1.1.4 Market Positioning

Market Positioning 

Key Definitions

Market Mapping: The process in which companies decide where to position their brand in relation to competitors on a market map.

Market Map:  A visual tool in which each existing brand is plotted on a grid with two axis based on two important features of the market.

Price Elasticity: A measurement of the extent to which demand for a product changes based on how much its price changes.

Unique Selling Point: A consumer benefit that no rival can match due to, for example, being protected by a patent. Also known as a distinctive capability. 

Competitive Advantage: An advantage a business gains over other businesses that can be achieved by either differentiation or cost

Product Differentiation: The degree to which a consumer sees that your brand is different to another brand through the features and the unique selling point.

Substitute: A product from a rival company that is similar to an already existing product that it could be bought or used as an alternative to the original.

Adding Value: The way the business adds to the price their products by changing it slightly in one or more ways making it, for example, more convenient for the consumer.

Market Mapping

The process of market mapping happens in 2 ways: 

1. Identification

The key features of the market are identified and used as the axis on the market map. These key features are the main characteristics consumers use to identify the market. 

2. Placement

The brands are placed on the grid in terms of their appropriate position on the market. Once placed the business can see where the competition is concentrated so gaps in the market can be highlighted and utilized. 

Market mapping is done when a business launches a new product or service, as companies need to decide where exactly on the market it is they want to position the brand in relation to customer perceptions and the positioning of current existing competitive rivals. By using this approach, gaps in the market can be seen that may not have been seen before, so new companies would be able to fill this gap. 

Competitive Advantage

A competitive advantage can happen in 2 ways: 

1. Cost-Based Advantage

When a company offers a good or service at a cost that cannot be matched by another company. Aldi is an example of a company that does this, as is Primark. With Aldi, as they are selective about who they stock, companies have to offer a cheaper deal in order to get on the shelves, so they offer cheaper deals allowing Aldi to charge lower prices.

2. Differentiation-Based Advantage

When a company differentiates itself from its rivals successfully- this can be seen with BMW and Apple, both of which are companies that offer a USP that no rival can match. Apple do this with their unique software.

By developing a competitive advantage in either way, companies are enabling themselves the chance to set themselves aside from rivals and build a memorable brand for themselves. This helps them to become more competitive in their market and could potentially help increase their market share. 

Product Differentiation

Product differentiation is the way that consumers see how one brand is different to another. A highly differentiated product is a good or service that has many unique features, such as the iPhone or Marmite. These highly differentiated goods may have substitutes (such as the Samsung Galaxy S8 for the iPhone 8), however if marketed and branded in the right manner customers will not think twice about buying the original product. What makes a product unique is called the "Unique Selling Point", or the "distinctive capability". 

There are 2 key ways product differentiation can be achieved:

1. Actual Differentiation
This happens when a business creates a product with:

- A unique design that is aesthetically pleasing to the consumer eye
- A unique product function
- A unique taste

- Ergonomic factors that make the products easier for the consumer to use

- Superior performance compared to rival products

2. Psychological Differentiation

This happens when a business creates a product with differences that only seem to appear within the mind of the consumer. This can be done by using persuasive advertisements, celebrity endorsements, and a sponsorship. If this is done well, many people will be prepared to pay premium prices for a product, as the brand image will appeal to them. 

There are 2 main reasons why companies use product differentiation to advertise their products:

- To insulate the product from a highly competitive market. This would increase the control the business has over the market share and reduce the amount of direct competition they face on the market. 

- To enable the business to protect its profitability and profit margins by enabling it to increase its prices without fearing retaliation from competitors. It also protects the product from becoming highly price elastic, as customers will not care about the price of the product.

Adding Value

This means to "stretch" the difference between the cost of production for goods and services, and the price the business can sell these finished goods for. Sometimes the difference between this is huge (such as the difference between the cost of coffee beans and the price that Starbucks sell their coffee for), and sometimes this is not much at all (such as the difference between the cost to manufacture a Ford Focus and the price Ford sells it for). The traditional method of doing this is to charge 4 times the cost of ingredients, but it can vary. 

The 3 most common ways to add value to a product are:

1. The ImageTo create an image for the product that is so attractive or "quirky" that people are willing to pay more to be associated with the brand and the brand image. 

2. The ReputationTo create a product that is truly fantastic and of a high quality that would be seen as worth the premium prices customers are charged for it.

3. The Product
To create and package a product in a way that makes the product seem "clever" or more convenient to the consumer, which would encourage the consumer to pay the extra for it.