The Value Proposition

Why should a consumer buy from you?

Competitive Advantages

What makes you better than your competition?

Choosing A Differentiation Strategy

You chose a target market, now what?

Thursday, February 20, 2014

Marketing 101: Selecting An Overall Positioning Strategy - Value Proposition

There are buzz words and phrases in marketing & branding that seem to have an "aura" or "mystery" revolving around them.  There are also phrases and words that people who have careers in marketing don't understand at all.  One of the most used terms in existence is the Value Proposition.  Yet, so many of my colleagues don't really know what one is, or how to use it.  So let's spend some time defining it and exploring what it is and how you use it.

What Is A Value Proposition?
Simple question, right?'s a bit of a complicated answer. So if I'm going to define this as simply as possible, I'm going to say it like this: A Value Proposition is the full positioning of a brand, product or service.  If I were to expand on the definition, then I would say that a Value Proposition is the full mix of benefits that the brand, product, or service is differentiated and positioned upon.  A Value Proposition answers the question: "Why should I buy this?"

Above is a fairly standard illustration of the matrix of Value Propositions.  On the top, we have three Price categories: More, The Same, and Less.  On the side, we have three Benefits categories: More, The Same, and Less.  So when we assemble a Value Proposition, we are pairing a level of Benefit, with a level of Price.  For example, I may choose to take a More for the Same approach, meaning I'm going to offer more features and benefits than my competitors, for the same price.

The combinations in the matrix that are green represent the most favorable approaches to take with your Value Proposition.  Those in red are rarely profitable, and tend to lead to problems or a loss of focus down the road.

Let's begin exploring some of these categories of Value Proposition.

More For More
When we tout a "More For More" value proposition, we are telling the consumer that we are providing them the best possible product or service, and we are charging a higher (some would say "premium") price to cover the costs of giving you the "best".

In the real world, it is easy to see who the "More For More" players are.  One of my favorites is Apple.  They are not shy about "More For More". Apple gives you the best design, the best quality, the best experience, at a price that meets their corporate goals for gross margins and profits.  When a company truly stands behind this value proposition, giving the consumer a premium product, with premium service and an experience that is consistent over time (the Macintosh has been around for 30 years), then it can be very successful.

In order to compete in a "More For More" market segment, you are going to have to find a product or service category that is under-serviced.  If there is a void in the market segment for a premium product, and if the market segment has consumers that can afford a premium product, then you can consider moving in to that area.  However, there are cons to following a "More For More" value proposition.  When you have a premium product, there will always be imitators that will produce a similar product or service, and claim that it has the same quality for a lower price.  Amazon has been marketing it's Kindle Fire HD as a higher quality, lower priced alternative to Apple's iPad Air tablet.  "More For More" brands, products and services will always be under fire by those who use a "More For The Same" or "The Same For Less" value proposition.

More For The Same
How do you counter a "More For More" competitor?  You present a "More For The Same" value proposition.  A "More For The Same" value proposition entales offering a product, service or brand with comparable quality, at a lower price.  Depending on the costs associated with producing your product or service, you may have the same margins as a "More For More" competitor, or you have have smaller margins, which you are hoping to make up for with a higher volume of sales.

What does "More For The Same" look like in the marketplace?  The auto industry is a great example. Lexus, Infinity, Kia and Hyundai are perfect examples.  Lexus and Infinity were the first to attempt to uproot major luxury "More For More" brands such as Mercedes, BMW and Cadillac.  Offering more car, for the same (and usually lower price), these brands were able to take away more and more market share. As a result, Mercedes and BMW realized that there were more customers available at lower price points.  More recently, Hyundai and Kia have followed the same approach, introducing their Genesis and Cadenza models to the marketplace.  However, "More For The Same" can fail, if you are not backing up your value proposition with the quality and features that you claim you are providing the consumer.

The Same For Less
Probably the most powerful Value Proposition is "The Same For Less". Why?  Because we all love getting a great deal.  Great product?  Lower price?  Yes please!  Need a high quality PC for less?  Get a Dell.  Need great quality food, clothes, and electronics?  Go to Costco.  Want door busting deals on name brand electronics?  Go to Best Buy or Fry's Electronics.  Need name brand groceries for much less?  Go to Winco.  You get the idea.

