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).

Products
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
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. 

Channels
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.

People
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.

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