Formulating Segmentation, Targeting and Positioning strategies

The intend of this assignment is to formulate the Segmentation, Targeting and Positioning strategies, and put up a proposal for the introduction of new services using these strategies. As the marketing Manager of Maxis Communication Berhad, the writer will submit a proposal for the introduction of Maxis free prepaid starter pack.

Before evaluating the STP strategies for the proposed product, the writer will provide a literature review on the concepts and evaluate the various authors’ critiques on these strategies.

Maxis segment its market by splitting customer into different groups of buyers that require different products or distinct marketing mixes. Maxis markets are segmented into geographic segmentation, demographic segmentation, psychographic segmentation and behavioral segmentation, and these segmentations can also be divided further into smaller sections.

After identify the various market segmentations of Maxis, the targeting strategies are evaluated. There are four types of targeting strategies which will be evaluated in the areas of undifferentiated marketing, differentiated marketing, concentrated marketing and micromarketing. Each of these areas has its own advantages and disadvantages.

The positioning strategies are very important in determining a company’s success. Possible competitive advantages are identified and then the right ones are chosen. The overall positioning strategy will be selected and a positioning statement is developed. Finally, the writer will publish the annual schedule of the program with its marketing expenditures and conclude this work.

Effective strategies of segmentation, targeting and positioning gives an extra advantage in changing the highly competitive environment. Thus, it cannot be denied that the use of these strategies in marketing management is very crucial to a company’s growth.

Table of Contents. Page

Executive Summary. i

Table of Contents. ii

Introduction. 1

Background of the Company and the Product Proposed. 1

Literature Review on Segmentation, Targeting and Positioning Concept. 2

Segmentation. 3

Targeting. 6

Positioning. 7

Basis for Segmentation and Targeting for Maxis. 8

Geographic Segmentation. 9

Demographic Segmentation. 9

Psychographic Segmentation. 9

Behavioral Segmentation. 9

Basis for Positioning Maxis. 11

Annual Schedule for the Program including Marketing Expenditure. 13

Conclusion. 15

References.

Introduction

In today’s fast-paced competitive business environment, the telecommunication industry is becoming a fastest growing sector, particularly the mobile market. In Malaysia the telecommunication sector is growing in a very fast phase in line with the growth of the nation’s commercial and industrial sectors. The growth rate in the use of telecommunication facilities has increased tremendously, especially the number of telephone subscribers. These numbers are expected to grow even faster as the government plan to increase the telephone penetration rate of 50% across the country and 25% in the rural areas by 2020 (MCMC, 2007).

In any growing market, competition is one of the important elements for a company to watch for. In the Malaysian telecommunication background, companies like Mobikom Berhad, Celcom and Sapura Digital Berhad have been seen their company either being merged with bigger and more competitive companies or gone bankruptcy. Only Telekom Malaysia has managed to maintain its presence in the industry. There are three major companies competing in this sector today – Maxis Communications Berhad, Digi.Com Berhad and Celcom Berhad (MCMC, 2007).

The mobile market today has become extremely competitive and service providers are moving aggressively to attract customer by offering some attractive promotions and services. Thus, in order to win the market share, it is important to understand the consumer perception and their passion on the service, and offer a service that will exceed their expectation. Through this paper, the writer will submit a proposal using the segmentation, targeting and positioning strategies for the introduction of free starter packs to potential Maxis customers.

Background of the Company and the Product Proposed.

Maxis Communications Berhad is the leading mobile communications service provider in Malaysia with over 12 million subscribers. Maxis business comprises of three business segments namely mobile services, fixed services and international gateway services. Since the commencement of its commercial operations, Maxis has been providing a full suite of communication services on multiple platforms to satisfy the needs of individual consumers, small and medium enterprises, and large corporations in Malaysia. In 2009, Maxis has captured 41% of the market share and registered highest revenue of RM8.6 billion (Maxis, 2010).

