Chapter 17 - The Nature of Marketing
Learning Objective: To understand B2B, B2C, and Market Segmentation (Mass vs. Niche)
Consumer Market (B2C) and Industrial Market (B2B)
Consumer Products are sold to households and individuals whereas Industrial Products are the ones produced and used by industries:
Selling to Business rather than to consumers have some big differences:
Industrial goods are often much more complex - it requires specialist sales and support employees;
Industrial buyers command more power over sellers and are more knowledgeable - requires specialist sales people;
Industrial buyers don't buy on impulse - a throughout analysis is usually conducted before a purchase decision is made (competitors' products comparison);
Traditional marketing is not effective to industrial buyers (e.g. media advertising) and more specialized mediums are necessary (e.g. trade fairs, websites);
Products may need to be adapted to industrial buyers (adaptation) making it more costly to produce and promote (mass media won't work).
Exam-Style Question #9
Niche vs. Mass Market
In other words, mass market is targeted on customers who are looking for undifferentiated products (standardized) whether niche market focuses on differentiated products.
They both have its advantages:
Small firms have a chance of succeeding in markets dominated by large companies;
Premium price opportunity: consumers pay more for exclusive/best fit products than mass market products;
Large companies can create niche market products for brand status/image.
By employing mass marketing businesses are more likely to benefit from economies of scale;
Lower risk of failing since the amount of customers is much larger: in niche marketing any change in consumers' preferences can quickly jeopardize the firm;
Mass marketing helps on creating strong and popular brands.
Activity 17.6
Market Segmentation - The strategy for identifying different segments/groups within a market and targeting different products or services to them. It is closely connected to the concept of market orientation:
Segments are sub-groups of a market within which consumers have similar characteristics.
The main purpose of segmentation is to divide the market into smaller groups with similar characteristics so that your marketing efforts (product, price, place, and promotion) are more effective. It's about a more efficient use of marketing resources.
Market Segmentation is based on Marketing Research and fully understanding the different segments of the market so that they can be effectively targeted - this is a concept consistent with the customer orientation approach to marketing.
There are different methods of market segmentation that can be applied:
Demographic Segmentation:
People within the same age gender, income, education... They are likely to think alike and have similar needs/wants.
Example:
An individual's social class and income level have great impact on their spending patterns.
Geographic Segmentation:
Different rights and wrongs based on location, and even weather makes a difference.
- Geographic segmentation is the opposite of adopting the same marketing strategy to an entire region (e.g. pan-Asian approach).
Examples:
Promotional activities need to be adopted depending on the location (e.g. lottery-style promotions);
Product names might need to be changed depending on the location (language);
Choice of products to be sold in different location differs (e.g. fashion industry).
Psychographic Segmentation:
People with similar lifestyles, attitudes, and personalities are likely to have similarities when it comes to their demands.
Examples:
People's attitude towards ethical consumption influence their purchases (e.g. organic foods);
Peoples' lifestyle (interests, opinions, choice of leisure) would influence, for example, gym membership adhesion.
Examples of Segmentation:
Hewlett-Packard and other computer manufacturers produce PCs for office and home use, including games, but also make laptop models for business people who travel.
Coca-Cola makes the standard cola drink for the mass market but also Diet Coke for weight conscious consumers and other flavored drinks for consumers with different tastes.
India's Tata Motors produces the Tata Ace, a mini-truck used by farmers. It markets the Buzzard car to middle-class consumers and the Yodha van to commercial customers. It offers a range of luxury Jaguar cars to the high-income segment.
Tata creates the impression that there is something for everyone in its huge product range.
Performing segmentation can yield businesses many different benefits:
- It can help increasing sales: ability to master an offer to a specific market;
- Ability to identify different groups in the market which can be targeted;
- It saves resources as investments are made only into groups who are actually interested in the company's offerings;
- Ability of small companies to specialize in to one or two segments only;
- Businesses might be able to adopt a price discrimination strategy to increase revenue and profits in different situations.
There are also some problems when performing market segmentation:
- High investments in R&D and production to make different product variations;
- Lack of marketing economies of scale as businesses need to tailor promotion to different segments;
- Costs of producing and stocking multiple products to multiple segments;
- Market research is needed (costs and time consuming);
- Danger of excessive specialization: if the specific segment targeted changes their habits and preferences.
Customer Relationship Marketing (CRM) is an important field of Marketing - it tries to create loyalty among customers and the firm and guarantee future sales.
The more a firm is able to secure a customer in the long-term the less that customer will buy from the competition.
The heart of CRM is in communication after acquiring information from customers (e.g. income, preferences, buying habits...) so that marketing efforts can be adapted to them. It's basically segmenting customers at the individual level.
CRM is becoming more widely used recently due to the fast development of technology (easier, cheaper data collection and analysis). Such information collected and analyzed through CRM enables businesses to:
Target Marketing: offering customers products/services that they are more likely to need and therefore purchase;
Customer Service and Support: offer customers better after-sale services;
Communicate Regularly With Customers: to provide updates on products, promotions, availability, etc.;
Using Social Media: based on social media data it is possible for businesses to identify trends and patterns to better serve customers.
Chapter 17 - The Nature of Marketing
To-Do-List: Activity 17.7
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