Less For Much Less
If you remember my discussion of social and economic groups, then you know the reality of the consumer: few people want, need, or can even afford the very best products and services.  As a result, there will always be a market for value products.  "Less For Much Less" is summed up with a definition of "offering a brand, product, or service of less quality, for a lower price".   In most cases, the reality of a consumer's monthly budget forces a consumer to stick with "needs" over "wants" during the buyer decision process.

This means you are going to provide a lower "performing" product (less quality and features), at a much lower price.  This also means that you are usually relying on a higher volume of sales to make up for much lower margins.

More For Less
I'm going to briefly touch on one Value Propositional tactic that we see fairly often in the marketplace.  "More For Less".  That's what we all want, right?  More features, more product, more value, for a really low price.  We typically see "More For Less" when a new brand is entering a target market with established players.  Many claim to offer "More For Less" today.

At first it's easy to do.  You are ripe with new investment capital, or you are a large company that has just budgeted a large amount of money towards a new product segment. So you market your product, and sometimes sell it at a loss, offering more features, for a better price.  However, over time, it becomes very hard to maintain a "More For Less" value proposition.  Companies will typically fall into this trap: losing focus.  With each new generation of your product, you will add more features.  All of this product development, all of this marketing, costs money.  Lots of it.  And unless you have other products in your stable that are selling well and creating profits, you will have to raise the price of your product in order to cover the costs associated with bring it to market.  If you don't, you lose money.  Not only are you losing money, but your product and your brand become so "busy" and "cluttered", you begin to lose out to your competitors, who are more focused, and have a more focused product and message.  In essence, you eventually confuse your consumers, and once your prices go up, they look elsewhere during the buying decision process.  Stay away from "More For Less", unless you can keep your focus, and you can manage your bottom line.

Monday, October 21, 2013

Marketing 101: Choosing the Right Competitive Advantages

Previously I explored the concept of Market Differentiation which involves Product Positioning through a Value Proposition.  Recall that a Value Proposition is not a "mystical" marketing term, but in fact is an essential marketing principle.  A Value Proposition consists of two parts: a differentiated value, and a position.  The differentiated value refers to the ways our products and services stand out from the competition inside a chosen market segment.  The Value Proposition helps us develop a Differentiation Strategy which effectively focuses and communicates our intended position to the selected target market, and gives us sources of competitive advantages.

Evaluating Brand Differences
The truth is some differentiators are not meaningful or worthwhile to consumers - they won't "speak" to them in your messaging.  The other often overlooked reality is that each differentiator used in your marketing strategy creates costs for the company (your marketing budget), as well as benefits for the consumer.  Therefore each differentiator we choose must be evaluated according to the following criteria:

1) Importance: Does the difference deliver a highily valued benefit to the target customer?
2) Distinctiveness: Do your competitors also offer the difference? Can you offer it to customers in a more distintive and meaningful way?
3) Superiority: Is the difference superior to other ways that customers can obtain the same "benefit"?
4) Communicable: Can the difference be easily communicated and also visible to consumers?
5) Preemptive: Is it difficult for your competitors to copy the difference?
6) Affordable: Can consumers afford to pay for the difference?
7) Profitable: Are you able to introduce the difference profitably?

The ideal differentiators are the ones that meet all 7 of the above criteria fairly well.  If you are entering a target segment that has very little competition, this is entirely possible.  However if there are already a few well established products in the segment, then you will need to position yourself via multiple differentiators, and your differentiators may have a more difficult time being truly distinctive, preemptive, and important.

Monday, August 5, 2013

Marketing 101: The First Step of Market Differentiation

In our previous discussion we defined a Target Market as a set of buyers that share a set of common needs or characteristics that we decide to serve.  When targeting a market segment we examine three factors: a segment's size and growth trends, a segment's structural attractiveness, and a company's long term objectives and available resources. Once we've defined the target market, and chosen one of four appropriate marketing methods, our eyes turn towards Market Differentiation and Product Positioning through a Value Proposition.