Maxis’ vision is to bring advanced communication services to enrich its customers’ lives and businesses, in a manner that is simple and personalized, by efficiently and creatively harnessing leading edge technology, and delivering a brand of service experience that is reliable and enchanting. Maxis has pioneered and led the Malaysian market in providing innovative mobile products and services. Maxis’ growth and strong track record of enabling innovation, excellent customer experience and value to stakeholders have won it numerous awards over the years. These include “Asian Mobile Operator of the Year” Award by the Asian Mobile News in 2008 and “Mobile Data Service Provider of the Year” Award by Frost & Sullivan in 2009. Maxis was listed on Bursa Malaysia in 2002 and then was de-listed in 2007 due to privatization offer. On 19 November 2009, Maxis was successfully listed on Bursa Malaysia again (Maxis, 2010 and Bursa Malaysia, 2010).

Maxis continuously face tough competition from its competitors. However, not content with merely being a leader in mobile communications, Maxis is embarking on the next phase of a transformation plan that will see it turning into Malaysia’s premier integrated communications provider.

As the marketing manager of Maxis Communication, the writer will be presenting a proposal for the introduction of free starter packs to potential customers. Currently, 76% of Maxis mobile subscriptions are on Prepaid products, 22% on Postpaid and 2% on Wireless broadband. Although Maxis has a biggest market share compared to its main competitors Celcom (31%) and Digi (27%), the price wars are intense especially on the prepaid services, thus Maxis needs to be competitive in continuously improving its service offered to their customers. The writer will justify this proposal using the Segmentation, Targeting and Positioning strategies below.

Literature Review on Segmentation, Targeting and Positioning concepts.

Matching the right marketing mix to the right customer is the aim of all good marketing. Segmentation, targeting and positioning concept is vital for this match to be achieved. Starting with determining which type of customers groups and potential market exists, then, selecting which ones are the best to serve and finally implement a strategy to optimize the products or services for the identified segment as illustrated in the diagram below.

Diagram 1: Segmentation, Targeting and Positioning.

This review will provide an overview of the theoretical underpinnings of the concepts and critically evaluate the Segmentation, Targeting and Positioning strategies.

Segmentation.

Segmentation is the first step in the process and consists of partitions of the market with the purpose of selecting one or more market segments which the organization can target through the development of specific marketing mixes that adapt to particular market needs. Kotler (2009) described market segment consist of a group of customers who share a similar set of needs and wants. He cited that a company cannot connect with all customers in large, broad or diverse market, but they can connect by dividing such market into groups of consumers or segments with distinct needs and wants.

Lynch (1997) described segmentation is the identification of specific parts of a market and the development of different market offerings that will be attractive to those segments. He also cited that segmentation is the fundamental to the development of corporate strategy as some parts of markets may be more attractive than others. Thus, careful analysis of segments and their characteristics is therefore important.

McColl (1994) described segmentation as a process of dividing a heterogeneous group of buyers into more homogeneous group with relatively similar product needs, and through segmentation the company can serve its customer better, compete more effectively and achieve profitability.

Regardless of the type of segmentation a marketer use, the outcome of the segmentation process should yield “true market segments” and recognize the customer differences. Segmentation is done for consumer market and industrial market. The followings are the several different kinds of variables can be used for consumer market segmentation:

Table 1: Consumer Market Segmentation

Geographic segmentation

Segment the markets according to the location such as town, cities, countries and regions to understand the consumers’ requirements and product usage. The consumers’ requirements from the same Geographic locations are often related to one and another. Geographic characteristics are also measurable and accessible.

Demographic segmentation

Dividing the market into groups on the basis of age, gender, income, occupation, education, religion, race, family size, nationality and social class. These variables are famous among marketers as it is easy to measure and often associated with customer needs and wants.

Psychographic segmentation

Dividing the buyers into different groups on the basis of psychological / personality traits, values and lifestyle. People in the same demographic Group can have different psycho graphic makeup. Thus, psychographic segmentation helps the marketer in examining attributes related to how a person thinks, feels, and behaves.

