Mature Markets:
In mature markets there is an established set of companies. Since all of them have access to latest technologies, there are very few differences among them. There are no significant advantages, no unique selling propositions. In such situations, the task of the marketer becomes very difficult.
Augmentation:
If the market growth is sluggish, it becomes tougher still. Everyone is fighting for a bigger share of the same pie. All of them are trying to attract the same customer. As an industry reaches maturity, the core product inevitably becomes a commodity - offering few opportunities for differentiation. Adding supplementary services that increases the customers perceived value of the core product are often the only ways to differentiate the product and gain competitive advantage.
The path to consider in these situations is to go beyond the basic needs of the customer and offer incentives that go beyond the physical product - augment the product, maybe even consider bundling a service with the product. Such an augmentation is the focus of this scenario. Ideally, the trade-off of the perceived value verses cost should be significant.
When making a decision on which services to add to augment the product there are some basic questions that need to be answered first. How are we performing on quality and value relative to customer expectations and competition? What are our immediate competitors offering, if anything, to augment their product? Furthermore, do our customers expect these services or would they appreciate our providing these services? Do the services add to the perceived value of the product? These are some of the questions you would need to consider in this scenario.
Scenario: - Powering the Camyo
The Camyo 3.5 TL (pronounced "cameo") is a luxury roadster - a segment that has a host of players. The customers, therefore, have a range of choices and there is little tangible product differentiation. The Camyo currently sells 75,000 units in a 1.35 million units per year market, with a profitability of about 7%. The target is to reach annual sales of 150,000 units, at the end of three years and maintain profitability between 5% and 8%. Management feels this is an aggressive and achievable target if the perceived value of the Camyo is raised through the selection of the optimum service bundle.
My analysis so far:
Year - 1:
Introducing free weekly car wash and a free one year collision insurance when the Camyo is sold, increases sales and profitability. Customers are able to see free weekly car wash and free collision insurance as a very good pair of differentiators. Since both these initiatives are service oriented, their perceived value becomes very high with the customers.
Year - 2:
The key is to increase the customers value perception and also meet ones sales and profitability targets. To achieve this, one might have to consider more than one service offering with a price that justifies the value one offers to the customer - if the perceived value of the additional services is higher than the increase in price, the customers would prefer to buy the product.
Year - 3:
When one is offering service added differentiators, it is also worth considering an increased allocation of ones marketing budget to service department.
Summary:
Differentiating in a mature market is one of the toughest challenges one can face in a marketing profession. It is a challenge most marketers face with increasing regularity. The successful ones are those that think out of the box - out of the product and into the customers minds. The ones who move beyond the core product - into the domain of the augmented product. Embrace your customers. Go beyond the product and give them a total experience. By doing this, you can build an emotional bond with them and make them your customers for life. Find ways to appeal to the higher order needs of the customer vis-a-vis your product category. This is the essence of differentiation. Service added based differentiation.
Hierarchy of needs that should be considered:
- Self actualization
- Esteem
- Social
- Safety
- Physiological
What needs to be evaluated in this scenario:
- Car Wash, GPS Navigation and Collision Insurance to find out how these offerings affect Camyo's sales and profitability.
- Personal Concierge, Detailing and Collision Insurance to find out how these offerings affect Camyo's sales and profitability.
Most important question that needs to be addressed is:
- What would be an optimal solution which helps increase the sales and profitability at the same time and why?