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Chapter 7 positioning a service in the marketplace


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Chapter 7 positioning a service in the marketplace

  1. 1. Service Marketing : Chapter 7 Positioning a Service in the Marketplace Presented by: Jean F. Baylon BSBA4 – Major in Mktg.-Mgnt Instructor: Mr. Abelito Quiwa
  2. 2. Chapter 7 : Positioning a Service in the Marketplace 1 OUTLINE:  Achieve Competitive Advantage through Focus  Four Focus Strategies  Identifying and Selecting Target Segments  Using Research to Develop a Service Concept for a Specific Segment  Important versus Determinant Attributes  Creating a Competitive Position  Copy Positioning Versus Product Positioning  Positioning’s Role in Marketing Strategy  Steps in developing a Positioning Strategy  Using Positioning Maps to Plot Strategy: An Example from the
  3. 3. Chapter 7 : Positioning a Service in the Marketplace 2 LEARNING OBJECTIVES: By the end of this chapter, students should be able to:  Know the focus strategies that are available to service business  Tell the difference between important and determinant attributes for consumer choice and positioning services   To know the key concepts underlying competitive positioning strategy  To know when it is appropriate to reposition an existing service offering  Understand how to develop an effective positioning strategy using market, internal, and competitor analysis.  Demonstrate how positioning maps help to analyze competitive
  4. 4. Chapter 7 : Positioning a Service in the Marketplace 3 INTRODUCTION: ACHIEVE COMPETITIVE ADVANTAGE THROUGH FOCUS In an industry with low barriers to entry and a lot of competition, Every firm must managed to find a niche position and differentiate itself from competition. They linked up with employers instead of individual parents, emphasized on service quality, and used accreditation as a selling point. As competition increases in the service sector, service organizations must find ways to stand out from competitors. Brand positioning can help to create awareness, generate interest and desire among prospective customers, and increase adoption of products and services. Senior marketing executives have come to realize that for brands to stand out; they must be carefully created, marketed and positioned. What this means is that managers need to think carefully about all aspects of the service package. In addition, they need to emphasize competitive advantage on those attributes that will be valued by customers in their target segment(s). Competitive advantage can be achieved through focus, which we will discuss next. FOUR FOCUS STARTEGIES The extent of a company’s focus can be described along two dimensions —market focus and service focus. Market focus is the extent to which a firm serves few or many markets, while service focus describes the extent to which a firm offers few or many services. These two dimensions dimensions define the four basic focus strategies shown in Figure 7.1 Figure 7.1 Basic focus strategies for services. Source: Johnston, R. (1996). Achieving focus in service organizations.The Service Industries Journal, 16 (January), pp.10–20 Fully focused: A fully focused organization provides a limited range of services (perhaps just a single core product) to a narrow and specifi c market segment (Figure 7.1). There are both opportunities and risks to such a strategy. Firms has recognized expertise in a well-defined area, it may provide protection against would-be competitors, and then the firm can charge high prices. The biggest risk is that the market may be too small to get the volume of business needed for financial success. Other risks include the danger that demand for the service may decrease because of alternative products, or that purchasers in the chosen segment may be affected by an economic downturn.
  5. 5. Chapter 7 : Positioning a Service in the Marketplace 4 Market focused: A market focused company concentrates on a narrow market segment, but has a wide range of services. Before choosing a market focused strategy, managers need to be sure that their firms have the operational capability to do an excellent job of delivering each of the different services selected. They also need to understand customer purchasing practices and preferences. Service focused: Service focused firms offer a narrow range of services to a fairly broad m arket. However, as new segments are added, the firm needs to develop knowledge and skills in serving each segment. This may require a broader sales effort and greater investment in marketing communication. Unfocused: Finally, many service providers fall into the unfocused category, because they try to serve broad markets and provide a wide range of services. The danger with this strategy is that unfocused firms often are “jack of all trades and master of none.” It is recommended that firms have some sort of focus, whether on market segments or on services. Firms should not use the unfocused strategy as this will only dilute their efforts and cause them to spread their resources too thin when they try to do many things at the same time. IDENTIFYING AND SELECTING TARGET SEGMENTS A market segment is one where a group of buyers share common characteristics, needs, purchasing behaviors, or consumption patterns. Demographic Quantifiable population characteristics, such as age, gender, income, education, family situation. Geographic The physical location or region. Psychographics Lifestyle, social or personality characteristics. Behavioural e.g University Educated, 20-25 year old, Males e.g Living in New York City e.g Self assured, confident The needs and wants of the customer in relation to the e.g Social Activity product, including expectations and attitudes.
