Segmentation, Targeting and Positioning: Amazon
Segmentation, Targeting and Positioning: Amazon
Amazon is an American based ecommerce company (Amazon, 2012). The company provides an online retail platform that enable merchants to trade their wares online. The company earns its revenue by charging a fee for hosting the merchants’ adverts and a commission on every sale made by the merchants. Apart from the online retail business, Amazon is also manufacturer of electronic goods such as the Kindle tablet and the Kindle e-book reader (Amazon, 2012). This report focuses on Amazon’s main line of business, which is the Amazon ecommerce platform. The business of providing ecommerce retail services has become highly competitive. Amazon faces stiff competition from companies such as Yahoo, Magento and eBay. The segmentation, targeting and positioning (STP) process is an effective strategy for assisting Amazon to sustain its competitiveness.
Segmentation, Targeting and Positioning
Segmentation
Market segmentation is the first step in the process of segmentation, targeting and positioning (STP) (Ries and Trout, 2004). This is a process in marketing that entails division of customers into different groups that have unique characteristics. Customers with similar characteristics are placed in the same group. Marketing segmentation helps organizations to understand their clients. The process of market segmentation is founded on the argument that customers with the same characteristics exhibit similar response to marketing initiatives (Varey, 2002). Thus, market segmentation presents various advantages to Amazon. One advantage is that the firm will be able to identify the most effective marketing strategies for different markets. Market segmentation will enable Amazon to define and understand the characteristics of its customers.
Thus, Amazon will know the market approaches that can best appeal to different market segments. Market Segmentation will also promote efficient utilization of the firm’s resources (Market Segmenting, 2005). Marketing activities requires investment of resources. Amazon may end up spending a lot of resources on marketing activities that do not appeal to the market if the firm fails to understand consumers.Firms can use different strategies when segmenting their markets (McDonald, 2012). The five main strategies that a firm can use to segment there market include; psychographic segmentation, geographical, demographic and behavioral segmentation. Psychographic segmentation focuses on classifying customers according to their values and lifestyles.
This strategy focuses on the customers’ activities, attitudes, values and opinion and examines how these affects the purchasing judgment of the customers. Geographical segmentation entails the classification of customers according to the geographical locations. This strategy focuses of geographical factors such as climate and population. Geographical segmentation may classify customers according to cities; states, countries or regions. Demographic segmentation entails the classification of customers according to their demographic characteristics. These characteristics include nationality, gender, age, religion, education, income, family size and many other characteristics. Behavioral segmentation entails the classification of customers according to their behaviors. This strategy focuses on behavioral aspects such as brand loyalty, price consciousness, value consciousness and readiness to buy.
Targeting
Targeting is the second step in the STP process (Ries and Trout, 2000). Targeting is the process of selecting market segments that will become the focus of the firm’s marketing programs. The segmentation process may result in the identification of numerous market segments. In this step, the firm will select a few market segments that will form the focus of the marketing campaigns. Targeting is associated with a number of advantages. One advantage is that targeting will enable the Amazon to channel its resources and activities to market segments that present the best opportunities (Stone & Desmond, 2007). Different customer segments have varying needs and characteristics. Some characteristics present more opportunities than others. Targeting enables Amazon to focus on markets whose characteristics present the most benefits to the organization.Targeting will also enable Amazon to overcome the problem of limited resources (Cahill, 2007). Amazon marketing budget may be limited thus limiting the capability of the firm to serve all the customer segments. Targeting enables Amazon to overcome this challenge by focusing on a few segment rather than the entire market (Ries and Trout, 2000). Targeting will also enhance efficient utilization of resources. This is because Amazon will be able to focus its resources to market segments that will give the highest returns. Targeting will also enhance the effectiveness of Amazon’s marketing activities.
Focusing on a few markets will enable the organization to concentrate all its efforts on this market rather divided attention over numerous market segments. Specialization will enable the organization to design the best offers and the best marketing techniques (Ries and Trout, 2000). Targeting will also enable Amazon to reduce cost by identifying and targeting markets that have little competition. Competition increases the cost of business and reduces revenues by pushing prices downwards.Targeting strategies are classified into two main categories; differentiated marketing and undifferentiated marketing (Ries and Trout, 2004). Undifferentiated marketing entails channels the same marketing campaigns to the entire market. This form of mass marketing is applicable in situations where is difficult to distinguish the market segments. Differentiated marketing entails tailoring the marketing campaigns according to the characteristics of the market segments. This means that Amazon will channel varying marketing campaigns to different market segments. Differentiated marketing may also focus on multiple segments or a single segment.