A Value Proposition is not a mystical marketing term, it is an essential marketing principle.  A Value Proposition consists of two parts: a differentiated value, and a position.  The differentiated value refers to ways our products and services stand out from the competition inside a market segment.  A position is the "place" the product occupies inside the consumer's mind relative to competing products in the market segment.  Let's address "position" first.

Depending on the product or service, the Buying Decision Process can be tough.  To simplify it, consumers will organize products and services into categories and "position" them inside their minds relative to others.  This position is built from the consumer's underlying sets of perceptions, impressions, and feelings about a product.  We all naturally do this, without any help from advertising.  It's human nature - we are chronic "judgers".  The painful reality for a marketer is that we cannot leave this natural act of positioning to chance - we MUST influence it.  A marketer must first define the positions we want our products and services to occupy, and then create the messaging that will influence consumers and give us a competitive advantage.  A great way to plan and visualize positioning is by using Position Maps.

Position Maps
Position Maps are great tools we can use to understand how consumers perceive us versus other competing products. A position map uses two axis.  Each axis represents a qualitative or quantitative attribute.  Usually using data acquired through primary or secondary sources, we can graph visually where each product is positioned according to the relationships between the two axis.

What you see in the map above is a visual plot of the positioning of common brands of candy.  If we were developing a new brand, or trying to reposition an existing one, we can use this map to help guide our differentiation and messaging strategies going forward.

Choosing Differentiation Strategies
The reality is that two or more firms will go after the same position in a targeted segment.  A Differentiation Strategy helps us effectively focus and communicate our intended position to the selected target market, and gives us a source of competitive advantage. Differentiation strategies help us describe the differences between our products and services versus our competition.  The result of successful differentiation is that categorization by the consumer becomes harder, which reduces comparisons of our products and services with our competition.

Choosing a differentiation strategy generally consists of three steps:
1) Identifying a set of possible customer value differences that provide competitive advatages upon which to build the position.
2) Selecting the best competitive advantages.
3) Creating the overall positioning strategy.

Step 1: Identifying A Set Of Value Differences
If we are able to position our products and services in a manner that sets them apart from our competition, then we have gained a competitive advantage and our position in the comsumer's mind will be higher than the alternatives available.  In order to gain this competitive advantage we can differentiate through products, services, channels, people, or image (brand).

Our ability to differentiate ourselves solely on the actual product is dependent on the "sliding scale" of product features.  At one end are products that have few real "features" to sell - such as beef, pencils or cartons of milk.  The other end is occupied by highly differentiated products, with abundant real "features", such as cars, computers and homes.

Services are defined as "what accompanies the product".  Let's use an automobile as an example.  When you buy a Ford, consumers can expect a fairly mainstream level of dealer service.  Lexus differentiates itself with a higher level of service: luxurious lounges and brand new Lexus loaner cars are the norm for owners of these automobiles. 

Differentiation through channels involves every touch point along the way to finally getting the product into the consumer's hands.  Companies enjoy competitive advantages via channel differentiation due to the way they design their channel's coverage, expertise, and execution. Companies such as Dell, Apple, and Amazon have created some of the most well executed direct to consumer channels in their industries.

Companies can use their own "people resources" as points of differentiation.  Grocery stores, retail outlets, call centers, theme parks, and even hospitals all use people as points of differentiation.  Where there is a customer touch point, you can differentiate via people.

Brand Image
In some ways, using brand as a point of differentiation seems the simplest to understand.  When you think about some of the most common brands in the marketplace, odds are you already have distinctly positioned them in your mind.  The caveat is that it is only "easy" to leverage a brand as a point of differentiation if it is well established in the marketplace.  If you are relatively new, or unknown, then it is much harder to differentiate solely on brand. In this case you can use brand as a smaller complementary component of your differentiation strategy.  The goal with brand differentiation is to convey your product's distinct benefits and positioning through brand messaging.  If you are going to use brand differentiation, you must remember that you cannot develop your image in the consumer's mind overnight; it takes long term commitment throughout all company micro-environments.  You literally must live and breathe the essence of your products and company.

