Week 4: Market Segmentation and Target Market Selection

The objective for this week is to be able to select the consumers that are most beneficial to the company. The STDP process studied in Chapter 4 provides me the important tools to achieve this objective. I will also study the HBR article on market segmentation and target market selection to enhance my knowledge on this subject.

One key point I got from Gladwell's talk is that there is no perfect product for everyone. The ideal solution is not to find a perfect product for all customers. Rather, it is to cluster the customers into segments, and produce a variety of solutions that satisfy the customers in each targeted segment. Consumer obsession requires focus and segmentation helps achieve this objective. Focusing on segments, instead of a large heterogeneous market, enables a firm to better understand each segment’s customers and determine what they want and need. This also allows the firm to notice changes in the segment and response quickly. As such, the firm is able to serve each targeted segment more efficiently and effectively with products that match the customer needs.

A firm should select the most promising segments for targeting. Factors used to evaluate segments and identify the most promising ones include the market segment itself, the potential for competitive superiority, and the extent of environmental threats. The key to target market selection is to understand differentiation between the firm and its competitors. This can be achieved through ranking systems and weighing the evaluation criteria to come up with a composite score for each segment.

What is positioning? The “Note on Marketing Strategy” (HBS No. 598-061) defines positioning as the marketer’s effort to identify a unique selling proposition for the product. In Wikipedia, it is stated that the most common definition of positioning is identifying a market niche for a brand, product or service utilizing traditional marketing placement strategies (i.e. price, promotion, distribution, packaging, and competition). That is positioning aims to differentiate the brand or product through attributes that are meaningful to the customers.

The HBR article on market segmentation discusses two extreme types of differentiation: vertical differentiation and horizontal differentiation. While vertical differentiation is about having better product quality than competitors, horizontal differentiation is about serving different groups of customers. I think the story of Howard Moskowitz in Gladwell’s talk is a good example of horizontal differentiation. Moskowitz pointed out that mustard does not exist on a hierarchy: “There is no good mustard, or bad mustard. There is no perfect mustard, or imperfect mustard. There are only different kinds of mustards that suit different kinds of people”. He democratized the taste profiles and created horizontal differentiation.

The last section in the HBR article discusses the role of brands. Branding is directly linked to positioning and it emphasizes product differentiation. Company products can also be marketed under different brand names to focus on different segments. The first example that comes to my mind is Gap Inc. It uses three brands, Old Navy, Gap, and Banana Republic to offer variation of the basic clothing product to different customer segments from low-end to high-end.

Considering segmentation at my company, I think my company segments by industry, organization, usage, and location. We currently focus on railroad industry and North America region. One segment is that of Class I railroads which are large freight railroad companies, as classified based on operating revenue. One segment is that of smaller freight railroads (Class II and Class III). Another segment is that of commuter rails. Commuters require telecommunication system that can support the train speed of more than 100 mph, while freight railroads need to support at much lower speed. Large railroad companies’ first priority is on reliability issue. They require system that is significantly reliable. The large companies have operation divisions that are capable of deploying the system themselves. The support services they need are more on education and training. Smaller railroad companies, on the other hand, need lower cost solutions and require deployment services. So we have different products and services for each segment based on the customer needs.

Week 3: Using Marketing Research to Gain Consumer Insights

This week focuses on market research. My goal is to first understand how to research and analyze markets and customers and then learn the process of segmentation, targeting, and position. This week, I will complete the first four chapters of the book, which provides tools to prepare the first submission of our marketing plan. This includes an environmental scan, market research component, and segmentations targeting positioning component.

Dr. Rosling’s video reminds me that key components of research include not only data collection and analysis but also presentation of the data. Often time, research study results in massive amounts of data. This includes not only static but also dynamic data that continuously changes over time. Data visualization, such as what shown in Dr. Rosling’s video, provides a powerful mean both to understand the data and to then communicate what discovered to others. By converting raw data into easily understood visual information, he is able to present huge amount of data and make insightful summaries of key points memorable in a few minutes. His presentation of 200 years of global health is very impressive. I can easily see the trends and understand the important facts that he summarized from the visual display.

The video by Malcolm Gladwell helps me understand the essence of segmentation and targeting focus. With the Pepsi story “There was no such thing as the perfect Pepsi. There are only perfect Pepsis”, Gladwell delivered the key point that no product can be all things to all customers. Since people’s preferences group into multiple clusters, there is no perfect product for everyone. So instead of creating for one perfect product for everyone, we should focus on creating perfect product for the targeted cluster.

Another key point I learned from the Gladwell video is that people do not always know what they want. So we need to show them what they want to satisfy the unmet need. As he pointed out in the video, it is only when people got introduced to chunky spaghetti sauce did they realized their need of chunky spaghetti sauce. This concept is similar to what Bezo presented in his talk that one of marketing’s roles is to invent on behalf of the consumer. Just like the chunky spaghetti sauce, people do not realize their need of kindle until they see it.    

When my company started working with the railroads to develop the train communication system, our customers did not know what they want either. What we did is getting together with the railroads and gathering information about their operation. After understanding our customers, we can then invent on their behalf. We created a train communication system solution and presented a proof-of-concept to the railroad customers. Once they saw our proposed system, they realized that it is exactly what they want and they funded my company to develop the system.

I just got asked to think about potential future projects and start developing a business case for each potential future project. The SWOT analysis was completed. The next step is to understand market and customers. We still focus on railroads and we are developing a marketing research plan to gain better understanding of railroad customers. Both ethnographic and online research will be employed. The railroad customers cannot always articulate what they want in a product. So we are going to get together with the railroad customers and learn more about their operation to detect their expectations and be able to invent new products for them.