  6. 6. Chapter 7 : Positioning a Service in the Marketplace 5 A target segment is one that a firm has selected, from among those in the broader market, and defined on the basis of several variables. Target segments should be selected not only on the basis of their sales and profit potential, but also with reference to the firm’s ability to match or exceed competing offerings directed at the same segment. Some market segments provide better sales and profits opportunities than others. But firms must also look at whether they can match or exceed competing offerings directed at the same segment. Sometimes, research will show that certain market segments are “underserved.” This means that their needs are not well met by existing suppliers. Such markets are often surprisingly large. USING RESEARCH TO DEVELOP A SERVICE FOR A SPECIFIC SEGMENT Once a target segment has been selected, firms need to provide their market with the right service concept. How can a firm develop the right service concept for a particular target segment? Research is often needed to see what attributes of a given service are important to specific market segments. However, it is dangerous to over-generalize. The importance of attributes may differ for the same individual according to:  The purpose of using the service.  Who makes the decision.  The timing of use (time of day/week/season).  Whether the individual is using the service alone or with a group.  Who is in the group.
  7. 7. Chapter 7 : Positioning a Service in the Marketplace 6 Think about what determines your choice when choosing a restaurant for lunch, (1) on vacation with friends or family, (2) meeting with a potential business client, and (3) going for a quick meal with a co worker. Given a reasonable selection of alternatives, it is unlikely that you would choose the same type of restaurant in each instance, let alone the same one. It is possible too, that if you left the decision to another person in the party, he or she would end up with a di fferent choice. It is also important to identify who is making the decision to select a specific service. In some cases, it is single individual. In others, it may involve a decision-making unit of several participants. IMPORTANT VERSUS DETERMINANT ATTRIBUTTES Consumers usually make their choices between alternative service offerings based on the perceived differences between them. However, the attributes that differentiate competing services are not always the most important ones. For example, “safety” may be considered a very important attribute in the choice of an airline, but it is not the attribute that buyers base their final decision on because typically all airlines the buyer considers are likely to be perceived as performing equally well on safety. Therefore, determinant attributes (i.e. those that actually determine buyers’ choices between competing alternatives) are often not on the top of the list of service characteristics that are important for making buying decisions. Rather, consumers focus on attributes that are different between competing alternatives. For example, convenience of departure and arrival times (Figure 7.2), availability of frequent flyer miles, quality of food and drinks on board might be examples of determinant characteristics for business travelers when selecting an airline. In contrast, for budget-conscious holidaymakers, price is often a determinant attribute. For a logistics firm, clients with global operations are likely to look at reach as a determinant attribute. Hence, a company that is able to deliver to far and remote places will be used over one that cannot. Figure 7.2 Contiki targets the young and fun loving travelers
  8. 8. Chapter 7 : Positioning a Service in the Marketplace 7 In many emerging market economies, there are huge numbers of consumers whose incomes are too small to attract the interest of service businesses that are used to focusing on the needs of wealthier customers. Collectively, however, small wage earners are a very big market and may offer even greater potential for the future as many of them move upwards toward middle class status. Price, for instance, is a straightforward quantitative measure. For example, it is very different to position services targeted at customers at the bottom of the pyramid. They are the low-income group. When Smart Communications Inc. wanted to target the low-income people in Philippines, they looked at Proctor and Gamble for ideas on how to keep product prices low. They found that there are micropacks for items such as shampoo, soaps, and food at a low-ticket price. Therefore, when Smart Communications Ltd. launched its mobile service to the low-income group, they off ered prepaid pricing plans with airtime in small packages, with prices in small denominations that started from as low as US$0.50. This strategy was a resounding success and within ten months, revenues exceeded $2 million a day. CREATING A COMPETITIVE POSITION Once we have segmented the market, and understood determinant attributes and related service levels, we need to see how best we can position our service in a competitive market. Competitive positioning strategy is based on establishing and maintaining a unique place in the market for an organization and/or its individual product offerings. Effective positioning is based on four principles: 1. A company must establish a position in the minds of its target customers. 2. The position should have one simple and consistent message. 3. The position must set a company apart from its competitors. 4. A company cannot be all things to all people—it must focus its efforts. These principles apply to any type of firm that competes for customers. Understanding the concept of positioning are the keys to developing an effective competitive posture.