Positioning
Positioning is the process of tailoring the firm’s offer so as it stands out from those of competitors and attracts customers to buy this offer (Ries & Trout, 2000). Amazon is operating in an industry that is highly competitive. Therefore, the company needs to standout from the rest in order to survive in this market. There are two main strategies for positioning a company within the market. These strategies include; differentiation and cost leadership (Callen, 2006). Cost leadership entail positioning the company by promoting operational efficiency. Firms that rely on this strategy focus on reducing cost by enhancing operation efficiency. Reducing cost enables these firms offer products at low prices thus attracting a large volume of customers. Differentiation entails positioning a firm by adding unique attributes to the firm’s products. It focuses on adding value to the company’s offer so as to make it more appealing than those of competitors. The firm positions itself by meeting the customers’ needs in a unique way.
Recommendation on how to Segment, Target and Position
Segmentation
Amazon can begin the segmentation process by choosing the base for segmentation (Ries and Trout, 2004). The segmentation criteria may be based on age, income, consumers’ willingness to buy or a combination a number of factors. Being a technological company, age may be an excellent segmentation factor. This is because young people tend to be technologically competent than older people (Varey, 2002). Amazon would then select segment descriptor. For instance, when segment using age, Amazon should define the age brackets in which the market should be classified. The segment would be distinct in terms of their characteristics. The next step is to identify a sample that Amazon will use to collect data. Data would then be collected from the sample, and the segments sorted according to the data provided by the respondents. The final step involves the examination of the segments size and other characteristics.
Targeting
Amazon should consider a number of factors while selecting market segments. One of the considerations is whether the market segment fits into Amazon’s overall objectives (Stone & Desmond, 2007). Objectives define an organization and, therefore, all decisions should be in line with the objective of the firm. Another factor that Amazon needs to consider is the size of the segment. The size of the segment will determine the profitability of the segment (Stone & Desmond, 2007). Amazon should also take into consideration the number of competitors within the segment. As already mention, competition increases business cost and reduces revenues by driving down costs. Therefore, it is paramount for Amazon to select market segments that are least saturated. Opportunity for growth is also an essential consideration for Amazon (Stone & Desmond, 2007). The sustainability of the business depends on Amazon’s potential to expand its operation. Thus, best market segments should provide opportunities for growth. The final consideration is the accessibility of the market. Amazon is Technology Company and thus, it needs markets that have adequate technological infrastructures. Markets that have inadequate technological infrastructure may prove inaccessible to the company.
Positioning
Positioning requires a firm to understand the market and the way the competitors brands are positioned (Karadeniz, 2009). Understanding the market means that Amazon should identify the benefits, both tangible and intangible, that customers are seeking. The Amazon needs to identify attributes of its products that the customers consider as vital (Ries and Trout, 2004). Amazon would then design its product and communication approaches based on this understanding. Amazon also needs to be aware of the tactics that the competing firms are using to sell their product. The firms should avoid going into a head to head competition with rival firms. Understanding how the competitors have positioned their brand will assist Amazon to identify the most efficient ways of design their products, as well as, the most efficient strategies of communicating with customers.
