Segmentation, Target Market Selection and Positioning Practice in Automotive Industry

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Segmentation, target market selection, and positioning practice in the automotive industry general information

Companies cannot connect with all customers in large, broad, or diverse markets. But they can divide such markets into groups of consumers or segments with distinct needs and wants. A company then needs to identify which market segments it can serve effectively. This decision requires a keen understanding of consumer behavior and careful strategic thinking. To develop the best marketing plans, managers need to understand what makes each segment unique and different. Companies, instead of scattering their marketing efforts, are focusing on these consumers they have the greatest chance of satisfying.

Contrast of mass marketing, nowadays, marketers

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  1. Identify and profile distinct groups of buyers who differ in their needs and preferences (market segmentation),
  2. Select one or more market segments to enter (market targeting),
  3. For each target segment, establish and communicate the distinctive benefit(s) of the company’s market offering (market positioning).

Overview of the industry

Motor vehicles are products that include a motor and are used to carry goods or passengers; they are manufactured according to some specific regulations and include four or more wheels.

The industry that manufactures these products is called the “automotive main industry”. On the other hand, the “automotive subsidiary industry ” manufactures parts, modules, and systems for the companies which produce vehicles. “Automotive Industry” is the sum of these two industries. In this paper, I’ll focus on the “automotive main industry”. The main products in this industry are automobiles (personal cars), buses, midibuses, minibusses, trucks, pick-ups, and tractors.

We can see that the automotive industry is very big in Turkey and the data in hand shows that it is one of the first three industries in Turkey. Turkey became one of the biggest production areas of the big automotive manufacturers in the world. Customs Union Agreement (1996) was one of the milestones for Turkey’s automotive industry. After this agreement, exportation has increased. In 1967, Turkey’s “local” automobile called “Anadol” was manufactured. With the beginning of industrialization and developments in trade in Turkey, tradesmen needed pick-ups.

Then Otosan began to produce Anadol pick-ups. In 1971, because of the increasing interest in automobiles in Turkey, Renault-branded automobiles began to be produced. Because of Turkey’s geographic conditions, like wide rural areas, the Renault automobile, which was convenient for these conditions became very popular in Turkey. Parallel to the improvements in the automotive industry, its distribution channels of it also improved. At first, only “ made in Turkey ” vehicles were distributed in this network, but after 1996, imported vehicles also took place in the distribution network.

Until the 1980s, the selling and after-sales services were provided in small galleries, but then the service began to be provided in auto-plazas. After the 1990s, in Turkey, including multi-national companies in this industry, modern management ideas, quality, human resources management, production process, continuous development ideas, research & development, marketing channels, customer demand analysis, lean-production, teamwork, production without stock, 6-sigma and just in time production ideas took place in the automotive industry.

After the year 2001, the variety of products manufactured in Turkey increased. Technology, qualified human resources, and globalization made it necessary to produce various products. In general, it was an obligation for Turkey’s automotive industry to use modern technology, to produce according to scale economy principles, and to be competitive in price and quality in the international market. As a result, product diversification has emerged. In the 2001 economic crisis, the capacity usage in production decreased to 29%, but today it is almost 86%.

In 1993 exportation/production rate was 2%, but with the decrease in demand by the effect of exchange rates and economic crisis, manufacturers headed towards mostly exporting their products to other countries. In 2007 exportation/production rate was 73%, as result. High rivalry in the global automotive industry causes good improvements in technology. Every year new and advanced models are being produced. These models have high standards and customers prefer these models. Especially after 1997, importation from Germany increased because the exchange rate of Mark was under the inflation rate.

In the 2001 economic crisis, exchange rates were high and then importation began to decrease. Despite the increase in manufacturing in Turkey, about 57% of Turkey's automotive industry provides its products by importation. Renault, Tofas, and Ford have bigger market-share in Turkey. Renault and Tofas have mostly personal cars-share and on the other hand, Ford has mostly pickups-share in Turkey. When buses are considered, Mercedes has the biggest share. By July 2008, 55 kinds of brands are being sold in Turkey. Improvements in technology made it necessary to merge different companies in order to compete in the market. As a result of these merges, quality, and competitiveness increased.