  9. 9. Chapter 7 : Positioning a Service in the Marketplace 8 Example: Safety – a Never Ending Volvo Commitment 1 March, 2011 Volvo, Latin for "I roll", was born on April 14th, 1927 when the first car "Jakob" left the factory in Gothenburg, Sweden. Founded by Assar Gabrielsson and Gustaf Larsson, the company was formed on a background of quality and safety which were both of paramount importance, a concept that still applies to the Volvo cars of today. A tagline in a Volvo ad from the past stated, "every year is a road safety year at Volvo". And the safety history of Volvo Car Corporation proves that this is true. The track record includes some 75 ground-breaking safety innovations since the company was founded in 1927. The Volvo Car Corporation has had a human-based philosophy already from the start. The founders of Volvo, Assar Gabrielsson and Gustaf Larson, stated: "Cars are driven by people – the guiding principle behind everything we make at Volvo, therefore, is and must remain – safety." In a presentation entitled ‘Product renewal key to success in strengthening market’ the new president and chief executive of Volvo Construction Equipment, Pat Olney, has used his first speech to the global press to state that the company is well positioned to benefit from buoyant markets, thanks to a massive product renewal program and significant investments in its industrial structure. To emphasize the point, along with outlining an investment program that runs into hundreds of millions of dollars, Mr. Olney also highlighted more than 50 innovative new products that are being introduced in 2011. “It is this combination of reliable, fuel efficient and appropriate products, high production quality and strong aftermarket support that are customers’ order winning criteria today. With these in place Mr. Olney said he believed that Volvo CE was ‘particularly well positioned’ to capitalize on the continued growth in the major markets. Volvo Construction Equipment, the third largest manufacturer in the industry, has enjoyed strong growth in recent quarters. In the three months January to March 2011 the company’s sales increased by 53% (SEK 15,759 M) and profitability by 70% (SEK 1,708 M). In addition, the first quarter also saw Volvo
  10. 10. Chapter 7 : Positioning a Service in the Marketplace 9 become the market leader in wheel loaders and excavators in China – by far the world’s largest construction equipment market. The company has also introduced in recent months a wi despread product renewal program, with the introduction of Tier 4i/Stage IIIB emission compliant machines that not only emit lower emissions but offer higher productivity and improved fuel economy. “In addition to developing fuel efficient products, we wil l continue to capitalize on our strong position in Europe and North America, while at the same time expanding our industrial footprint in the BRIC markets,” concluded Mr. Olney. “It’s good to remember that we remain in a cyclical industry – so we will also concentrate on maintaining a high level of flexibility in the production system.” Source: %20news%20articles/x_050301_history-of-safety-innovation-at-volvo.htm Example : Service Perspective : Unintended Consequences of Positioning at Jollibee Jollibee, a home-grown chain. It competes heads-on against some of the most prominent names in fastfood retailing, including McDonald’s and Pizza Hut. And it has been successful; Jollibee is estimated to have cornered over 40% of the Filipino fast-food sector. How did Jollibee do it? Right from the start, the founders decided that the tastes of typical hamburgers provided by the major chains would not appeal to the Filipino taste buds. They developed their own sweeter and spicier-tasting versions of hamburgers, fried chicken and spaghetti. Unique products include the “honey beef rice” and “palabok fiesta” (Filipino pasta). Instead of offering apple pie as the dessert, Jollibee provides the peach mango pie and banana langka pie. Jollibee has also ventured beyond its national borders and now has operations in countries with a significant Filipino presence, with a total of 25 stores. They include operations in Guam, Brunei, Hong Kong, Malaysia, Indonesia, Middle East and the United States. Its key strength lies in understanding the local taste and is willing to adapt its product offerings accordingly. For example, when it entered in Brunei, Jollibee renamed its hamburgers “beef-burgers”. As Brunei is a Muslim country, Jollibee wanted to avoid the misperception that its burgers contained pork, which is forbidden to Muslims. It also served “nasi lemak” in Malaysia and Brunei, a rice dish cooked in coconut milk, which is familiar to the people there.
