Most organizations now a days operate several businesses. They often define their businesses in terms of products. Whether they are in the copying business or the lighting business but Theodore Levitt argued that market definition of business is superior to product definitions.
As Drucker pointed out, there are obvious benefits of defining a business in terms of customer’s needs. Products may come and go but basic needs and customer groups endure forever. So, every business needs to examine three basic questions initially before defining its nature and scope of operations.
1) Who is the customer? Where is the customer located, how to reach the customer, how does the customer buy etc.
2) What does the customer buy?
3) What does the customer consider value?
An organization obviously needs to define its business covering three vital aspects: (1) The product / service offering (2) customer segment (3) value creation.
The product /service concept
A product or service concept is the way in which a firm likes to position its products / services in the market, in terms of product features, quality, pric,e service, distribution, differentiating elements etc. While trying to position its products / services in a distinct manner, the company should not lose sight of its present and potential rivals competitive environment changing preferences of customer etc. If a firm tries to look at the total competitive environment this way, it can avoid what Theodore Levitt called marketing myopia. History tells us that railroad management thought that users wanted trains, rather than transportation and over looked the challenge of the airlines, buses trucks and automobiles. Coca-cola focused on its soft drink business missed seeing the market for coffee bars and fresh fruit juices that eventually impinged on its soft drink business. A firm therefore needs to define its business in a way that allows it to focus it to focus on its strengths in a pin pointed way and march ahead of its rivals with confidence.
A firm appeals to all buyers in the market in the same way since buyers are too numerous to widely scattered ad too varied in their buying needs and buying practices. Also, different firms vary widely in their abilities to serve different segments of the market. Under the circumstances covering a lot of ground without any focus does not ensure success. Each firms, therefore, need to focus its energies and resources in a target market that is how suited to its core competencies. Target marketing basically three steps:
1) Market segmentation
2) Market targeting and
3) Market positioning
Market segmentation is the act of dividing a market into distinct groups of buyers with different needs, characteristics or behavior who might require separate products or marketing mixes. Market targeting is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. In choosing which segments to target, a firm can choose to focus on a single segment, several segments a specific product a specific market or the full market. Once a firm has decided which segments to enter it must decide on its market positioning strategy — on which positions to occupy in its chosen segments. Briefly stated, the positioning task consists of three steps identifying a set of possible competitive advantages to build a position. Picking up the right competitive advantages and effectively communicating and delivering the chosen position to the market.
A firm, in the final analysis, has to define the factors that offer value to a customer in terms of say low price, high quality fast delivery, novel features, excellent after sales service etc. Simply stated, value is the ratio between what the customer gets (both functional and emotional benefit) and what he gives (in terms of money paid, energy expended time spent and the opportunity scarified) to survive and flourish in a competitive market, a firm should always define its business in terms of how it is going to offer certain benefits to customers more effectively than its rivals.
The vision, mission and business definition help a firm define its basic philosophy to be adopted in the long run.
Source: Marketing Management