Value Chain Management
TESCO: A case study in supermarket excellence & Cluster-derived segmentation strategy of Kotler.
Recently in the global market dramatic changes have happened thanks to the segmenting and targeting the market. Firms realize that they cannot appeal to all customers in the market, or at least not in the same way! (Armstrong and Kotler, 2006) Technology improvements and market fragmentations bring the flood of customer demands which are not homogeneous anymore. So market offerings vary till they become able to fulfill the demands of customers (Baker, 2003). Thus strategies have been shifted from mass marketing to target marketing among companies (Armstrong and Kotler, 2006). For being able to compete with other rivals, the firms focus on the customers who are keen on buying the values that firms produce best. In this essay I am going to discuss the importance of market segmentation strategy for effective value chain management. First some definitions will be mentioned and then the importance of the matter from different authors will be discussed and I will conclude the research. Definitions
Market segmentation means dividing a market into smaller groups (segments) of customers with similar needs and characteristics which will be served by a special strategy (Armstrong and Kotler, 2006). According to Kotler (1997) one of the most efficient ways of marketing strategies is segmenting the markets. In supply chain producers treat customers in a way which can be varied between following strategies: 1. Customers are entirely homogeneous.
2. Customers are treated as individuals.
Considering customers in first group will result in mass marketing and second group will result in mass customization (Kotler, 1999). The two ends of this continuum could not be very successful. First strategy will fail because of diversity of customer demands and next one will fail because of the costs of customization (Walley et al., 2000). Kotler (1997) believes that market segmentation strategy is located between these strategies and is a way for distinguishing different segments of the market and finally choosing segments for focusing on. This fragmentation also causes sellers to find out various opportunities of the market. Market segmentation is divided into two approaches:
1. Macro-segments: based on “geographic location” broadly discussed to identify choice behavior of customers in different segments (Wedel, 1990). 2. Cluster-derived segmentation strategy: Finding groups with similar demands and recognizing differences of various segments (Wedel, 1990). Cluster-derived segmentation strategy is the customer focused part of market segmentation which provides value for parties. Figure 1: Designing a Customer- Driven Marketing Strategy (Armstrong and Kotler, 2006) This figure shows 4 steps in running customer-driven marketing strategy. In first two steps the firm chooses the customer and in targeting step evaluates the attractiveness of that segment. And the final two steps contain: differentiation with the outcome of creating value for customers and positioning is the step for engrossing customers mind by the given product (Armstrong and Kotler, 2006). Value Chain Management
Porter (1985) has defined value as the amount that buyers are willing to pay for a product and he believes that “value chain” is the incorporation of some different value added processes which operate together in a company till providing value to customers and used for diagnosing competitive advantage. In other words, value is appeared when a firm brings competitive advantage for the consumer. According to Porter (1985) value is an “experience of customer” and depends on context. It can be a value for customer “A” and at the same time a negative...
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