Competitive Advantage and Target Market Selection Strategies

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Competitive Advantage and Target Market Selection Strategies

Business Essentials · Chapter 12: Marketing Foundations and Consumer BehaviorSection 12.1 · lesson 55 of 10513 min · free with a free account

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In this lesson

What marketing is, what makes an advantage last, and whom to serve.

  • Define marketing, apart from selling and promotion
  • Describe 5 forms of competitive advantage
  • Test whether an advantage is genuine
  • Explain segmentation, targeting, and positioning

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Transcript

Everything said in the video, section by section (1,812 words). Read along, or search it.

Marketing Foundations and Consumer Behavior

Competitive Advantage and Target Market Selection Strategies

This chapter turns from managing people to marketing goods and services. We begin with a definition, because most people use the word marketing far too narrowly. Then we ask what makes a competitive advantage real, and why so many advantages quietly disappear. We look at five forms of advantage, and four tests that separate a genuine one from a temporary lead. Then comes the core strategic sequence. Segmentation, targeting, and positioning. We will read a perceptual map, and see why a gap on it is a question, not an answer. And we close with a coffee roaster whose defining advantage lasted one season. Keep one idea in view. An advantage customers do not value, or rivals can copy, is no advantage.

What Marketing Is

Start From the Need, Not the Product

Marketing is the process of identifying and meeting customer needs profitably. Read that slowly, because each part rules out a narrower idea of the word. Marketing is not simply selling, which is persuading someone to buy what has already been made. And it is not simply promotion, the communication used to inform or persuade an audience. Selling and promotion are tools marketing uses once there is something to offer. But the definition starts earlier, with identifying what customers need. And it ends later, with meeting that need in a way that also earns the business a return. A company that makes a product first, then tries to make people want it, is doing the opposite. That distinction is captured by the marketing concept. It starts from customer needs and works backward to decide what to make. The alternative starts from what the business can make, and works forward to find buyers.

Business Orientations

4 Orientations, All Still Visible

The marketing concept sits at the end of a historical sequence of four business orientations. All four are still visible today, in different industries and organizations. The production orientation assumes customers mainly want availability and low cost, so it focuses on efficient production. It suits markets where demand exceeds supply, and buyers have few alternatives. The sales orientation assumes customers must be persuaded, so it pushes aggressive selling of whatever was made. It tends to appear once supply catches up with demand, and products are hard to tell apart. The marketing orientation starts from customer needs, as we just saw. The societal marketing orientation goes further. It asks a business to meet needs in a way that also serves the long-term well-being of customers and society. That means weighing profit against the wider consequences of a product or practice. A single large organization can show all four, in different divisions or eras. Old habits persist as new ideas spread.

The Marketing Mix

The Tools a Business Controls

The marketing mix is the set of controllable tools a business combines to carry out its strategy. Traditionally, it is summarized as the four Ps. Product is what is offered, developed in Chapter thirteen. Price is what is charged for it, in Chapter fifteen. Place is how it reaches the customer, in Chapter fourteen. And promotion is how it is communicated, in Chapter sixteen. Services commonly add three more. People are the employees who deliver the service, because their behavior is part of what the customer experiences. Process is the procedure and flow by which the service is delivered. Physical evidence is the tangible cues, like a facility's appearance. Those cues matter because a service cannot be inspected in advance, so customers judge it by what they can see. This chapter sets out the strategic thinking that decides how the mix should be assembled.

Table 12.1.1

5 Forms of Competitive Advantage

A competitive advantage is something a business does that customers value, and competitors cannot easily replicate. Both halves must hold. An advantage customers do not value is not an advantage, however impressive it looks internally. And one that rivals can copy in a season is not durable. A cost advantage means producing and delivering for less, through scale, efficiency, or favored access to inputs. It erodes as rivals find their own efficiencies. Varlow Wholesale Foods, a fictional bulk grocery distributor, relies on one. A product or quality advantage needs sustained investment in design and engineering. Rivals erode it by matching the improvement. A niche advantage means serving one segment better than any generalist, which takes the discipline to say no. Fennimore Tack, a fictional saddlery serving only competitive riders, is the example. Its risk is that the niche grows big enough to attract broad competitors. A service advantage needs people, training, and systems. Specific practices get copied, but a whole service culture is harder. A sustainability or values-based advantage needs real operational commitments, not a claim. It erodes when the commitment becomes the industry standard, rather than a point of difference. Naming your advantage in the wrong terms usually means investing in the wrong place to defend it.

Is It Real?

4 Tests of a Genuine Advantage

So how do you know whether a claimed advantage is genuine? Ask four questions. Is it valuable? Does it actually affect customers' choice? Is it rare? Do most rivals lack it? Is it difficult to imitate? Would a competitor need significant time, money, or a capability it lacks? And is it supported by the organization? Are structure, incentives, and processes actually aligned to sustain it? That last test connects back to the alignment idea in Chapter ten. An advantage that fails any one test is weaker than it appears. A business that never asks all four may be defending a position that is already gone. The erosion problem follows from the five competitive forces in Chapter one. Any advantage earning above-normal returns attracts imitation, substitution, or new entry. So an advantage is a temporary lead, not a permanent possession. That does not make it worthless. It means keeping one takes continued investment, and often a sequence of advantages.

STP

Segment, Then Target, Then Position

The core strategic process for deciding whom to serve, and how to be seen, is segmentation, targeting, and positioning. It is often shortened to S T P. Segmentation divides a market into groups of customers with different needs or responses. The point is to match an offering to a group, instead of averaging it across everyone. The bases for segmenting are developed fully in section twelve point four. Targeting is selecting which segment, or segments, to serve. Positioning is establishing a distinct place in the customer's mind, relative to competing offerings. The three steps are sequential, and the order matters. A business cannot target sensibly until it has segmented the market. And it cannot position sensibly until it knows whom it is positioning for.