Behavioral Segmentation

Dividing buyers according to their knowledge of attitude towards use of, or response to a product. Behavioral segments also can group consumers in term of :

Occasion – defined in term of time of day, week or year. Distinguished buyers according to product use occasions. For example, airline passengers triggered by occasions related to business, pleasure, or emergency.

Usage level segmentation – grouping of people into whether they are heavy, medium, light users and nonusers of the products.

Benefit Segmentation – grouping of people seeking similar benefits, for example, buyers who seek for low price, higher product quality and excellent service.

The industrial markets are contrast to consumer markets as the number of customer are fewer but they purchase in large quantities. However, some of the consumer market segmentation variables can be applied to industrial market segmentation such as demographic, geographic and psychographic segmentation. The followings are the variables can be used for industrial market segmentation:

Table 2: Industrial Market Segmentation.

A successful segmentation must be measurable (size, purchasing power and profiles), accessible (can be reached and served effectively), substantial (large or profitable enough to serve) differentiable (distinguishable and respond to different marketing mix elements and programs) and actionable (effective programs designed for attracting and serving segments). Thus, the advantages of segmentation for a company are as follows:

Helps in better understanding the customers’ needs and wants.

Better targeting and position of the product.

Encourages two-way communication among the potential buyer and the organization.

Maintaining effective relationship with the customers.

Retaining the existing customers and attracting new ones.

Improving service delivery standards.

Reducing cost/expenses on various marketing activities and increases market share; resulting in higher profits.

In certain market, the customer needs are becoming more heterogeneous over time and therefore even greater needs for segmentation required. This leads to the cost of segmenting and maintaining the market becomes higher than the increased sales from the segmentation process.

In general, it holds true that “you can’t be all things to all people,” and experience has demonstrated that firms that specialize in meeting the needs of one group of consumers over another tend to be more profitable. As described by Kotler, Lynch and McColl, segment-oriented marketing approach offers a wide range of advantages for businesses as well as the customers. A careful analysis of market segments enables decisions about intensity of marketing activities in particular segments.

Targeting.

Once the segments are identified and their relative importance to the firm determined, the targeting strategy is selected. In this process, the decision to target one or more segments is being made. McColl-Kennedy (1994) describes the process of evaluating and selecting the target market using the following seven factors:

Table 3: Evaluating and selecting target market.

Step 1

Target a generic market

Identify a generic market the company will be focusing on a larger market than it hopes to reach, but at the same time search for suitable target market at this broad level

Step 2

Analyze benefits desired in the generic market

Using techniques and procedures of marketing research such as the “SELECT” six steps marketing research process model

Step 3

Remove qualifying benefits

Common benefits that all potential customers desire. Because everyone wants them, they are not useful for segmentation purpose

Step 4

Group remaining benefits into segments

After removing the qualifying benefits, group the remaining benefits into segments or groups of potential customer desire similar benefits

Step 5

Enumerate customer characteristics of segments

These gives the marketers a profile of the consumers or organizational customers based on demographic, geographic and lifestyle variables in each segment

Step 6

Evaluate the potential of the segments

This is done using a number of tools such as market potential and sales forecasting; jury of expert opinion; sales force composite; buyer intentions; and regression and time series analysis

Step 7

Select the market segment and an appropriate marketing strategy

the selection is depends largely on the market potential in each segment and the company’s sales forecast in each segment

Source: McColl-Kennedy, (1994) Marketing: Concepts and Strategies.

In evaluating different market segments, Kotler & Keller (2009) suggest marketers to look at two factors – the segment’s overall attractiveness and the company’s objectives.

Porter (1985) proposes a similar approach but also recommends studying the company’s resources and skills as reflected in the value chain, and their suitability to target market alternatives. Aaker (1995) bases his selection criteria on the SWOT analysis produced during the strategic marketing planning process.

Lancastre and Massingham (1996) proposed to analyze the characteristics of the market segment itself with regards to a number of key factors such as market size, market dynamics, factors for success, competitive structure and profitability analysis.