Process of segmentation

Almost 100 years passed after Henry Ford said that “all automobiles must be black” and produced Model-T. Now there is a very competitive environment in the automotive industry and understanding customer needs, expectations, and forecasting demands are very important factors. Market segmentation is one of the strategies to be competitive in this industry as I told you before. General Market Segmentation Activities are as follows:

  1. Define the market to be segmented (automotive product buyers, individual consumers or business buyers, or both).
  2. Decide how to segment (geographic, demographic, psychographic, behavioral segmentation)
  3. Form segments
  4. Finer segmentation strategies
  5. Strategic analysis of segments, if needed turn to #1.

Target marketing involves breaking a market into segments and then concentrating your marketing efforts on one or a few key segments. Target marketing makes the promotion, pricing, conception, and distribution of ideas/goods/services easier and more cost-effective. It provides a FOCUS as Porter advised as one of the marketing strategies.

It also provides Porter’s other strategy of being the COST LEADER. According to Kotler and Keller’s book, the steps in the segmentation process are:

  1. Needs-Based Segmentation
  2. Segment Identification (demographic, behavioral distinctive)
  3. Segment Attractiveness (market growth, access)
  4. Segment Profitability
  5. Segment Positioning (Create value–proposition and product-price positioning strategy)
  6. Segment “Acid Test” (test the attractiveness of each segment’s positioning strategy)
  7. Marketing –Mix Strategy( Product, Price, Promotion, and Place aspects).

In the automotive industry, companies generally segment the market according to demographic features (age, income, gender, family size, social class, etc.

Demographic Features

Age Factor

In the US, automobile buyers are mostly under the age of 25. For example, Mazda has developed its MX-3 model, having shiny colors for ages around 20, and has developed its 929 models for the middle-aged people segment. From their advertisements, we can understand what the target segment is. A Japanese company has seen that the population’s average age is getting higher and targeted the segment of these old people.

It manufactures an automobile that can detect the loss of attention of the driver. Toyota has maintained a simple radio system to Carry models for old people. General Motors placed a display which has big bright letters/numbers in front of the fore-glass of cars for old people. But sometimes targeting may not be stable after segmenting according to age. For instance, Ford first manufactured the Mustang model for young preferring low-priced sportive automobiles; but then they saw that this model is bought by all age groups people.

Gender Factor

Women take place in working life more than before. So the target market structure changes day by day. Increasing the income of a working woman and the quick time of city life the consumption behavior changes and also total demand increases. Automobile manufacturers develop strategies according to this new market. An investigation made in the US, states that woman spends lots of money on automobiles and they have a strong effect (80%) on buying a new car and their car-ownership percentage is 49%. Toyota observed that 60% of car owners of Toyota is a women. An interesting example of Volvo is: “A woman- a team of Volvo created a concept car designed only for women in 2004.

It has many properties, especially for shopping-hungry women. It has a motor that sends a message to the service center when the maintenance time comes. It has wide doors opening up and down, which makes it easy to get on and off with shopping packages”. In Turkey, the woman effect can be seen in automobiles easily. In the wide spread of automatic gear in automobiles, there is an obvious woman effect. The automobiles having child security systems draw the interest of women. An investigation made by IBS Marketing Research company shows that a high percentage of woman's preferences for an automobile is safety properties. If this is provided, then women prefer small automobiles.

Income Factor

The motor power, accessories, and chassis of an automobile show its class. The class of an automobile affects its price. People whose incomes are higher prefer good quality, safety, performance, and comfortable models. The most expensive cars are class E and F. For example, Porche, BMW, Mercedes, Jaguar, Ferrari, Bugatti, and Lamborghini are among the most expensive cars in the world. B and C-class automobiles are for people having an intermediate level of income. There are lots of kinds of automobiles in these classes branded Toyota, Opel, Renault, etc.