For my marketing plan of alternative fuel vehicles, I use secondary research as a starting point for situation analysis. Team 1 has done a great job in data collection and sharing information within our consulting group. We use the visual display of data such as graphic map and pie chart to create insights to our client.

Week 2: Analyzing the Current Situation

My goal for this week is to study Chapter 2 and apply what I learn to analyze the current situation of my company.

My company develops data radios and communication systems for railroad industry, but we are not in the radio business. Rather, we are in telecommunications business. To ensure continued growth for the company, it should therefore concentrate on meeting telecommunications needs. This is well captured in the company’s vision, which is to be the technology leader in providing innovative telecommunication solutions to the transportation industry.

A good mission statement should be market/consumer focused. It drives the company to focus on satisfying customer needs, which is the key to business success. The mission statements of Southwest airlines and Target, for instance, are examples of good mission statements. They are consumer focused and specific enough to give direction to the organization. A mission statement that is product based focused, on the other hand, would make the company focus on selling products rather than meeting customer needs. Focusing on products, the company could easily miss certain threats and opportunity, and eventually put itself at risk of obsolescence.

For my company, the mission statement focuses on satisfying railroad customers. My company is owned by railroads and our owners are also customers. So it concentrates on a narrow market – the railroad industry. Our mission is to successfully deliver and support an open standards-based, interoperable train communication system to all railroad companies. The mission is more than a plague on the wall. It is the driver of the company culture. Once the mission is set, strategies are defined and cascaded downward through the organization.

What we deliver to the railroad customers are data radios and engineering solutions for the train communication system. But the railroad customers do not actually buy radios. What they buy is the ability to exchange data between applications operating on trains and their corporate network. Considering ourselves in the telecommunications business, we can see that our competitors are not only radio development companies, but also other telecommunications business such as cellular, satellite, and fiber optics communications.

Following SWOT analysis in Chapter 2, strengths, weaknesses, opportunities, and threats of my organization are created as follows.

Strengths •       As a joint venture, we are uniquely positioned to deliver results; we have  access to business and technical resources •       Strong technical resources and capabilities •       Company proprietary data communication technology has demonstrated that we can meet customer requirements	Weaknesses •       Lack of organization capacity and management expertise •       Expanded scope revealed skills gaps •       Current business processes and systems are not adequate for anticipated growth
Opportunities •       Customer interest in new products •       Expanded engineering services, including systems integration and operations •       Expanded markets and revenue streams	Threats •       Railroad adoption of incompatible technologies •       Vendor adoption of incompatible products •       Other high tech companies recruiting key contributors or potential candidates

An example of change in the external environment that affects telecommunication industry is the change in FCC (Federal Communications Commission) regulations. Radio operators in US must receive approval and licensing from the FCC before they can operate. Ownership of a radio operator license can create a barrier to entry for competitors. There is also a limited amount of spectrum that is suitable for data communications. A change in FCC regulations could have a positive or negative impact to the industry.

For example, the FCC narrowbanding mandate affects all operators of land mobile radios that use the spectrum between 150-174 MHz and 421-512 MHz (see http://transition.fcc.gov/pshs/public-safety-spectrum/narrowbanding.html for detail). The FCC narrowbanding mandate requires that the operators move from the traditional 25 kHz channels to 12.5 kHz narrowband channels by January 2013. It creates a threat to the existing operators that could risk losing their existing FCC authorization. The mandate also creates an opportunity to radio development companies to produce new products that operate in the required narrowband channels. 

Another example is when the FCC opened up the unused spectrum in the television band, the so-called TV white spaces, to unlicensed wireless devices (see http://www.fcc.gov/blog/fcc-announces-public-testing-first-television-white-spaces-database for detail). This creates a huge opportunity to the telecommunications industry in developing new technologies that utilize the TV white spaces.

Week 1: What is Marketing

I graduated with MS and PhD degrees in Electrical Engineering and have been working in R&D at a wireless telecommunications company since then. My company was found in 1975 by five engineers and it had managed by engineers. When I joined the company five years ago, the company had 35 employees, most of which are engineers and technicians. Although the company had a marketing department, there were only few people in the marketing department and the focus was on sales and customer services. The company’s marketing was driven by engineering, and the products were engineered based on the customers’ specific demands. The major role of marketing was only to advertise and sell products and provide supports to customers. And that how I saw what marketing in a technology company was.

Glancing at the “Marketing Myopia” article summary, I started to realize that there is more in marketing than what I experienced at the company. Myth 4 in the article caught my first attention. Organizing the company around the technology is pretty close to what my company had been doing. So what really is marketing? I asked myself and found that what I knew about marketing was very limited.

So my objective for the first week is to better understand what marketing is. I studied Chapter 1 of the marketing plan handbook, read the marketing myopia article, and then reviewed the videos by Jeff Bezos and by Professor Talbott.

The main point I have learned from the materials is that marketing planning is a cyclical process that consistently focuses on consumer benefits. Focusing on consumer benefits means that the purpose of a business is to serve the consumer, not to make products! Being a cyclical process means that no marketing is ever really final. As the customer needs change over time, we need to learn, adjust, and do new things consistently to ensure that the marketing plan serves the customer needs.

Another key learning point that opens my perspective of marketing is that satisfying customer needs drives the products, not the other way around. The key to business success is to define the business around the customer needs (not the products) and focus on meeting customer needs rather than selling products. This way of thinking helps me understand my company’s business better. We produce data radios, but our business is really telecommunications. What customers need is communication path between their applications. Any mean of telecommunications (e.g. cellular, satellite, optical communications) would be in the same business.