Selecting a target market is very crucial for a company. Thus, the writer suggests the marketers need to pick up the right group of consumers through a careful segmentation and targeting process to determine the needs and buying behaviour of the consumers in each segment and the differences between one segment and the others. In other words, the marketers not only identify the characteristics of each segments but also the ‘distinctive excellence’ that is required for catering the specific needs of the consumers and the capability of the company in delivering the products or services.

Positioning.

Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the minds of the target market. The goal is to locate the brand in the mind of consumers to maximize the potential benefit to the firm (Kotler and Keller, 2009). Successful creation of a customer-focused value proposition is the result of positioning, a cogent reason why the target market should buy the product. Positioning requires the similarities and differences between brands be defined and communicated. For example, in the automobile industry Mercedes is positioned for luxury segment and Volvo is positioned for safety.

Kerin et al. (2009) prescribe two approach for positioning a product in the market. “Head-to-head positioning” involves directly competing with competitors on a similar product attributes in the same market and “Differentiation positioning” involves seeking less competitive, smaller market niche in which to locate a brand.

Ferrell et al. (1998) recommends to differentiate the products from competitive offerings and then, position it so that it seems to possess the characteristics the target market most desired. The most important element that communicates the differences between one product and another is the brand, besides that, three other important bases are product descriptors, customer support services and image. In product positioning strategies, Ferrell et al. (1998) recommends the following strategies in which marketers can choose any one or all of them to create a positive image for their products – Strengthening the current position, moving to a new position, or attempting to reposition the competition.

Gunter and Furnham (1992) prescribe the marketers to develop positioning objectives to then develop them into a detailed marketing mix. However, Aaker (1996) recommends developing the positioning objective only after the brand identity and value proposition have been developed. In exploring the latter, it is useful to understand Aaker’s definition of positioning is “the part of the brand identity and value proposition that is to be actively communicated to the target audience and that demonstrates an advantage over competing brands.” Kotler (1994) refers to it as the unique selling proposition.

In developing the positioning objective, Ries (1996) described “positioning is not what you do to the product, but what you do to the mind.” Ries and Trout (1990) suggest the position is the mental angle used to enter the prospect’s mind and the role of the entire strategy is to support that tactic.

In summary, once the organization has decided which customer groups within which market segments to target, it has to determine how to present the product to this target audience. This allows to exactly addressing the needs and expectations of the target groups with a tangible marketing mix. Effective strategies of segmentation, targeting and positioning gives an extra advantage in changing and highly competitive environment.

The literature reviewed here is by no means comprehensive. There are far too many studies on the subject matter, but this exploration is to provide an overview of the Segmentation, Targeting and Positioning process for this work.

Basis for Segmentation and Targeting of Maxis.

Understanding market segmentation is very important for a service-oriented company like Maxis. Thus, Maxis divided its consumer market into smaller segments to be more efficient and effective in the provision of its products and services. The writer will focus on the four market segments in detail and evaluate how the proposed product will benefit the consumers and the company.

Geographic Segmentation

Other than Malaysia, Maxis had ventured into the telecommunication market in India and Indonesia. The firm has localized its products there by having local celebrities in their advertising promotions and providing services that is adapted to serve local needs such as mobile astrology in India (Maxis, 2010).

Demographic Segmentation

Malaysia is a multicultural diverse country with 28 million populations with 30 million mobile subscribers or 106% penetration rate (MCMC, 2009).

Maxis offers “HerMaxis” service for their female customers and provides mobile coupons on beauty, fitness, spa and cosmetics products. There is income segmentation when it comes to the type of rates for its mobile services. A package is available for customers subscribe to the minimum top-up amount because of lower usage and enjoy the longer validity period. Race segmentation can be noticed through Maxis WAP portal dedicated to the Muslim community where Islamic information are provided, while Chinese customers often receive discounts for Chinese concert tickets.

For college students, special services are offered according to their needs, for example, allowing the phone to act as a bulletin board among their friends. Finally, for younger generation, a youthful outlook is portrayed by having music, games and sports web portals, exclusive for them (Maxis, 2010).