This segment of cars has the biggest percentage of sales. Some companies by modifying the car’s function and equipment, target the low-income market segment. Only for this reason, Opel has manufactured a low-cost model for its China market. Toyota Yaris is one of the economic models. Dacia company also targeted the low-income market segment with its cheap automobiles.

Other segmenting variables, that may be used in the automotive industry are

  • Geographic (country, climate, state, nation)
  • Psychographic (lifestyle, activities, interests, opinions, personality, core values. behavioral (occasions, benefits, loyalty status, buyer-readiness)

Market segments must rate favorably on five key criteria:

  1. measurable (the size, purchasing power, etc.)
  2. substantial (large and profitable),
  3. accessible,
  4. differentiable (distinguishable segments respond differently),
  5. actionable.

Choice of the target market

How well does a potential segment score on the five criteria mentioned above? Does a potential segment have characteristics that make it generally attractive, such as size, growth, profitability, scale economies, and low risk?

Does investing in the segment make sense given the firm’s objectives, competencies, and resources? These questions should be asked before selecting the target market. The firm must look at two factors:

  1. the segment’s overall attractiveness, and
  2. the company’s objectives and resources.

Five Patterns of Target Market

Selection Single-Segment Concentration

Volkswagen concentrates on the small-car market and Porche on the sports car market. Through concentrated marketing, the firm gains a strong knowledge of the segment’s needs and achieves a strong market presence. However, there are risks.

A particular market segment can turn sour or a competitor may invade the segment. For these reasons, many automotive companies prefer to operate in more than one segment. A benefit of this is a company carrying fixed costs (sales force, store outlets) can add products to absorb and share some costs.

Selective Specialization

A firm selects a number of segments, each promises to be a moneymaker. This multisegment strategy has the advantage of diversifying the firm’s risk. For example, Mercedes selects the premium segment (Sedan model) and the young and alone consumer segment (Smart model).

Product Specialization

The firm makes a certain product that it sells to several different market segments. For example, small cars are manufactured for different market segments such as young/alone consumers and small families living in crowded cities.

Market Specialization

The firm concentrates on serving many needs of a particular customer group. In the automotive industry, there is no such example that sells all its products only to one kind of segment. For example, an automotive company doesn’t produce for only old people or doesn’t produce for only high-income people.

In order to compete in the industry they also have different product lines serving other segments too. However, Turk Traktor may be an exception, because it produces tractors for people dealing with agriculture. But this must not be considered as one segment. It also includes more than one segment inside, such as high-income and low-income customers. Let’s remember that a segment must have five key criteria. These two segments do not have the same characteristics and respond differently to different marketing-mix elements (price, place, promotion, and product).

Full Market Coverage

The firm attempts to serve all customer groups with all the products they might need. Only very large firms such as General Motors can undertake a full market strategy. Large firms can cover a whole market in two ways: through undifferentiated and differentiated marketing. Undifferentiated or mass marketing is the result of the decision to aim its resources at the entire market with one particular product. For example, Turk Traktor has a narrow product line that keeps down the costs of production, marketing research, advertising, and product management.

As a result, Turk Traktor, owned by Koc Holding, is one of the fastest-growing companies in Turkey. In differentiated marketing, the firm operates in several market segments and designs different products for each. In the automotive industry, we can say that all automobile manufacturers aim for several market segments such as high and low income, young and old, looking for comfort or usableness, women and men, etc.

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. Positioning is a managerial activity using marketing instruments, mainly promotional and communicational, to influence customers’ perceptions and to secure a clear and distinctive place in their minds. For an example of a value proposition. The starting point for brand positioning is to determine “category membership”-the products or sets of products with which a brand competes and which function as close substitutes. To determine the proper competitive frame of reference, marketers need to understand consumer behavior and the consideration sets consumers to use in making brand choices.

