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Inspirational Quotes

Preparing a Marketing Plan: Customer Targeting and Market Positioning

Mon, 29 July 2002

The final outcome of your marketing plan very much depends on your approach to customer targeting and how you decide to position your products or services in the marketplace.
'Positioning' is a term used to refer to how you want customers to view your product or service in relation to those of your competitors. Take as an example the difference between mid-range cars sold by Ford and BMW. In most respects both models of car are similar. Their function is identical - they are both designed to be a mode of personal transport. What makes them different is the pricing structure, styling, and perhaps most importantly, their respective perceived images. Ford want people to think of their mid-range products as affordable cars for the mass of average people, whereas BMW want people to see their cars as the 'sensible' choice for discerning buyers amongst those who are 'successful'. What each company has done is choose positioning for the product defined by the target customer group and the means by which the product is differentiated from others.
 
Once you have a feel for your target market and what sets your product or service apart, you can consider which of what Michael Porter of the Harvard Business School calls 'generic strategies' you intend to adopt.
 
Businesses face the choice of going for a high volume mass market or a specific market segment or niche. In terms of product strategy, there are two primary choices - cost/price advantage or differentiation.
 
The combination of these choices leads to four possible positioning strategies, two of which (cost focus and differentiation focus) are very similar because both rely on inherent differences in the target sector.1
 
The key to success in any of the generic strategies is that the chosen strategy must be reflected in every activity of the business. For example, if you choose a differentiation strategy, the service you provide must be second to none and the customer must feel that the benefits they receive outweigh the premium price they have paid.
 

Cost leadership

In adopting a cost leadership approach a firm aims for a high volume of sales by competing on price. The intention is to attain market leadership by undercutting all competitors - albeit marginally. That is not to suggest that the product is inferior. To ensure that customers will buy the product it must be of acceptable quality - either close to or as good as those of its competitors.
 
Successful use of this strategy depends on achieving, and maintaining, a significant cost advantage. The strategy of cost leadership is one that is commonly adopted, though rarely fully achieved. After all, it is difficult to make a reasonable profit unless you have a high volume of sales.
 

Differentiation

A strategy of differentiation is based on identifying a unique benefit that is highly valued by a substantial proportion of the target market. In this case, businesses differentiate themselves by offering a product that is different, usually by providing greater benefit, and are therefore able to set their prices higher.
 
Some businesses, however, choose to focus on a particular niche market, product or service. The difference between this approach and the mainstream differentiation strategy is that it relies on an inherent difference in customer's preferences, attitudes and behaviour in the selected segment compared to the market overall. An example would be the TV market where, outside of the market's volume sectors, some manufacturers have opted to serve a smaller segment such as the portable sector, or a specialist niche such as the big-screen units used in conference rooms. Here the customer requirements are quite different and cannot be met by minor adaptations of mainstream products.
 
Businesses that aim for a focused approach, however, are still likely to meet some competition and so need to decide whether, even within narrow target segments, to pursue cost leadership or differentiation.
Look, for example, at the market for personal computers. Many manufacturers attempted to emulate the IBM PC. Two stood out, offering a premium product at a premium price: Compaq and Apple. Apple further differentiated by not even offering a compatible machine, instead focusing on specific segments such as educational markets.
 

Choosing your positioning

Many markets can have different companies each adopting one of the strategies and successfully co-existing. It is very rare for more than one or two businesses to succeed with a cost leadership strategy and, unless a market is particularly large, the same often applies for the high volume differentiation strategy. However, many markets contain small specialist sectors that offer good opportunities to adopt a strategy of focus. This is one of the reasons why, in many cases though by no means all, the focus strategy proves to be the most appropriate for a smaller firm competing in markets where the high volume ground is already dominated by large corporate businesses.
 
When choosing which of the generic strategies is most appropriate for your market you will need to consider the existing competitor situation:
  • Are there many or few?
  • What strategies have they already adopted (if any)?
  • Do you have a notable advantage over existing players?

You will also need to apply the results of your research into customer attitudes and behaviour:
 
  • Are there notable differences that have created obvious niches?
  • Are there indications that it might be possible to create a new niche?
  • Are there any identifiable requirements that are not currently being met which can thus be used as differentiation factors?
     
A good way of doing this is by using a positioning map of the competitors in your market place. Firstly, consider the two factors which are key to the chosen product or service. Then put each factor on an axis and plot where your competitiors are in this grid. From here you can identify any gaps in the market.
 
Of course, markets are dynamic and subject to constant change. As you deliberate on the positioning you feel will be most appropriate, remember to look at market trends as well as the current situation.
 
Gary Hamal & C.K. Prahalad2 point out that strategy has to be about more than just positioning. Otherwise, businesses are in danger of forever playing catch-up with more foresighted competitors. In other words, positioning should reinforce the overall strategic approach, not be the sole determinant of it.
 
Ready for more? We now recommend you read our article: Preparing a Marketing Plan: Marketing Objectives.
 

1 Michael Porter, 'Competitive Strategy', Free Press, 1980.
2 Gary Hamal & C. K. Prahalad, 'Competing for the Future', Harvard University Press, 1994.

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