statement for each target segment encapsulates the essence of the segmenting, targeting, and positioning process, by addressing who customers are, what needs the offering satisfies ( key purchase attributes), and why this offering or firm is best at satisfying the need (relative advantage).  Building Customer Centricity: Building a customer centric organization is different from executing an STP process, in that it requires a top down, enduring commitment from senior leaders to institute a customer centric philosophy across the firm's entire organization. o Jeff Bezos's 2013 letter to Amazon's shareholders captures the essence of a customer-centric organization, as well as some of its benefits. As described in this letter, a customer-centric approach makes a firm "internally driven" to satisfy target customers, synergistic with the STP approach that "externally focuses" the firm on the right customers (i.e., target customer segment). Together, these two approaches allow firms to manage customer heterogeneity by disaggregating customers into homogenous groups, then narrowly focusing and motivating the total organization to address the needs of these select customer segments. The goal is to focus the vision of the firm on the specific needs of customers (rather than products). Improvements in the firm's products and services over time then result from listening to the voice of the customer. Many firms pay consultants massive sums to conduct STP analyses—and then put the beautifully designed slides on a shelf in the market manager's office, with little effect on day-to-day decisions. The STP process aims the marketing "gun," but authentic customer centricity helps the firm pull the "trigger" in its everyday decisions. As Amazon's famous CEO explains, the firm's "investments are motivated by customer focus rather than by reaction to competition." To convert the inputs into outputs, marketers conduct a series of process steps. We describe each step-in detail here, but various tradeoffs and analysis options make the process less straightforward than it might appear. A trade off that occurs at each step is the need to balance precision with simplicity. For example, virtually every customer segment can be divided further into more subsegments, but at some point, doing so makes the overall STP analysis very complex to understand and communicate, such that it hinders the firm's ability to develop feasible, executable marketing strategies. An initial STP analysis therefore should lean toward simplicity. Once the strategy is operating smoothly, a marketer can go back and refine it iteratively. Furthermore, some steps in the STP and customer centric processes for managing customer heterogeneity can be skipped, depending on the firm's specific situation. The process also can be applied at multiple levels (firm, geography, product), throughout the organization. In this section, we outline the process for a firm competing in a single product category; larger organizations can duplicate this process for multiple business