Then marketers must define the appropriate points-of-difference (PODs) and points-of-parity (POPs) (necessary conditions which should be included for brand choice) associations. The POD of Lexus is quality. The POP of BMW is performance and luxury with respect to performance cars and luxury cars. Because BMW positioned the brand as the only automobile that offered “both” luxury and performance.

Perceptual Maps

Perceptual maps provide a visual picture of the positioning activity. They help you understand what consumers think about your and competitors’ brand and help you build an effective marketing strategy.

One of the most important issues in producing perceptual maps is defining the proper range of competitive products. It has been found that perceptual maps of direct substitutes may better support positioning decisions. So, in an investigation made into Hungary's automotive industry in 1997, they decided to include “only direct substitutes” from the medium and lower medium-sized car market in this country instead of “all” cars. As a result, after the surveys, they made on consumers. The survey results in the value-price relationships say that customers do not simply buy on price, they buy on value. So it is very important for an automotive company to position itself correctly.

Value Map

The analytical framework of the value-price relationship is often called the value map. The horizontal axis of the value map quantifies the perceived benefits that a product provides to the customers, while the vertical axis represents the perceived price. Positions on the value equivalence line represent a balance between the value and price perceptions of a product.  It is more difficult for marketers to change perceptions than the physical features of the product.

Sources

  1. Marketing Management, P. Kotler & K. L. Keller, 13th ed. , Prentice Hall
  2. Istanbul Ticaret Odas Otomotiv Sektor Raporu, F. Karbuz & A. Silahc? & E. Cal? skan,2008
  3. Otomotiv Sanayi Dernegi, Turkiye’nin 500 Buyuk Sanayi Kurulusu Icinde Otomotiv Sanayi Raporu, Temmuz 2010
  4. Otomobil Sektorunde Uygulanan Onemli Demografik Bolumlendirme Kriterleri, Yrd. Doc. Dr. Bulent Bayraktar, 2005
  5. http://www. turktraktor. com. tr
  6. Segmenting the Hungarian automobile market brand using perceptual and value mapping, G. Rekettye & J. Liu, Journal of Targeting, Measurement, and Analysis for Marketing, Oct 2000
  7. http://hausmanmarketresearch. org/256/how-to-build-perceptual-maps/

Related Questions

on Segmentation, Target Market Selection and Positioning Practice in Automotive Industry

What is the target market of automotive industry?
The target market of the automotive industry is typically consumers who are looking to purchase a vehicle for personal or commercial use. This includes individuals, families, businesses, and other organizations. The automotive industry also targets those who are interested in purchasing parts and accessories for their vehicles.
How market segmentation is practiced in automobile or appliance industry?
Market segmentation in the automobile and appliance industries is typically done by analyzing customer demographics, such as age, gender, income, and lifestyle. Companies can then create targeted marketing campaigns to appeal to specific customer segments. Additionally, companies may use segmentation to develop different product lines that cater to different customer needs.
What is market segmentation market target and market positioning?
Market segmentation is the process of dividing a market into distinct groups of customers with similar needs and characteristics. Market targeting is the process of evaluating each market segment's attractiveness and selecting one or more segments to enter. Market positioning is the process of creating a unique image or identity for a product or service in the minds of consumers in order to differentiate it from competitors.
What are the customer segments in the automotive industry?
The customer segments in the automotive industry can generally be divided into two main categories: consumers and businesses. Consumers typically purchase vehicles for personal use, while businesses may purchase vehicles for commercial use, such as fleet vehicles or rental cars.

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Segmentation, Target Market Selection and Positioning Practice in Automotive Industry. (2018, Aug 15). Retrieved from https://phdessay.com/segmentation-target-market-selection-and-positioning-practice-in-automotive-industry/

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