Differentiation And Positioning Strategies

E-Marketing, 3rd edition Judy Strauss, Adel I. El-Ansary, and Raymond Frost

Chapter 9: Differentiation and Positioning Strategies

© Prentice Hall 2003

Overview

Differentiation of Online Businesses

Channel Differentiation

Service Differentiation

Image Differentiation and the Customer Experience

Product Differentiation

Personnel Differentiation

Customer Relationship Product-Service Differentiation Strategies

Differentiation Strategies

Site

Environment/Atmospherics Tangibilize the

intangible Build trust Efficient and

timely order processing Pricing Customer

Relationship Management Other Strategies

Positioning Strategies Bases for

Positioning on the Web Repositioning on

the Web


Differentiation is what a company does to the product.

The keys to differentiating online businesses are: The creation of a distinctive and superior customer experience, The development of one-to-one relationships with consumers.

The real value added by the Internet: Ability to differentiate according to customer relationships, Provide a unique experience for each customer.

Kotler: Defines “differentiation as the process of adding a set of

meaningful and valued differences to distinguish the company’s offering from competitors’ offerings.”

“A company can differentiate its market offering along five dimensions: product, services, personnel, channel, and image.”


Offline: Differentiation emphasizes the product dimension.

Online: Differentiation by product. Advantages:

A greater assortment of products that companies are able to offer

The ability to customize product offerings for individual customers.

A powerful new avenue for differentiating by channel, services, and image.

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Product Services Image Channel Personnel

Online

Offline

Relative Importance of Online and Offline Differentiation Dimensions

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the Web

Channel Differentiation The Internet:

= a distribution channel + a communication channel + a relationship channel,

Used to forge one-to-one relationships with individual customers.

The Internet expands: Companies’ geographic range + business hours

+ assortment of products available The channel through which it can reach

customers +display a diversified assortment of offerings + differentiate itself.


There are multiple levels of online channel differentiation:

Product or service information online = advantage over companies with no Web presence,

Exploits the Internet as a communication channel.

Commercial transactions online, Exploits the Internets as a transaction and

distribution channel.

The differentiation of competitors’ Internet-related service offerings.

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Service Differentiation Customer service:

Ability to receive customer feedback through e-mail 24 hours a day,

Ability to respond more rapidly to customer concerns.

The distribution of products ordered online:

A way to differentiate services from traditional companies.

Online services, such as online banking and securities trading:

Are becoming increasingly popular, Are differentiated both by the features they offer and the service

consumption experiences. Supplement traditional offline services, but replace the traditional

offline services.

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Image differentiation is strongly affected by the Internet.

Experience branding:

When a company differentiates itself by creating a unique customer experience,

Increases customer loyalty & retention + produce referral business.

“firms can greatly improve their ability to retain customers, target key customer segments and enhance network profitability.”


Differentiation has to be built upon the ability to create huge perceptual differences from other aspects of brand positioning.

The Internet’s interactivity allows companies to respond more quickly to customer requests.

The ever-increasing speed of the Internet allows companies to communicate more quickly with current and potential customers

Essential to retaining current customers and attracting new ones.

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Product Differentiation Product differentiation:

Includes customization and bundling, Offers a combination of products/services that the

individual consumer needs + at attractive prices, Supports one-to-one relationship building with each

customer, critical for a company’s long-term success.

Product packaging: Offline: packaging are design to appeal to consumers, be

eye-catching, compete with other products on store shelves, and sell the product.

Online: consumers might require products with more utilitarian packaging + products will be shipped from the distributor directly to the consumer and thus never appear on retailers’ shelves.


Results:

Products don’t need the expensive, colorful packaging for store display.

Products only need a size and shape that is functional and useful for the consumer.

Packaging minimization will reduce waste and reduce packaging costs.

Lower prices, or more reinvestment in higher-quality, single-layer packaging enhancements.

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Personnel Differentiation In the past, personalized service and one-to-one relationships

required the interaction of skilled personnel. Now, the Internet allows companies to “deliver their products

and services through low-cost channels that automate the process and remove the expensive human element.”

Lower transaction & marketing costs = cost leadership advantage over offline companies.

Cost reduction for the end user & higher levels of service. BUT as more companies offer products and services online,

this cost advantage between online and offline operations will gradually shrink over time.

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Customer Relationship

The Internet has made pricing information widely available to suppliers, customers, and competitors.

Reduces price differences between suppliers,

Reduces the importance of price competition and increases the importance of differentiation.

Important to create brand loyalty and use the Internet to build one-to-one relationships with customers.

Customer Relationship Data mining is used to predict customer behavior+

differentiate product and service offerings for individual customers = a way of fostering the one-to-one relationship.

BUT this can have the opposite effect of driving away customers who object to providing their personal preferences to companies online, or who unexpectedly find a completely different customized experience every time they visit a company Web site.

