Selecting Markets

Successful marketing firms are very much aware that they have to know their customers intimately and they must determine the most important customers. Those are the necessary conditions to make sure that the company's products correspond well to customer wants and expectations.

Actually, few companies target all consumers or all companies. Even when this is possible, customers' needs are so varied that these customers must be offered different products. The time when one product sufficed to satisfy demand is over. Consumers have become more demanding and more informed, and competition drives companies to differentiate themselves and individualize their markets.

There is no longer one Coca-Cola;there is Coke Classic, New Coke, Diet Coke, Vanilla Coke, and Cherry Coke. Ford stopped only producing its Model T when General Motors surpassed it;today Ford produces more than 20 different models of cars. In the services industry, airline companies fight to prove that they offer different products than their competitors by offering a "bonus" to frequent flyers, more leg room in their business class, classier meals, friendlier airline attendants, or simply more practical schedules.

This situation can also be found in the world of high technology: The same software will be sold as a basic version—without an instruction booklet or a set of installation guidelines—to universities with limited funds and many software specialists, while a more comprehensive version that will include installation, instruction, and maintenance will be sold to companies at a higher price. Similarly at the end of the 1990s, Nortel Networks had one version of a product named Succession for incumbent carriers, such as Bell or France Telecom, at that time both very reluctant about the voice over IP, and a different one named IP Connect for emerging carriers and large enterprises. Today, in the cellular phone business Nokia is offering more than 20 different models of handsets to different categories of customers in order to provide exactly what customers want.

Because not everyone can be satisfied with the same product, groups of customers with similar needs must be identified. This process is called "market segmentation." A "market segment" groups customers who have the same demands, buying behavior, or some other significant characteristic.

One should note that segmentation always concerns customers and markets, never products. This fact is important in avoiding any misinterpretation, especially for high-technology companies that sometimes have a tendency to see the world more through the beauty of their products than through their customers' needs.

Once they have segmented their markets, high-technology companies need to target one or many of those markets in order to respond better to their customers and to optimize the use of their resources. Their strongly innovative side requires that these companies group the most innovation-receptive customers [1] who then will be able to convince other customers. Furthermore, the short product life cycle and the urge to develop products quickly require a very precise determination of the needs of a limited number of customers, taking into account the necessary resources to respond to their demands while keeping an eye on the development of new technologies. This is one of the reasons why markets for high-tech products are often very specialized niche markets. Once a segment has been targeted, the ultimate step is to define the positioning of the solution that the firm wants to offer so that it will have a unique image and position vis-à-vis the competitors in the mind of the selected customer group.

By following this three-step strategic marketing process we call segmentation, targeting, and positioning (STP), the marketer will be able to design an effective operational marketing mix for a solution.

This solution takes the form of the definition of the product, the choice of the distribution channels, the type of promotion and communication, as well as the pricing policy [2].

Managing the STP process has been a proven way of weathering the tough recession on high-tech markets during recent years. However, just a handful of companies, such as Cisco Systems, IBM, Microsoft, and Nokia, have been able to do it effectively. The reason for this can be traced to their ability to design and implement an effective positioning for their products. If high-tech firms understand segmentation and targeting, but cannot position products, they derive no benefit. Positioning is the ultimate operation in strategic marketing. Although this strategy is well known and utilized by traditional marketing-savvy companies, such as Procter & Gamble, L'Oréal, and Toyota, only a handful of high-tech firms are able to do it for their products, but those who master this technique are among the most successful companies in recent years.

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