Regardless of how you choose to differentiate your products and services, they key take-away is this: it is impossible to offer products and services that are built upon empty promises.  We must live according to our promises and slogans on a daily basis at all customer touch points.

Thursday, July 11, 2013

Marketing 101: Market Targeting

Recall that a customer driven marketing strategy consists of four distinct "steps".  Previously I focused on the first step: Segmentation.  I defined Market Segmentation as dividing a market into smaller groups that contain distinct needs, characteristics, or behaviors that may require distinct products, services and marketing mixes.  Because buyers have different wants, desires, needs, geographic locations, economic resources, buying attitudes, and buying practices, we use segmentation to divide markets into "pieces" that can be reached more effectively.  Market segmentation reveals our potential opportunities.  Once we have segmented the market, we must decide what parts of it to target.

Targeting the Market
We can define a Target Market as a set of buyers that share a set of common needs or characteristics that we can decide to serve.  When targeting a market segment we must look at three factors: a segment's size and growth trends, a segment's structural attractiveness, and our own company's long term objectives and available resources. The first factor consists of the type of research we have explored in the past when discussing Primary Data.  It is vitally important that we collect and analyze data on current segment sales, it's growth rates and potential profitability.  Once we have that data, we must compare it to the size and growth characteristics that our own company is seeking.

Next, we must investigate the segment's major structural factors that will determine how attractive our participation will be.  There are many reasons a segment may appear unattractive.  First, a segment is generally less attractive if it contains numerous strong and potentially aggressive competitors.  More competition usually results in many alternative products that create price competition and limit available profits.  Second, a segment is less attractive if buyers have more power, forcing participants to keep prices lower in order to increase market share, which also reduces  profits.  Third, a segment is less attractive if there are suppliers with strong influence in the micro-environments that actively try to hold material costs at a certain level, with increases our cost of goods, which also reduces potential profits.

Once we have produced a detailed evaluation of the target's structural factors, we must consider our own long term objectives and available resources.  Quite frankly, your company may not have the skills, knowledge, intellectual property and resources to succeed in a particular market segment.  A company should enter a segment only if they can offer outstanding value and can gain and retain competitive advantages over other companies in a given segment.

Choosing a Marketing Method
Once you have selected an attractive market segment, it's time to determine the marketing mix through a targeted marketing method.  Targeted Marketing is generally conducted at four distinct levels.  These levels are based on the relative size of the targeted segment.  In order of large to small, these levels are: Undifferentiated Mass Marketing > Differentiated Segmented Marketing > Concentrated Niche Marketing > Micro-marketing at a local or individual level.

Undifferentiated Mass Marketing
Undifferentiated Mass Marketing is a marketing strategy where a company chooses to ignore market segment differences (presented by their Primary and Secondary Data) and go after the whole market with one distinct product offering.  This type of strategy focuses on the most common needs of consumers, rather than on what is distinctly different between them.  This is a classic strategy from the early to mid-1900's, with the goal of appealing to the largest group of buyers possible in order to create as many sales as possible.  This is the classic volume-based tactic.  Product margins are low, and the value given to the customer is marginal as well.  Most modern marketers do not believe this strategy is very effective.  Today it is very difficult to make a product that appeals to mass-markets due to extreme competition from more focused niche products.

Differentiated Targeted Marketing
Differentiated Targeted Marketing is a strategy where we select several market segments, and design focused products and marketing mixes for each one, with the goal of higher sales and a relatively stronger position within each segment.  The advantage of Differentiated Targeted Marketing is that it typically gives a company higher gross sales across segments.  However increased sales also bring increased costs, because it can be more expensive to develop and produce 10 units of 10 different products (versions that are focused towards specific types of buyers) than 100 units of one product (for mass appeal or niche segments).  It also costs more to market for multiple segments, because each segment requires separate marketing research, analysis, planning, and channel management.  Due to these disadvantages, a marketer must weigh the prospects of increased sales versus the potential increased cost of business when choosing a differentiated marketing strategy.