References
Amazon (2012). Your Amazon.com. November 23, 2012. https://www.amazon.com/gp/yourstore/home?ie=UTF8&ref_=topnav_ys
Anonymous (2005). Market Segmenting, Targeting and Positioning. November 23, 2012. https://web5.wgu.edu/aap/content/mkc1-chapter_5.pdf
Cahill D. (2007). Target Marketing and Segmentation. Journal of Management Decisions
Callen F. (2006). Positioning and Brand Personality. November 23, 2012. http://cwlpub.com/images/Callen06.pdf
Karadeniz S. (2009). Product Positioning in Marketing Management. Journal of Naval Science and Engineering. 5 (2); 98- 110
McDonald M. (2012). Market Segmentation. USA. John Wiley & Son Publishers
Ries A. & Trout J. (2000). Positioning: The Battle for your Mind. McGraw Hill Publishers
Ries and Trout (2004). Market Segmentation and Positioning. November 23, 2012. http://www.oup.com/uk/orc/bin/9780199290437/baines_ch06.pdf
Stone M & Desmond J. (2007) Fundamentals of Marketing. USA. Taylor and Francis Publishers
Varey R. (2002). Marketing Communication. USA. Routledge Publishers
Critical Success Factors when Entering an International Market
Introduction
Critical success factors refer to functions that an organization needs to fulfill in order to realize its goal of entering into an international market. This report has explored key success factors that Amazon needs to consider when entering into a new market. The report has divided these success factors into three broad categories; internal factors, external factors and marketing factors. Internal factors refer to factor that are Amazon is capable of controlling and which play a significant role in the realization of the business goals. External factors refer to factors that are out of Amazon’s control, but which affects the operation of the firm. The report has further categorized external factors into general and industry factors. Marketing factors refers to elements that directly effect the effectiveness of Amazon’s marketing strategies.
Internal Factors
Internal factors refer to factors that are within the control of the organization (Hartline & Ferrell, 2010). One of the critical internal factors is financial resources. Expanding into a new market requires massive financial capital. Thus, before embarking on an international expansion Amazon needs to ensure that the company has enough financial resources. Another vital internal factor is human resource (Ireland, Hoskisson & Hitt, 2011). The organization must have adequate human resource to work in new business environment. Amazon must also consider the technological infrastructure of the firm. Amazon is technology based company. Therefore, it is paramount to ensure that the available technological infrastructure can enable the company to compete effectively within the new market.Amazon can best assess these internal factors by conducting an internal environment scan. There are several models for analyzing the internal environment of a business. One of these models is the Resource Based View (RBV) model (Ireland, Hoskisson & Hitt, 2011). RBV model focuses on identifying resources and areas of competence that are essential to Amazon’s success. RBV analyzes the organization’s intangible and tangible resources as well as areas of competencies. The SWOT model can also be used to analyze Amazon‘s internal environment.
External Factors
External factors refer to factors that are beyond the control of the organization. However, organizations need to take these factors into consideration because they affect the success of the business. This report has divided the external factors into two categories; general factors and industry factors
General Factors
General factors refer to factors that are likely to affect all business that operate within the proposed international market. One of these factors is the prevailing political environment (Gospe, 2011). The political environment determines policies that govern market issues. These issues include; taxation, labor regulation, security and licenses. The prevailing economic environment is also an essential external factor. Amazon needs to consider economic issues such as economic growth, inflation and interest rates. Economic growth and inflation affect the purchasing power of the market (Gate, 2010). Interest rate affects the availability of finances. The social environment is also an essential part of general factors. The social environment comprises of issues such as the demographic characteristic of the population, mobility and many other factors (Dusko, 2008).
The social environment will affect the demand for Amazon’s products. Another external factor is the existing technological environment. This refers to the technological infrastructure that exists in the proposed market. Being a technology company, existence of an adequate technological infrastructure within the market is an essential consideration for Amazon (Stoebe, 2002). Amazon can best assess the external factors by conducting external environment analysis. PEST is one of the models that firms use to analyze the general environment. It is paramount for Amazon to consider these external environmental factors before beginning its marketing campaigns. This will enable the firm to forecast the future opportunities and risks.
Industry Factors
Industry factors refer to factors that affect businesses that operate in a given industry (Hartline & Ferrell, 2010). Amazon operates in the technology industry. Therefore, it is paramount for the firm to assess factors that affect this industry within the proposed market. The porters 5 forces model is the most effective tool that Amazon can use to analyze the industry factors. Porters’ 5 forces model identifies five factors that can affect the success of a firm with a given industry. According to the model, rivalry is one of the crucial determinants of success within an industry (Hartline & Ferrell, 2010). Amazon needs to evaluate the number of players within the markets, their strategies and influence over the market. The firm should avoid entering markets that are highly saturated because the cost of operating within these markets is high while the revenues may be low. Another essential industry factor is the threat of new entrants. Amazon should consider whether the industry is likely to receive new players in the future. Amazon can identify this by analyzing the entry, operating and exit barriers within the industry (Hartline & Ferrell, 2010). An industry with many entry, operating, and exit barriers, is least likely to have new entrants.