Psychographic Segmentation

Through psychographic segmentation, Maxis has allocated its products according to the life style of their consumers. This ranges from travel, entertainment, traffic check, API reading to dining hotspots. Besides that, information on stock, news and entertainment is provided to consumers who pay for these services (Maxis, 2010).

Behavioral Segmentation

Behavioral segmentation is divided into segments like occasion, benefit, user status, user rates and attitude towards product (Kotler and Armstrong, 2006).

Occasion segmentation is obvious during the festive periods as Maxis offers lower call and SMS rate to increase the usage. Benefit segmentation can be seen through the different types of services offered ranging from mobile money transfer, mobile instant messaging, banking and rewards. On user status, Maxis gives a special bonus on the customer’s birthday as an appreciation to their loyalty. Maxis also segment its market according to the usage rate. For those customers forget to reload their prepaid within the validity period, a text message is sent with a reward offer as inducement for them to reload within a stipulated time. Lower rates are also given to customers who frequently use their mobile services. Segmentation is also seen according to the attitude towards the product. Customers concern in safeguarding their information in the phone can request for backup service for the phonebook and messages (Maxis, 2010).

Upon completing the segmentation, it is important to evaluate those segments and decide which segment Maxis can serve best. Maxis’ main targeting strategy is through differentiated marketing. It offers different telecommunications products aimed at defined segments. Postpaid services is targeted to high usage pattern while prepaid services is targeted at customers who use less or requires control over their usage.

Maxis use concentrated marketing when endorsing its prepaid segment. It tends to use more of its resources on the promotions and advertisements for its prepaid market compared to the other segments. Concentrated marketing is advantageous as Maxis is able to market more effectively by fine-tuning its prices and products for the prepaid services. This in turn makes it highly profitable (Maxis, 2010).

Recently Maxis is facing high competition from its rivals, Digi and Celcom. Thus, this is hitting Maxis badly as it needs to compete to maintain its market position.

After evaluating the different segments, Maxis can offer the free starter pack targeting to all its Prepaid customers. Some of the target segment that will be attracted with this free starter packs are those listed in the demographic and psychographic segments. Currently, Celcom is offering free starter pack for schooling younger generation through its “School Of X (S.O.X)” package (Celcom, 2010). Maxis can offer this package in order to stay competitive from its competitors while increase its market share position. This can be easily achievable as Maxis has the economies of scale with a huge subscriber base.

Basis for Positioning Maxis.

Customer needs are always changing. Therefore Maxis needs to continually innovate and move forward. In 2009, the industry continued to see a rapid rise in customer usage and spending on mobile services. Maxis leads the way by expanding its network and marketing strategies dramatically to deliver the experiences the customers are expecting and stay competitive. In choosing a positioning strategy for the proposed product, Maxis can use the existing competitive advantage that it has captured and offers the best quality of services to its consumers. In fact, it needs to deliver more value than its competitors (Kotler and Armstrong, 2006 and Maxis, 2010).

Table 4: Prepaid Comparison Plan by Service Provider.

Operator

Celcom

DIGI

Maxis Hotlink

Package

X pax (Mid Plan)

Prepaid

EXtra

Starter Pack Price

RM 8.50

Free for S.O.X

RM 8.50

RM 8.80

Voice Call Within Network

35 sen/min

36 sen/min

12 sen/min after daily hit of RM 1 total usage*

1st min 33 sen

2nd min onwards 25 sen/min

Voice Call Other Networks

Local 45 sen/min

Adjacent RM 1.40 /min

Non-Adjacent RM 2.60 /min

*All voice calls, international roaming, SMS, MMS, data and IDD from the main credit balance.

