To be viable a market segment should be:
1	 Distinctive with significantly different needs from other segments. Without this the
segment boundaries are likely to be too blurred.
2	 Sufficiently large or willing to pay a high enough price to make the segment commercially
attractive. It may be that a gap in the market exists because it is not commercially viable.
3	 Accessible. The gap in the market might not exist in reality because the segment cannot be
reached – through communication or distribution channels.
4	 Defendable from competitors. If the segment is not defendable, for example, because you
are selling a copy-cat product, prices and profits will quickly reduce as competition
increases.
Market segments vary in size. The slimmer the market segment that the
product or service is tailored to suit, the higher customer satisfaction is
likely to be, but so too is cost – and therefore price. We all like personal
service and the ultimate market segment comprises just one customer.
However, this might not be a commercially viable segment. The trend is
towards slimmer and slimmer market segments, particularly since the
internet has made it easier to link customers with similar needs in
different geographic areas. The danger facing firms selling to slim
market segments is their overreliance on a small customer base. If tastes
change, the segment might disappear.
Defining your value proposition
Your value proposition is why customers should buy from you rather than from another
company. Customers buy a product or service because it provides a benefit or solves a
problem for them. The features or characteristics of the product or service must combine to
deliver that benefit to the customer, or they will not buy it. And different market segments
might be looking for different benefits. The features of a car combine to provide the benefit
of transport, but different customers are looking for more than just transport – which is
why there are numerous types of cars and many producers. Products and services often
have other related benefits compared to competitors such as: saving time or money,
producing more of the result, undertaking the task more safely or with less risk, or in a more
innovative way.
It has been argued that customers essentially purchase services rather than goods, and
goods should therefore be viewed as a medium for delivering or ‘transmitting’ services (see
Academic insight 5.2). If all industries are service industries, it becomes vital for them to
understand the service – or benefits – that consumers are really seeking. You need to
understand the core benefits a customer is looking for when they purchase goods or
services, and then engineer the features to deliver those benefits. And these features can
take many forms, both physical and psychological. They can then deliver additional forms
of benefit such as conveying status, or being more ethical or environmentally friendly.
Focusing on the benefit needs of your market segments and delivering distinctive, differentiated
value propositions to each of them is at the very core of developing your marketing
strategy. Unfortunately, many owner-managers like to define their products in physical
terms and therefore think they are selling one thing, only to find that customers are buying
something else.
Vary your
markets. Think about
how your product could
fit into different markets.
Clippykit works for retail, the
promotions industry and
education.
C
alypsoRosefounderClippy 
D
aily Telegraph 6 February
2
009
Chapter 5  Crafting your value proposition and branding 145
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Features can be translated into benefits by exploring their meaning, as shown in Table 5.1.
Service-dominant marketing logic
ACADEMIC
insight
5.2
I
n their award-winning paper, Vargo and Lusch (2004)
seem to have changed the dominant logic of
marketing academia. They argued that customers
valued and purchased services rather than goods, and
goods should therefore be viewed as a medium for
delivering or ‘transmitting’ the firm’s services. They
defined service as ‘the application of specialized
competences (knowledge and skills) through deeds,
processes, and performances for the benefit of another
entity or the entity itself’. In this way companies
manufacturing cars are not in the business of selling
cars but in the business of providing ‘mobility services’
through the cars that they manufacture – a concept
adopted by Andrew Valentine with Streetcar (Case insight
4.2). Thus, all industries are service industries and it
therefore becomes vital for firms to understand the service
that consumers are seeking from them. It requires a shift in
focus from the product to the consumer and an
understanding of their needs and how these translate into
a service they value.
Vargo, S.L. and Lusch, R.F. (2004) ‘Evolving to a New Dominant Logic
for Marketing’, Journal of Marketing, 68(1).
Table 5.1 Features and benefits
Feature Benefit
Our shop takes credit cards Meaning… You can budget to suit your pocket
Our shop stays open later than others Meaning… You get more choice when to shop
Our shop is an approved dealer Meaning… You can be guaranteed that we know and
understand all technical aspects of the product
Our shop is a family business Meaning… You get individual, personal attention from
somebody who cares
Listing the features of a product or service can be the start of the process of understanding
the benefits that the customer is seeking from them. The features form part of the ‘marketing
mix’ you put together as part of your marketing strategy – a topic to which we return in the
next chapter. However, it is more convincing to start with the benefits that customers are
looking for and then construct features that provide those benefits. Which actually comes
first is a little like the chicken or the egg question. Once you start looking at benefits, you start
thinking like a customer. You also realize that some of the benefits customers might be
looking for are intangible. As we shall see later, they could be psychological, even emotional
benefits.