  11. 11. Chapter 7 : Positioning a Service in the Marketplace 10 Source: M. Justin, “Jollibee Shrugs off Asia Setback,” Financial Times, February 16, 1998. COPY POSITIONING VERSUS PRODUCT POSITIONING Positioning is a marketing concept that outlines what a business should do to market its product or service to its customers. In positioning, the marketing department creates an image for the product based on its intended audience. This is created through the use of promotion, price, place and product. The more intense a positioning strategy, typically the more effective the marketing strategy is for a company. A good positioning strategy elevates the marketing efforts and helps a buyer move from knowledge of a product or service to its purchase. POSITIONING’S ROLE IN MARKETING STRATEGY Positioning plays a pivotal role in marketing strategy, because it links market analysis and competitive analysis with internal corporate analysis. Positioning is a marketing concept that outlines what a business should do to market its product or service to its customers. In positioning, the marketing department creates an image for the product based on its intended audience . This is created through the use of promotion, price, place and product. The more intense a positioning strategy, typically the more effective the marketing strategy is for a company. A good positioning strategy elevates the marketing efforts and helps a buyer move from knowledge of a product or service to its purchase.
  12. 12. Chapter 7 : Positioning a Service in the Marketplace 11 Principal uses of positioning in marketing management 1. Provide useful diagnostic tool for defining and understanding the relationships between products and markets: - How does the product compare with competitive offerings on specific attributes? - How well does product performance meet consumer needs and expectations on specific performance criteria? - What is the predicted consumption level for a product with a given set of performance characteristics offered at a given price? 2. Identify market opportunities for: a. Introducing new products: - What segments to target? - What attributes to offer relative to the competition? b. Redesigning (repositioning) existing products: - Appeal to the same segments or to new ones? - What attributes to add, drop or change? - What attributes to emphasize in advertising? c. Eliminate products that: - Do not satisfy consumer needs; - Face excessive competition. 3. Making other marketing mix decisions to pre-empt, or respond to, competitive moves: a. Distribution strategies: - Where to offer the product (locations, types of outlet)? - When to make the product available? b. Pricing strategies: - How much to charge? - What billing and payment procedures to employ? c. Communication strategies - What target audience(s) are most easily convinced that the product offers a competitive advantage on attributes that are important to them? - What message(s)? Which attributes should be emphasized and which competitors – if any – should be mentioned as the basis for comparison on those attributes? - Which communication channels – personal selling versus different advertising media? (Selected not only for their ability to convey the chosen message(s) to the target audience(s), but also for their ability to reinforce the desired image of the product).
  13. 13. Chapter 7 : Positioning a Service in the Marketplace 12 STEPS IN DEVELOPING A POSITIONING STRATEGY These principles apply to any type of firm that competes for customers. Market Analysis The focus is on the overall level and trend of demand, and the geographic location of this demand. Is demand increasing or decreasing for the benefits offered by this type of service? Are there regional or international variations in the level of demand? Are there other ways of segmenting the market? The size and potential of different market segments should also be looked into. Research may be needed to gain a better understanding not only of customer needs and preferences within each of the different segments, but also of how each perceives the competition. Internal Corporate Analysis The objective is to identify the organization’s resources (financial, human labor and know-how, and physical assets), limitations, its goals (profitability, growth, professional preferences, etc.), and how its values shape the way it does business. Using insights from this analysis, management should be able to select a limited number of target market segments which can be served with either new or existing services. Competitive Analysis Analysis of competitors helps firms to understand the strengths and weaknesse s competitors have. This may in turn suggest opportunities for differentiation. Relating these insights back to the internal corporate analysis should suggest what might be possible opportunities for differentiation and competitive advantage. This will help managers to decide which benefits should be emphasized to which target segments. This analysis should consider both direct and indirect competition. Before deciding on a specific positioning, management should also anticipate responses to potential positioning strategies. For example, one needs to consider the possibility that one or more competitors might go after the same market position. Perhaps another service organization has independently conducted the same positioning analysis and arrived at similar conclusions? The best way to anticipate possible competitive responses is to identify all current or potential competitors, and to put oneself in their own management’s shoes. An internal corporate analysis should be done for each of these competitors.7 If chances seem high that a stronger competitor will move to occupy the same position with a better service concept, then it would be wise to reconsider the positionin g strategy.