Concentrated Marketing
Concentrated Marketing is a marketing strategy where a firm chooses to pursue a large share of one distinct segment or a few segments or niches.  Concentrated Marketing allows a company to achieve a stronger market position within a segment due to their greater knowledge of consumer needs and desires within that segment, fine tuning product features and prices over time in responsive to changing trends.  Concentrated Marketing is very appealing for companies that have relatively limited resources for product development and marketing.   Concentrated Marketing is also attractive, because segments are generally smaller and usually attract very few competitors, allowing for higher margins.  However Concentrated Marketing comes with higher than normal risks.  Because most of your business is focused within one or few segments, you may suffer large financial losses a segment turns sour at any time. 

Micro-Marketing is a strategy where companies tailor products and marketing mixes to the needs and wants of specific individuals or local consumer groups.  Micro-Marketing generally involves consumers in all phases of product development, giving consumers opportunities to practice self-marketing during the buying decision process.  Micro-Marketing can give consumers extraordinary value, and can give the companies extraordinary value and consumer equity in return.  However Micro-Marketing tends to increase product development and marketing costs by reducing natural economies of scale inherent in manufacturing.  Micro-Marketing is also logistically complicated due to the numerous requirements of executing different regional and local marketing mixes.

Once you have evaluated and chosen a segment to target, we must work on Differentiation: differentiating the market offering (ie: the product) and thereby creating superior customer value.  I will explore this topic in my next post.

Tuesday, June 4, 2013

Marketing 101: Market Segmentation

In my overview of Customer Driven Targeted Marketing, I stated that no human being is like another. Two people may be very similar, but they will always be different consumers, influenced by different attitudes and beliefs. As marketers we have to accept the fact that we can't appeal to all types of buyers in the marketplace, and there is just no way to appeal to any two buyers in the exact same way.  I also stated that in order to achieve maximum value from consumers according to our working definition of marketing, we need to focus on the right target customers that will give us the right relationships that achieve maximum customer value and equity.  To do this we use Customer Drive Targeted Marketing.

Recall that a customer driven marketing strategy consists of four distinct "steps".  Let's focus on the first step: Segmentation.  Market Segmentation is defined as dividing a market into smaller groups that contain distinct needs, characteristics, or behaviors that may require distinct products, services and marketing mixes.  Because buyers have different wants, desires, needs, geographic locations, economic resources, buying attitudes, and buying practices, we use segmentation to divide markets into "pieces" that can be reached more effectively.  However, there is no one standard way to segment a market.  Marketers have to segment using multiple combinations of variables in order to find the best way to view the target market.

Marketers use many variables to segment a market.  The major variables we use can be divided into standard categories such as:

1) Geographic - includes world region or country, city or metro size, density, climate
2) Demographic - includes age, gender, family size, famliy life cycle, income level, occupation, education, religion, race, generation, nationality
3) Psychographic - includes social class, lifestyle, personality
4) Behavioral - includes special occassions, benefits, user status, user rates, lotalty status, purchase readiness stage, attitude towards products and brands

With so many variables available to marketers for the purposes of segmentation, it would be so easy just to pick on or two variables and "call it a day".  However, what experienced marketers know is that we rarely limit our segmentation analysis to one, two, or even a few variables.  Marketers are using more segmentation bases today than in the past in an effort to identify more focused groups of consumers.

However, using more variables does NOT guarantee that our segmentation base is effective.  In order for a segmentation to be effective, it must meet the following criteria:

Be Measurable
Be Accessible - The targeted customers can be actively reached and served.
Be Substantial - The targeted group is large enough and profitable enough size-wise to serve.
Be Differentiable - The targeted group is conceptually distinguishable and responds differently to different markeing mix elements and programs.
Be Actionable - The targeted group can be designed for attracting and servicing the segments.

Once we have defined and chosen our market segment, we can work on targeting the segment.  My next post will discuss targeting.