Who: Determining the Customers to Serve Deciding who the target customer is that the firm intends to serve with its business-level strategy is an important decision. Companies divide customers into groups based on differences in customers’ needs (needs are discussed further in the next section) to make this decision. Market segmentation is the process of dividing customers into groups based on their needs. Market segmentation is a process used to cluster customers with similar needs into individual and identifiable groups. Firms can use almost any identifiable human or organizational characteristic to subdivide a market into segments that differ from one another on a given characteristic. In the table below, we show common characteristics on which customers’ needs vary. Basis for Customer Segmentation Consumer Markets 1. Demographic factors (age, income, sex, etc.) 2. Socioeconomic factors (social class, stage in the family life cycle) 3. Geographic factors (cultural, regional, and national differences) 4. Psychological factors (lifestyle, personality traits) 5. Consumption patterns (heavy, moderate, and light users) 6. Perceptual factors (benefit segmentation, perceptual mapping) Industrial Markets 1. End-use segments (identified by Standard Industrial Classification [SIC] code) 2. Product segments (based on technological differences or production economics) 3. Geographic segments (defined by boundaries between countries or by regional differences within them) 4. Common buying factor segments (cut across product market and geographic segments) 5. Customer size segments What: Determining Which Customer Needs to Satisfy After the firm decides who it will serve, it must identify the targeted customer group’s needs that its products can satisfy. In a general sense, needs (what) are related to a product’s benefits and features. Successful firms learn how to deliver to customers what they want, when they want it.
All firms competing in all industries must have close and frequent interactions with both current and potential customers helps them identify individuals’ and groups’ current and future needs. The most effective firms strive continuously to anticipate changes in customers’ needs. The firm that fails to anticipate and certainly to recognize changes in its customers’ needs may lose them to competitors whose products provide more value. Successful firms recognize that consumer needs change. How: Determining Core Competencies Necessary to Satisfy Customer Needs After deciding who the firm will serve and the specific needs those customers have, the firm is prepared to determine how to use its resources, capabilities, and competencies to develop products that can satisfy its target customers’ needs. As explained in Chapters 1 and 3, core competencies are resources and capabilities that serve as a source of competitive advantage for the firm over its rivals. Firms use core competencies (how) to implement value-creating strategies, thereby satisfying customers’ needs.
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- Fall '14