Your value proposition should therefore state three things:
1 How your product or service will solve a problem for your target customers.
2 The benefits they can expect – tangible and intangible (as we shall see later, you may have
to offer proof of this in your marketing message).
3 Why they should buy from you rather than from your competitors.
It is important that you understand precisely what the value proposition(s) of your
product(s) or service(s) is/are, and the target market(s) you are aiming for. The discipline of
Phase 2 Business model development146
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expressing this in a few, specific words is extremely valuable and one that you will be able to
refer back to again and again as you develop your marketing campaign. To help you do this
you might find this template useful:
Because our product/service has (features and other differentiating and provable
attributes) it will (problem solution) for (target customer segment) meaning that (customer
benefits).
Often the value proposition forms the basis for the ‘straplines’ (short one-line sentences) you
see describing what products or companies do or what they represent. For example the
cosmetics firm Lush (Case insight 6.7) leaves no doubt about what it does by using the simple
strapline ‘Fresh handmade cosmetics’. The computer equivalent of Post-it® notes, Evernote, is
equally clear: ‘Remember everything’ but adding ‘Inspiration strikes anywhere. Evernote lets
you capture, nurture, and share your ideas across any device’. Skype uses the strapline: ‘Skype
makes it easy to connect with your loved ones’, but if you go to their website the front page
states very clearly what it does (helps you share, message, and call), how it does it (on phone,
tablet, and desktop), and who it does it for (the whole world.).
CASE
insight
5.2
Apple MacBook Pro
Value propositions
Many products or services make effective use of value
propositions in their marketing, often as ‘straplines’. For
example, if you went to the front webpage for the Apple
MacBook Pro in 2017 you saw a slick photo of an open,
thin MacBook from the top down showing its bright screen
and its gleaming aluminium. This was headed up with
‘MacBook Pro – A touch of genius’. The brief value
proposition below claimed:
It’s razor thin,feather light,and even faster and more
powerful than before.It has the brightest,most
colourful Mac notebook display ever.And it features
the Touch Bar – a Multi-Touch-enabled strip of glass
built into the keyboard for instant access to the tools
you want,just when you want them.MacBook Pro is
built on ground-breaking ideas.And it’s ready for yours.
Visit the website: www.apple.com/macbook-pro
Question:
Why is this an effective value proposition? USA
Creating value through values
Your values and vision are tools that create identity for your business – an identity that should
be reflected in your value proposition. And if this identity is attractive to customers it can
create value. At the very least, a clear identity for the business means that customers know
what they are buying and, if they like it, facilitates a repeat purchase. But identity can do more
than this. It is also about reputation. As we have seen, customers buy a product/service
because it provides them with a range of benefits that they value. Reputation assures
Chapter 5 Crafting your value proposition and branding 147
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customers that this will be delivered every time they purchase the product or service. It
reduces their risk and is therefore of value to them.
However, benefits can be psychological as well as physical. For example, a successful sole
trader might offer a reliable, friendly service that differentiates them effectively from the
competition. The personal relationship they establish with their customers epitomizes the
reliability and friendliness of the service they deliver. And this relationship underpins
the customer loyalty that is generated. The challenge is to extend it beyond
the single-person business. Just as with a sole trader, establishing a reputable
brand for your product, service or business should therefore help
create value by doing three things:
1 Establish an identity
2 Help build a reputation
3 Help develop a relationship
The development of a relationship with customers reflects a
move away from seeing the customer as someone with whom to
have an arm’s-length transaction – just somebody to sell to. It is part
of the development called relationship and values-driven marketing
that seeks to actively engage with customers and use them to help
sell existing products/services and develop new ones. This is based
CASE
insight
5.3
Dell Corporation
Changing your value
proposition
When it launched Dell offered
both a low-price/low-cost and
a customer focus value
proposition (selling direct and
allowing customers to
configure their own
computers). Dell became
market leader in the provision
of value-for-money computers
in the 1990s because it
integrated its supply chain with
its online retail operations. Its fully integrated value chain –
a business-to-consumer-to-business (B2C2B) business
model – meant that customers could configure their own
computers and order online while suppliers had real-time
access to orders and deliveries, so that Dell could receive
stock information on a just-in-time basis, keeping the
assembly line moving while minimizing its costs. It
underpinned their low-cost/low-price business model.