  14. 14. Chapter 7 : Positioning a Service in the Marketplace 13 Position statement The outcome of the three forms of analysis is a statement that states the desired position of the organization in the marketplace. With this understanding, marketers can now develop a specific plan of action. Evolutionary Positioning Positions are rarely static. They need to evolve over time in response to changing market structures, technology. Competitive activity and evolution of the firm itself. Many types of businesses lend themselves to evolutionary re positioning by adding or deleting services and target segments. Some companies have shrunk their offerings in the expectation of increasing sales to existing customers and attracting new ones. Thus, petrol stations have added small retail stores offering extended hours of service, while supermarkets and other retail stores have added banking services. New development of technology provide many opportunities for introducing not only new services, but also new delivery systems for existing products. Innovation in Positioning When we think about strategy, we often think about positioning our products and services, but that approach is too simplistic. To be truly competitive, companies need to think not just about what they produce, but what they know and how they plan to innovate as well. Strategy must include thinking about these three positions: first, product and market; second, knowledge; third, innovation. And as the competitive landscape changes, organizations must continually realign these positions. USING POSITIONING MAPS T0 PLOT STRATEGY: An Example from the Hotel Industry Positioning maps are great tools to visualize competitive positioning, to map developments over time, and to develop scenarios of potential competitor responses. Developing a positioning “map”—a task sometimes referred to as perceptual mapping—is a useful way of showing consumers’ perceptions of alternative products graphically. A map usually has two attributes, although three-dimensional models can be used to portray three of these attributes. When
  15. 15. Chapter 7 : Positioning a Service in the Marketplace 14 more than three dimensions are needed to describe product performance in a given market, then a series of separate charts need to be drawn. An Example of Applying Positioning Maps to the Hotel Industry The hotel business is highly competitive, especially during seasons when the supply of rooms exceeds demand. Within each class of hotels, customers visiting a large city may find that they have several options to choose from. Some customers may choose the degree of luxury and comfort; some may choose attributes such as location, safety, cleanliness, and special rewards programs for frequent guests. Let us look at an example of how to apply positioning maps, based on a real-world situation. Managers of the Palace, a successful four-star hotel, developed a positioning map of their own and competing hotels. This helped them to develop a better understanding of future threats to their current market position, in a large city that we will call Belleville. Located on the edge of the financial district, the Palace was an elegant old hotel that had been renovated to a great extent and modernized a few years earlier. Its competitors included eight 4-star establishments, and the Grand, one of the city’s oldest hotels, which had a 5-star rating. The Palace has been very profitable in recent years, and has an above average occupancy rate. For many months of the year, it was sold out on weekdays. This shows that it was popular with business travelers. These business travelers were very attractive to the hotel, because of their willingness to pay a higher room rate than tourists or conference delegates. However, the general manager and his staff saw problems ahead. Planning permission had recently been granted for four large new hotels in the city, and the Grand had just started a major renovation and expansion project, which included construction of a new wing. There was a risk that customers might see the Palace as falling behind. To understand better the nature of the competitive threat, the hotel’s management team worked with a consultant to prepare charts that displayed the Palace’s position in the business traveler
  16. 16. Chapter 7 : Positioning a Service in the Marketplace 15 market both before and after the entrance of new competition. Four attributes were selected for study: room price, level of personal service, level of physical luxury, and location. Data Sources Management did not conduct new consumer research. Instead, they got their customer perception data from various sources:  Published information.  Data from past surveys.  Reports from travel agents and knowledgeable hotel staff members who mixed frequently with customers. Information on competing hotels was not difficult to obtain, since the locations were known. Information was obtained through following ways:  Visiting and evaluated physical structures.  Sales staff kept themselves informed on pricing policies and discounts.  For service level, they used the ratio of rooms per employee, easily calculated from the published number of rooms and employment data provided to the city authorities.  Data from surveys of travel agents conducted by the Palace provided additional insights on the quality of personal service at each competitor. Measures Scales were then created for each attribute:  Price was simple. The average price charged to business travelers for a standard single room at each hotel was already quantified.  The room per employee ratio was the basis for a service level scale, with low ratios being equated with high service. This scale was then changed slightly because of what was known about the quality of service actually delivered by each major competitor.  Level of physical luxury was more subjective. The management team identified the hotel that members agreed was the most luxurious (the Grand) and then the four-star hotel that they