1st min 35 sen

2nd min onwards 28 sen/min

Charging Block

20 sec

30 sec

60 sec after RM 1 Total Usage Hit

60 sec

SMS Within Network

Peak 10 sen/min

Off-Peak 1 sen/min

10 sen

1 sen only to all DiGi number after daily hit of RM 1 total usage

7 sen

SMS Other Networks

20 sen

 

15 sen

SMS International

50 sen

20 sen

20 sen

MMS Within Network

35 sen/50KB

25 sen

25 sen

MMS Other Networks

35 sen

50 sen

Video Call Within Network

45 sen/min

N/A

1st min 33 sen

2nd min onwards 25 sen/min

Video Call Other Networks

 

N/A

98 sen/min

Voice Call to Favorite Numbers

15 sen/min

15 sen/min

12 sen/min after daily hit of RM 1 total usage

15 sen

SMS to Favorite Numbers

1 sen

1 sen for DiGi

10 sen for Others

1 sen

MMS to Favorite Numbers

35 sen

25 sen

25 sen

Video Call to Favorite Numbers

15 sen/min

N/A

15 sen/min

Source : http://www.rmvalues.com/mobile/mobile_pre.html

Though Maxis offers similar services as its competitors, its company and brand image convey its products’ distinctive benefits and positioning. Maxis’ image did not grow overnight, but it is a compounding effect over the years that today it is rated as Malaysia’s most admired company since 2006 by The Wall Street Journal Asia 200 survey (The Wall Street Journal Asia, 2009).

As Maxis’ vision is to be a regional communications leader of choice, it needs to give higher priority to its products and services offered. This is important as the consumers would like to benefit from higher quality of communication and value added services. It is also distinctive in the sense that Maxis is able to offer its products in a more unique way than its competitors. Maxis’ positioning statement is: We believe technology isn’t all that special, life is. It shows the brands’ superiority is made on its points of difference (Kotler and Armstrong, 2006 and Maxis, 2010).

Over the years, Maxis has been developing its services in the form of product and service differentiation. Maxis always attempts to provide speedy and convenient technical support. Maxis subscribers can make any enquiry or reports service interruptions by calling their friendly customer service through a toll free number 24 hours a day. Besides that, Maxis dealers nationwide are known for their exceptional quality of service. The dealers are well trained to ensure their knowledge on the products and services are well passed on to the customers. Maxis gains people differentiation by selecting their work force carefully and training them better than their competitors. Competent human resources are hired to ensure they continuously perform and deliver expected results. With the excellent customer service and availability of dealers nationwide, Maxis is able to gain competitiveness through high quality direct distribution channels and this in return will make Maxis gain greater customer loyalty and sales (Maxis, 2010).

Maxis’ products are also communicable and visible to the consumers as the form of advertising taken is very aggressive. Maxis’ products are preemptive as competitors are not able to compete to the high level of technology that Maxis has invested. Knowing the fact that customers choose products and services that give them the greatest value, Maxis can consider positioning this product in “value for money” proposition. An effective marketing advertisement with the efficient positioning strategies discussed above will ensure the propose product will hit market and be placed in the mind of the customers.

It is very clear that the competitiveness among the service providers are very obvious from cost perspective. As mentioned earlier, Celcom is already providing the free start pack to its younger generation segment, thus, Maxis needs to explore this proposal before Celcom expands its offering to other segments, and Digi starts to offer this package.

Annual Schedule for the Program including Marketing Expenditure Budget.

As the old saying, plans are nothing but planning is everything alludes to the fact that an effective planning will ensure the success of a marketing plan. The secret of creating a high-impact marketing plan is to accomplish the marketing strategy according to the schedule and within a limited budget. Every dollar spent should produce a good return of investment. Marketing expenditure budget is the amount the firm intends to spend in order to achieve its marketing objectives. The following is the proposed annual marketing schedule for the proposed product:

Table 5: Proposed Annual Marketing Schedule.

Marketing impact can be greatly improved by using multiple marketing channels. Prospects will likely become buyers if they read about the product in the newspaper, television, radio and website advertisement, well marketed by the sales representative and attractive take home brochures. The followings are the marketing expenditure estimated for the proposed product:

Table 6: Forecasted Marketing Expenditure.

Marketing Expenditures (in RM)

 

 

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