Dell patented many of the innovations in this integrated
value chain. Nevertheless, over the years competitors were
able to copy many of these technological developments and
integrate their own supply chains so as to achieve similar
cost savings, thus eroding the basis for the low-price/lowcost
element of their value proposition. Consequently the
question has arisen as to whether Dell’s direct relationship
with customers is now of higher value than its low-price/lowcost
proposition. If it is, then Dell might also want to sell
other digital consumer electronics and office automation
equipment direct to customers.And why should it not
subcontract more of its assembly, focusing rather on the
core strength that the customer values – the direct
relationship? Again, this is something it has started doing.
This raises many questions about the scope of Dell’s
activities and the nature of its business domain.
Visit the website: www.dell.com
Questions:
1 What are the advantages and disadvantages of
relying on the physical features of a product or a
low-cost business model for your value proposition?
2 How easy is it to change your value proposition?
USA
You and your
rival have access to
virtually all the same resources.
Only by constantly thinking of new
ways to reorganize these factors
can you differentiate yourself. It’s
like poker. Everyone has the same
number of cards. It’s how
you play your hand that
matters.
ZhangRuimin
CE
O
HaierGroupStrategy+Busines
s, Issue 77, Winter 2014
©2017DellInc.AllRightsReserved
Michael Dell
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upon establishing a good relationship with customers – one that is underpinned by mutual
self-interest, where there is something in it for both the customer and the company with each
helping the other in certain ways. Relationships are built on good communication – a topic to
which we shall return in the next chapter – and technology has made this easier on a mass
basis. Indeed, the development of the internet and social media has made it possible and
affordable on a global scale.
There are therefore four questions you need to ask:
1 What are the values you wish your business to embody?
2 Do these values differentiate you from competitors?
3 What values are attractive and of value to your customers (i.e. they might find attractive
and be willing to pay for) and can they be reconciled with those of your business?
4 Can these values be incorporated into your value proposition? If so, how?
Your values should be reflected in your value proposition. But doing this is only part of the
challenge. The next stage is communicating this ‘values-enhanced’ value proposition to
customers and consumers. This can be complicated. One way of shortcutting the process is to
develop a brand that encapsulates the value proposition and everything you and the company
stand for. In this way the customer’s script is written for them and articulation is easier.
Values-driven marketing
ACADEMIC
insight
5.3
P
iercy (2000, 2001) was one of the first academics
to observe that, as customers become
increasingly sophisticated, marketing will move
away from just relationships to values-driven strategies
that reflect customer priorities and needs:
Achieving customer loyalty with sophisticated
customers is the new challenge and we are only
just beginning to realize what this means. It will
mean transparency. It will mean integrity and
trustworthiness. It will mean innovative ways of
doing business. It will mean a focus on value in
customers’ terms, not ours. It will require new types
of organization and technology to deliver value.
Piercy characterizes marketing strategy and the search
for customer loyalty as a progression from transactional
and brand approaches to relationship and values-based
strategies.These are illustrated in Figure 5.1.
Values-driven marketing (also called Marketing 3.0)
has been characterized as a holistic approach to
marketing based upon combinations of segmentation
approaches. It places a participative customer at its
centre – a customer that is not only king, but also
market research head, R&D chief and product
development manager – for example, through open
source innovation. Customers are actively involved as
advocates of the product/service, for example, through
social network sites. In this way the customer’s involvement
is leveraged far beyond the simple purchase of the product/
service. This only happens if the organization is continually
engaged in dialogue with customers through as many
media as possible.
Piercy suggests that the sources for this values-driven
strategy are:
• Management vision – clarity in direction and purpose,
effectively communicated through a wide range of
communication media.
Figure 5.1 Values-driven marketing
Relationship
marketing
Values-driven
marketing
Brand-based
marketing
Transactional
marketing
Low High
High
Low
Customer
satisfaction
Customer loyalty
Chapter 5 Crafting your value proposition and branding 149
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Created from hud on 2024-03-10 20:23:59.
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