Market Targeting After a firm has identified the various market segments it might pursue, it evaluates each segment’s attractiveness and decides which to pursue using a process known as target marketing or simply targeting. Example: Disney realizes that its primary appeal for the Magic Kingdom is to young families so the bulk of its marketing efforts for this business is directed towards that group. Similarly on a large scale Coke also is specific about its market targets and hence makes several different types of Coke, Coke II, Cherry Coke, Diet Coke and caffeine free.
It also markets Sprite for those who don’t like colas/Minute Maids etc. Market targeting sometimes generates public controversy. Consumers become concerned when marketers take unfair advantage of vulnerable groups (such as children) or disadvantaged groups (such as poor people) or promote potentially harmful products. For example, the cereal industry has been criticized for marketing to children. Critics worry that high-powered appeals presented through the mouths of animated characters will lead children to eat too much sugared cereal or poorly balanced breakfast.
Not all attempts to target children, minorities or other segments draw criticism. Colgate-Palmolive’s Colgate Junior toothpaste has special features designed to get children to brush longer and more often. Thus the issue is not who is targeted, but rather how and for what purpose. Socially responsible marketing calls for targeting and positioning that serve not only the company’s interests but also the interests of the targeted segments. PORTER’s FIVE FORCES MODEL: The Porter’s 5 Forces tool is a simple but powerful tool for understanding where power lies in a business situation.
This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you’re considering moving into. With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps. This makes it an important part of your planning toolkit. Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable 1. Threat of substitute products
Threat of substitute products means how easily your customers can switch to your competitors product. Threat of substitute is high when: * There are many substitute products available * Customer can easily find the product or service that you’re offering at the same or less price * Quality of the competitors’ product is better * Substitute product is by a company earning high profits so can reduce prices to the lowest level. In the above mentioned situations, Customer can easily switch to substitute products. So substitutes are a threat to your company.
When there are actual and potential substitute products available then segment is unattractive. Profits and prices are affected by substitutes so; there is need to closely monitor price trends. In substitute industries, if competition rises or technology modernizes then prices and profits decline. 2. Threat of new entrants A new entry of a competitor into your market also weakens your power. Threat of new entry depends upon entry and exit barriers. Threat of new entry is high when: * Capital requirements to start the business are less * Few economies of scale are in place Customers can easily switch (low switching cost) * Your key technology is not hard to acquire or isn’t protected well * Your product is not differentiated There is variation in attractiveness of segment depending upon entry and exit barriers. That segment is more attractive which has high entry barriers and low exit barriers. Some new firms enter into industry and low performing companies leave the market easily. When both entry and exit barriers are high then profit margin is also high but companies face more risk because poor performance companies stay in and fight it out.
When these barriers are low then firms easily enter and exit the industry, profit is low. The worst condition is when entry barriers are low and exit barriers are high then in good times firms enter and it become very difficult to exit in bad times. 3. Industry Rivalry Industry rivalry means the intensity of competition among the existing competitors in the market. Intensity of rivalry depends on the number of competitors and their capabilities. Industry rivalry is high when: * There are number of small or equal competitors and less when there’s a clear market leader. Customers have low switching costs * Industry is growing * Exit barriers are high and rivals stay and compete * Fixed cost are high resulting huge production and reduction in prices These situations make the reasons for advertising wars, price wars, modifications, ultimately costs increase and it is difficult to compete. 4. Bargaining power of suppliers Bargaining Power of supplier means how strong is the position of a seller. How much your supplier has control over increasing the Price of supplies.
Suppliers are more powerful when * Suppliers are concentrated and well organized * a few substitutes available to supplies * Their product is most effective or unique * Switching cost, from one suppliers to another, is high * You are not an important customer to Supplier When suppliers have more control over supplies and its prices that segment is less attractive. It is best way to make win-win relation with suppliers. It’s good idea to have multi-sources of supply. 5. Bargaining power of Buyers
Bargaining Power of Buyers means, How much control the buyers have to drive down your products price, Can they work together in ordering large volumes. Buyers have more bargaining power when: * Few buyers chasing too many goods * Buyer purchases in bulk quantities * Product is not differentiated * Buyer’s cost of switching to a competitors’ product is low * Shopping cost is low * Buyers are price sensitive * Credible Threat of integration Buyer’s bargaining power may be lowered down by offering differentiated product.
If you are serving a few but huge quantity ordering buyers, then they have the power to dictate you. Michael Porters five forces model provides useful input for SWOT Analysis and is considered as a strong tool for industry competitive analysis. http://www. quickmba. com/strategy/porter. shtml EXAMPLES 1. Apple, which is strictly focussed on design and marketing, outsources the manufacturing of most of its products, but is fairly vertically orientated towards the customer-side, doing most of its business in its retail-locations and online stores.