The solution = allow the customers the freedom to opt-out and remain anonymous, or to provide personal information for customization purposes.

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Product-Service Differentiation Strategies

Differentiation strategies:

Being the first to enter the market, Owning a product attribute or quality in the

consumer’s mind, Demonstrating product leadership, Utilizing an impressive company history or

heritage, Supporting and demonstrating the differentiating

idea, Communicating the difference.

Product-Service Differentiation Strategies

E- marketing strategy revolves around the image and product information available on the Web.

A strong brand image helps to attain “ownership” of a product. (Amazon.com),

Customers are drawn to brands they trust, an attraction that is enhanced by a positive company history. Monster.com has essentially gained ownership of online job searches.

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Differentiation Strategies Traditional strategies still apply to e-marketing.

BUT some differentiation strategies are unique to marketing on the Web:

1. Site Environment/ Atmospherics2. Tangibilize the Intangible3. Trust4. Efficiency and Timeliness5. Pricing6. CRM

Internet-Specific Differentiation Strategies

1. Site Environment/ Atmospherics

(Watson et al. 2000)

2. Tangibilize the Intangible

(Watson et al. 2000)

3. Trust

Look and feel of site User friendly Accurate portrayal of

company and product

Images Virtual tours Realistic descriptions

Clearly state privacy policy

Use encryption for secure transactions

4. Efficiency and Timeliness

5. Pricing 6. CRM

Deliver what is promised to customers

Deliver in a timely manner

Be aware of competitor pricing

Potential customer savings

Customer tracking Seamless

communication Greater relationship

efficiency

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Site

Environment/Atmospherics Tangibilize the intangible

Build trust Efficient and





the Web

Site Environment/Atmospherics Atmospherics = the in-store ambiance created by

brick-and-mortar retailers. Web sites can be differentiated by providing visitors

with a positive environment to visit, search, purchase, and so forth.

Visitors want a site that: Easily downloads, Portrays accurate information, Clearly shows the products and services offered, Is easily navigated.

If customers like the home page, they will view additional pages and ultimately become a paying customer.

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Tangibilize the intangible

An online product or service cannot be seen except by an image or description.

The goal: make offerings seem more tangible by showing them in a realistic and customer-friendly manner, using: Virtual tours, 3-D images, Product image enlargements, Trial downloads, Customer reviews.

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Build trust Trust = a key issue on the Internet:

Customers are expected to pay online, Their information is tracked for personalized service or supply

chain management. Trust-building should be an integral part of a Web site’s

marketing strategy.

Trust may be built in as a by-product of strong brand recognition:

Company sites with lower brand recognition must project a secure environment:

Clearly define company’s privacy policy+ strictly enforced it Use a safe and encrypted payment process for transactions. A live person can be contacted if customers encounter problems

on the Web site, require personal assistance, or need to exchange or return a purchase.

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Efficient and timely order processing

One of the strongest motivators for customers who make Web-based purchases is the ease of ordering.

Organizations must market their alliances and delivery timeliness as an important benefit.

By following its promises, the company will build customer loyalty + receive referrals from satisfied customers..

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Pricing Pricing as a method of differentiation has come under

scrutiny.

When products were first offered on the Web, companies tended to offer price discounts as an incentive.

Today, prices are relatively comparable on the Web. The majority of firms are choosing to differentiate

themselves using methods other than pricing. Pricing is easy to imitate and non-price differentiation

is more enduring for all but the price leaders.

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Customer Relationship Management

Price is less used for differentiation + barriers to entry decrease on the Internet,

customer relationship management is becoming more predominant as a means of differentiation.

Netflix rent movies on DVD by mail: Customers set up personal lists of the movies they want to rent. Customers can rent three or more DVD movies at one time—with

no return deadlines or late return penalties. After viewing a movie, customers slip it into the prepaid return

envelope to mail it back to Netflix; a few days later, they receive the next DVD on their list.

Netflix builds customer relationships one at a time through customer-driven personalization and convenience.

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Relationship Management Other

Strategies Positioning Strategies

Bases for Positioning on the Web

Repositioning on

the Web

Other Strategies “E-Marketing Opportunity Model” developed by

Feeny helps companies define their customers and products in order to determine the degree of differentiation required.

3 e-marketing opportunities: Enhancing the selling process, Enhancing the customer buying process, Enhancing the customer usage experience.

Firms use perceived product differentiation and frequency of purchase to choose the best strategies.

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Positioning Strategies Positioning:

Help to create a desired image for a company and its products in the minds of a chosen user segment,

Concerns brands, the company itself, or individual products, Help to control brand image.

The concept is simple: To be successful, a company must:

Differentiate itself and its products from all others, Position itself among its competitors in the public's mind to

carve out its own market niche.

Positioning is the process of creating this image.A position is the resulting view of the firm or brand from the consumer perspective.