Targeting Approaches

How Many Segments, How Uniformly?

There are four targeting approaches. They differ in how many segments a business serves, and how uniformly. An undifferentiated approach treats the market as one group, with a single marketing mix. It fits a genuinely uniform need, or a very small business without resources for more. The risk is a rival who tailors an offer to one specific segment, and wins it. A differentiated approach serves several segments, each with its own mix. It can capture more of the market, but it multiplies the cost of product variations, inventory, and promotion. A concentrated approach serves one segment intensively, allowing deep expertise and efficient marketing. But the business then rises and falls entirely with that one segment. Micromarketing tailors the offer to very small groups, or even individuals, made feasible by data on individual behavior. Its cost is complexity, which grows with every variation offered. Behind all four sits the capacity constraint. Flexibility, budget, and management attention are limited. Try to serve every segment equally well, and you usually serve each one worse than a focused competitor.

Positioning

Name the Alternative

Positioning is the deliberate effort to occupy a distinct and valued place in the target customer's mind. Always, that place is relative to competing products. A useful positioning statement follows a structure. For this target segment, this product is the option among this alternative. It delivers this key benefit, because of this reason to believe. The discipline that improves positioning most is naming the alternative, explicitly. Saying a product is high quality, without saying compared to what, says very little. Saying it is more durable than the leading budget brand gives a customer something to decide with. The reason to believe matters too. It is what makes the benefit credible.

Figure 12.1.1

A Perceptual Map With a Gap

A perceptual map is a visual tool for positioning. It plots competing products or brands along two attributes that matter to customers. That reveals how they are perceived relative to one another, and where gaps may exist. Picture four fictional outdoor-gear retailers, plotted on assortment breadth and price level. They cluster in three of the four regions the two axes create. One region is empty. A narrow assortment, at a premium price. It is tempting to read that gap as an opportunity. Be careful. It may be open because nobody has recognized it. Or because the segment is too small to support a focused, premium retailer. Or because entering requires capabilities none of the four has. The map itself cannot say which. That takes the kind of research covered in section twelve point two.

Differentiation and Brand

When Offerings Look Interchangeable

Differentiation is making an offering distinct from competitors' in ways that matter to customers. It is the operational counterpart of positioning. Positioning is the place a business wants in the customer's mind. Differentiation is what it does to earn that place. The difficulty comes when offerings look interchangeable, and customers choose mainly on price. This is sometimes called commoditization, and it is the natural endpoint of the erosion problem. As advantages are copied, differences narrow. A business that has run out of product differences must look to service, values, or a narrower niche. That brings us to brand. A brand is not a logo or a slogan. It is the accumulated sum of a customer's experiences with, and beliefs about, a business. It is built transaction by transaction. Did the product work? Was a problem resolved fairly? Did the price feel honest? Customers trust what happened to them over what they were told would happen. So a position claimed in advertising, but not delivered in experience, is not a stable position at all.

Case

Marrow Coffee: The Advantage That Wasn't

Now a composite case. Delia founds Marrow Coffee Roasters. She introduces same-day roast-to-delivery in her city, with beans roasted the morning they ship. Sales rise quickly, and she pitches the service to investors as her defining competitive advantage. Within one roasting season, two rival roasters copy it. They use the same regional courier network, and the same commercially available batch software. Her growth flattens, because customers now expect same-day roasting from all three. Run the four tests. The service was valuable. It was rare, but only briefly. It was not difficult to imitate, and no unique organizational capability supported it. What looked like an advantage was really a temporary lead. Her options are to compete on price, add a further difference, or focus on a narrower specialty segment. A durable advantage would rest on something harder to copy, like exclusive farm relationships built over years. That is the direction the sound decision points toward.

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FAQ

Questions students ask us

About Competitive Advantage and Target Market Selection Strategies

What makes a competitive advantage sustainable?
A competitive advantage is something a business does that customers value and rivals cannot easily copy. Four tests judge whether one is genuine: it must be valuable to customers' choices, rare among rivals, difficult to imitate, and supported by the organization's structure, incentives, and processes. Because above-normal returns attract imitation and new entrants, most advantages are temporary leads that need continued investment, such as supplier relationships built over years rather than easily copied services.
What are the steps of segmentation, targeting, and positioning?
Segmentation, targeting, and positioning, often called STP, is a three-step sequence. Segmentation divides a market into groups with different needs or responses. Targeting selects which segment or segments to serve. Positioning establishes a distinct place in target customers' minds relative to competing offerings. The order matters: a business cannot target sensibly until it has segmented the market, and it cannot position well until it knows whom it is positioning for.
What are the four targeting strategies in marketing?
The four approaches are undifferentiated, differentiated, concentrated, and micromarketing. Undifferentiated targeting uses one marketing mix for the whole market. Differentiated targeting serves several segments, each with its own mix, at higher cost. Concentrated targeting serves one segment intensively, building expertise but depending entirely on it. Micromarketing tailors offers to very small groups or individuals using data. With limited budget and attention, trying to serve every segment equally usually serves each one worse.
How do you write a positioning statement?
A positioning statement follows a set structure: for a defined target segment, the product is the option among a named alternative that delivers a key benefit, because of a reason to believe. Naming the alternative is what makes it useful. Calling a product high quality says little, but saying it is more durable than the leading budget brand gives customers something to decide with. The reason to believe makes the benefit credible.

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