  17. 17. Chapter 7 : Positioning a Service in the Marketplace 16 viewed as having the least luxurious physical facilities (the Airport Plaza). All other 4-star hotels were then rated on this attribute relative to these two benchmarks.  Location was defined using the stock exchange building in the heart of the financial district as a reference point. Past research had shown that majority of the Palace’s business guests were visiting destinations in this area. The competitive set of ten hotels lay within a four-mile, fanshaped radius, extending from the exchange through the city’s main retail area (where the convention center was also located) to the inner suburbs and the nearby airport. Two positioning maps were created to portray the existing competitive situation. The first (Figure 7.3) showed the ten hotels on the dimensions of price and service level; the second (Figure 7.4) displayed them on location and degree of physical luxury. Findings Some findings were intuitive, but others provided valuable insights.  A quick glance at Figure 7.3 shows a clear correlation between the attributes of price and service. Hotels offering higher levels of service are relatively more expensive. The shaded bar running from the upper left to the lower right high-lights this relationship.  Further analysis shows that there appear to be three groups of hotels within what is already an upscale market category. At the top end, the 4-star Regency is close to the 5-star Grand. In the middle, the Palace is grouped with four other hotels, and at the lower end, there is another group of three hotels.  One surprising insight from this map is that the Palace appears to be charging quite a lot more (on a relative basis) than its service level would seem to justify. Since its occupancy rate is very high, guests are evidently willing to pay the going rate.  In Figure 7.4, we see how the Palace is positioned relative to the competition on location and degree of luxury. We would not expect these two variables to be related and they do not appear to be so.  A key insight here is that the Palace occupies a relatively empty portion of the map. It is the only hotel in the financial district. This probably explains its ability to charge more than its service level (or degree of physical luxury) would seem to justify.  There are two groups of hotels in the vicinity of the shopping district and convention center (Figure 7.5). They are a relatively luxurious group of three, led by the Grand, and a second group of two offering a moderate level of luxury.
  18. 18. Chapter 7 : Positioning a Service in the Marketplace 17 Figure 7.3 Positioning map of Belleville’s principal business hotels: Service Level versus Price Level Figure 7.4 Positioning map of Belleville’s principal business hotels: Positioning map of Location versus Physical Luxury
  19. 19. Chapter 7 : Positioning a Service in the Marketplace 18 Figure 7.5 Positioning map of Belleville’s principal business hotels, Following New Construction: Service Level versus Price Leve l. Figure 7.6 Positioning map of Belleville’s principal business hotels after New Construction: Location versus Physical Luxury
  20. 20. Chapter 7 : Positioning a Service in the Marketplace 19 CONCLUSION  Most service businesses face strong and often increasing competition. Marketers need to find ways of creating meaningful competitive advantages for their products. Ideally, they should be targeting segments that they can serve better than other providers. The concept of positioning is valuable because it forces explicit recognition of the different attributes comprising the overall service concept. It also emphasizes the need for marketers to understand which attributes determine customer choice behavior. Positioning maps provide a visual way of summarizing research data and displaying how different firms are performing, relative to one another, on key attributes. Combined with information on the preferences within different segments – including the anticipated demand from such segments – positioning maps may suggest opportunities for creating new services or re-positioning existing ones to take advantage of unserved market needs. If offering such a service is seen as compatible with the organization’s resources and values, the firm may be able to develop a profitable niche for itself in the market. References: Service Marketing - Chapter 7 : Positioning a Service in the Marketplace 0301_history-of-safety-innovation-at-volvo.htm M. Justin, “Jollibee Shrugs off Asia Setback,” Financial Times, February 16, 1998.