Because of this concentration of power in the middle and proximity to the customer, it also has more power over its suppliers, able to make strong demands, and it’s also better equipped to compete with horizontal players like HP or Sony, who are not as vertically integrated towards the consumer. The added benefit of a close customer-presence is also that you can use this as an opportunity to create customer-focussed products, something a lot of non-vertically integrated players are not so good at. 2.
Another fascinating company is Amazon, who spotted an opportunity to surpass brick ; mortar stores, by becoming a distributor with a web-based store-front. Traditionally, the book-industry was organised as follows. A book gets printed, it then gets distributed, it then lands in a store, and then the customer buys it. Amazon integrated three of these functions: distribution, store, and customers (four, if you include ebooks into the formula). The end-result was that the customer became empowered: he could review books, even sell books second-hand.
Which disempowered other stores where this was not possible, and publishers, who were before able to simply push out best-sellers downstream. Publishers are still powerful of course, essentially acting as a gatekeeper to writers, but this will change as soon as online publishing can be consumed comfortably. 3. IKEA, which is surprisingly similar to Amazon also started as a distributor, back in the day when a store-front was a newspaper-advert and phone-line. IKEA saved money, by working closely together with manufacturers in Poland, even building and buying machinery for them.
The end-result was standardised designs, at low costs, and produced on a massive scale. It became close to the customer, by using its warehouses as store-fronts, and enabling customers to buy via catalogue and later via the web-site. Its competition was the traditional furniture store, conservative and producing designs that were both expensive and focussed on exclusivity (which translates to small-scale production). Because of this perceived strength, they were arrogant enough to not worry so much about prices on the vertical axis, both from their suppliers and for their customers.
All of which could be exploited by some frugal and out-of-the-box thinking (a combo which fits surprisingly well together). A Five Forces Example: Consumer Products The five forces concept is perhaps best explained through example. (Porter’s work is nothing short of excellent, but it is a heavy read. ) Let’s briefly examine the household consumer-products industry by considering rival firms Clorox CLX, Kimberly-Clark KMB, Colgate-Palmolive CL, and Procter ; Gamble PG in terms of Porter’s five forces: Buyer Power.
Consumer-products companies face weak buyer power because customers are fragmented and have little influence on price or product. But if we consider the buyers of consumer products to be retailers rather than individuals, then these firms face very strong buyer power. Retailers like Wal-Mart WMT and Target TGT are able to negotiate for pricing with companies like Clorox because they purchase and sell so much of Clorox’s products. Verdict: Strong buyer power from retailers. Supplier Power.
More than likely, consumer-products companies face some amount of supplier power simply because of the costs they incur when switching suppliers. On the other hand, suppliers that do a large amount of business with these companies–supplying Kimberly-Clark with raw materials for its diapers, for instance–also are somewhat beholden to their customers, like Kimberly-Clark. Nevertheless, bargaining power for both the firms and their suppliers is probably limited. Verdict: Limited supplier power.
Threat of New Entrants: Given the amount of capital investment needed to enter certain segments in household consumer products, such as manufacturing deodorants, we suspect the threat of new entrants is fairly low in the industry. In some segments within the household consumer-products industry, this may not be the case since a small manufacturer could develop a superior product, such as a detergent, and compete with Procter ; Gamble. The test is whether the small manufacturer can get its products on the shelves of the same retailers as its much larger rivals. Verdict: Low threat of new entrants.
Threat of Substitutes. Within the consumer-products industry, brands succeed in helping to build a competitive advantage, but even the pricing power of brands can be eroded with substitutes such as store-branded private-label offerings. In fact, some of these same store-brand private-label products are manufactured by the large consumer-products firms. The firms believe that if they can manufacture and package a lower-price alternative themselves, they would rather accept the marginal revenue from their lower-priced items than risk completely losing the sale to a private-label competitor.
Verdict: High threat of substitutes. Degree of Rivalry. Consumers in this category enjoy a multitude of choices for everything from cleaning products to bath washes. While many consumers prefer certain brands, switching costs in this industry are quite low. It does not cost anything for a consumer to buy one brand of shampoo instead of another. This, along with a variety of other factors, including the forces we’ve already examined, makes the industry quite competitive. Verdict: High degree of rivalry.
Examining an industry through the framework of Porter’s five forces helps illustrate the different dynamics at work. It’s not always clear-cut, either, so one wouldn’t expect all of the firms in this industry to fall into one big bucket labelled wide moat or narrow moat. Instead, there are firms with distinct, long-term advantages and wide moats, like Procter ; Gamble and Colgate, while others have advantages that we think may be less sustainable, such as Clorox and Kimberly-Clark.