Prospects of new entrants determine competition status in the future. An industry is easily accessible to new entrants is likely to saturated in the future leading to the challenges associated with operating in saturate market.Threat of substitutes is also an essential industry factors. Substitutes are products or services that can be used in place of the products offered by the firm (Dusko, 2008). Traditional commerce channels are substitutes to ecommerce services that Amazon offers. Amazon has to assess these substitutes in order to ensure that the ecommerce services can compete against the substitutes. The power of buyers is also a vital industry factors. The power of buyers can affect the operation of a business by affective the pricing decisions of the business.
Power buyers are capable of influencing the prices of the firm’s products. Amazon should assess the buyers within the proposed market by examining factors such as; the size of the buyers, their degree of organization and their level of awareness of the market. The final industry factors that Amazon needs to consider is the power of suppliers. The power of suppliers can affect Amazon’s operation by controlling the prices at which the firm acquires supplies. As a technology company, labor is one of the supply commodities that Amazon needs (Linton, 2012). Amazon needs, therefore, to assess the organization of the labor force within the market in order to ascertain the powers of these suppliers. Other commodities that are essential to Amazon include; power, insurance services and many others. Amazon needs to assess these suppliers.
Marketing Factors
Marketing factors refers to factors that have a direct impact on the success of the company’s marketing activity. Marketing goals are among the critical marketing factors (Gate, 2010). Amazon needs to establish to reasonable goals and marketing. The goals should align to Amazon’s mission and should take the external and internal environmental factors into consideration. The second marketing factor is the value proposition (Mendoza & Marius, 2006). This refers to the value that Amazon is going to offer to the proposed market that will surpass what the existing firms are offering. The value proposition will provide the organization with a competitive advantage. Amazon can identify a value proposition by analyzing the customers and the industry in order to identify a gap. The value proposition should seek to address this gap.Another critical marketing factor is the competitive strategy. Amazon should determine the strategic choice based on the organization mission and the value proposition (Gospe, 2011). Amazon can use the Porters generic strategy model to identify the most effective strategy for competing. The Porter’s generic strategy model has identified three main strategies for competing business; focus, differentiation and cost leadership (Aledda, 2010).
Amazon should select one or a combination of two of these strategies that best suit Amazon’s mission and goals. After identifying the strategy, Amazon need to establish promotional plans that will enable the realization of this strategy. The plan should consider marking elements such as; branding, customer services, pricing and communication strategies.Managerial support is also a crucial marketing factor (Willauer, 2005). The project manager needs to ensure that the managerial team supports the proposed marketing plans. The manager can achieve this by ensuring that the management team is significantly involved in the planning process. The support of the employees is also a critical success plan (Willauer, 2005). The manager can earn the support of employees by including them in Amazon’s planning processes. Amazon should also train its employee effectively in order to prepare them for the implementation responsibilities.
Conclusion
Critical success factors refer to factor that determine a firm’s ability to fulfill its goals. There are several factors that affect the success of Amazon in achieving its goals when entering an international market. This report has evaluated these critical success factors and identified three categories of factors. These include; internal factors, external factors and marketing factors. These factors have been discussed in the report.
References
Aledda R. (2010). Key Success Factors of New Products. USA. GRIN Verlag Publishers
Dusko L. (2008). Key Success Factors for Foreign Direct Investment. Diplomica Verlag Publishers
Gate L. (2010). Strategic Planning with Critical Success Factors and Future Scenarios. November 24, 2012. http://www.sei.cmu.edu/reports/10tr037.pdf
Gospe M. (2011). Critical Success Factors for Launching a Successful Business. November 24, 2012. http://www.kickstartall.com/documents/KS_Articles/CriticalSuccessFactors.htm
Hartline M. & Ferrell O. (2010). Marketing Strategy. USA. Cengage Learning
Ireland D. Hoskisson R. & Hitt M. (2011). Understanding Business Strategy Concepts. USA. Cengage Leaning.
Linton I. (2012). Taking Technology to the Market. USA. Gower Publishing Ltd
Mendoza L. & Marius A. (2006). Critical Success Factors for a Customer Relationship Management Strategy. Journal of Information and Software Technology
Stoebe T. (2002). Managing E-Business Projects. USA. Springer Publishers
Willauer B. (2005). Consensus as Key Success Factor in Strategy Making. Germany. Deutscher Universitätsverlag Publishers
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