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Bases for Positioning on the Web

Firms can position on the basis of:

Product or service attributes (“the smallest cell phone”), High-tech image (“our cell phones handle e-mail”), Benefits (“fits in your pocket”), User categories (“best cell phone for college students”), Comparison with competitors (“our phone is less expensive

than the Nokia”), Take an integrator position (“a full range of electronic

products and services”).

Product or Service Attribute Attributes = product or service features such as size,

color, ingredients, speed, and so forth.

A patented product or process, such as Amazon’s one-click check-out process, is an idea basis for positioning.

iVillage allows users to build their own meal menus at its site using criteria such as ingredients and calorie counts. (www.ivillage.com)

Pillsbury adds value through ideas, recipes, an advice service on its site (www.pillsbury.com).

Technology Positioning Positioning on the basis of technology shows that a firm is on the

cutting.

At the Lands’ End Web site: Women can build virtual models based on their physical features

such as hair color, skin tone, hair style, and face shape. Users can then see how Lands’ End apparel would look on

themselves by trying virtual outfits on the model. The model can be rotated for front, side, and back views.

The American Airlines site: Offers various tools to allow customers to manage their flight

arrangements: Frequent flier account management, personalized travel planning, and personalized seat selection when booking flights.

Customers can store user-profile information on preferred destinations, seating preference, companion travelers, and frequent flier rewards status and billing.

Benefit Positioning Benefits:

The flip side of attributes—the customers’ perspective of what the feature will do for them.

This positioning is generally a stronger basis because of its customer orientation.

The Polo Web site: Focuses on how its products shape an entire lifestyle. Its products are designed to help customers contemplate a dream

world of adventure, style, and culture.

The Miller Lite Beer Web site: Offers a software package that can be downloaded and used as a

social organizer for arranging meetings, mostly for entertainment. The Miller icon is then permanently present on the desktop,

reminding the customer about the brand on a daily basis.

User Category This positioning relies on customer segments.

It is successful when the segment has some unique quality that ties product benefits more closely to the group than to other segments.

Kellogg’s: The company has set up an interactive Web site for children, They can register online and enter code numbers found on

Kellogg’s cereal packages, then use the codes as “money” on related Web sites or even earn interest in a “special” bank.

Yahoo! Geo Cities: Hosts Web user pages that are organized into neighborhoods

based on specific interests. Consumers can connect with others who share the same

interests.

Competitor positioning Many firms position by touting specific benefits that

provide advantages over competitive offerings.

Online or offline companies often position themselves: Against an entire industry (“I Can’t Believe It’s

Not Butter” margarine), Against a particular firm (Amazon.com for toys), According to relative industry position (AOL is the

ISP connection leader and Earthlink a challenger).

Integrator Positioning Some companies want to be known for providing

everything a consumer needs in a particular product category, industry, or even in general (e.g., Wal-Mart).

This is a particularly important strategy online because busy consumers want convenience and one-stop shopping.

Martha Stewart’s Web site: Brings together a wide spectrum of business units in one

place, Effectively communicates the core identity of the brand—

improving the quality of living in the home and encouraging do-it-yourself ingenuity,

Is linked to Kmart’s site, where Martha Stewart’s branded domestics products are sold.

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Positioning on the Web Repositioning

on the Web

Repositioning on the Web

Positioning alone won't make a product successful.

Marketers must also be sensitive to how the market perceives and views the company and the product.

Based on market feedback, a company must be flexible enough to react to those opinions by enhancing or modifying a position.

Repositioning on the Web

Repositioning: Is the process of creating a new or modified brand,

company, or product position. Is a long-term challenge when attempting to change the

way customers perceive their brands. Companies can easily check on progress by tracking

customers' preferences and habits on the Internet.

Amazon has repositioned itself within the last few years: Originally Amazon was positioned as the world’s largest

bookstore. Today it promises the “Earth’s biggest selection” of a

variety of products from music to electronics and more.

Key Terms

• Atmospherics

• Differentiation

• Position

• Positioning

• Repositioning

Review Questions1. How does differentiation differ from

positioning?2. What levels of online channel differentiation

exist as options for companies?3. What is the goal of experience branding?4. How do site atmospherics affect online

differentiation?5. Why should e-marketers try to tangibilize the

intangible?6. Why is benefit positioning so powerful?7. Why would an e-marketer choose to use

competitor positioning? Integrator positioning?

Discussion Questions

1. Why is a company able to directly control the differentiation of its brand but not its positioning?

2. The positioning rule of thumb states that “Mediocrity deserves no praise.” What does this mean? Do you agree with this statement? Explain your answer.

3. How might an online company react if a rival embarks on competitor positioning in an unflattering way?

4. Are customers likely to be confused by an integrator positioning that suggests a Web site sells anything and everything? What are the advantages and disadvantages of this positioning?