Beruflich Dokumente
Kultur Dokumente
BY
THOMAS MOYO
• all sources used or referred to have been documented and recognised; and
• this research paper has not been previously submitted in full or partial
fulfillment of the requirements for an equivalent or higher qualification at any
other recognised education institution."
i
ACKNOWLEDGEMENTS
The completion and success of this study would have not been possible without
the advice, assistance, encouragement and support of the interested parties.
Most and above all I would like to thank in particularly the following:
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ABSTRACT
In this study the small engineering firms were surveyed to establish if the firms
apply segmenting, targeting and positioning concepts in order to grow and
sustain its customer base. The evaluation would indicate whether the
engineering firms do apply the above-mentioned concepts wholly or partially or
not. It was therefore intended to highlight what engineering do to sustain and
grow their customer base in the absence of the marketing concepts application.
The literature survey was aimed at providing the guideline for application of
these concepts. Based on the literature study and survey of engineering firms it
can be concluded that firms do apply the segmenting, targeting and positioning
concepts. However the application of these concepts was partially.
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TABLE OF CONTENT
DECLARATION i
ACKNOWLEDGEMENTS ii
ABSTRACT iii
TABLE OF CONTENT iv
LIST OF FIGURES xi
LIST OF ANNEXTURES xi
CHAPTER 1
1.1 INTRODUCTION 1
1.3 SUB-PROBLEMS 4
1.4.4 Marketing 5
1.5.1 Marketing 5
iv
1.5.2 Market Segmentation and Targeting 6
1.5.3 Positioning 6
1.6 ASSUMPTIONS 7
1.8.3 Competition 10
CHAPTER 2
2.1 INTRODUCTION 15
2.2 SEGMENTATION 16
2.2.1 Definition 16
v
2.2.5 Identify a target market 22
2.3 TARGETING 28
2.4 SUMMARY 34
CHAPTER 3
POSITIONING
3.1 INTRODUCTION 35
3.2 DIFFERENTIATION 36
3.3 POSITIONING 44
3.4 SUMMARY 50
vi
CHAPTER 4
4.1 INTRODUCTION 51
4.5 SUMMARY 58
CHAPTER 5
5.1 INTRODUCTION 59
5.3.4 Positioning 80
5.4 SUMMARY 94
vii
CHAPTER 6
6.1 INTRODUCTION 95
6.2 SUMMARY 95
RECOMMENDATIONS 97
LIST OF DIAGRAMS
DIAGRAM DESCRIPTION
PAGE
customer? 65
viii
Diagram 5.7 Statement 7: What criteria do you apply? 66
of product offerings? 77
one product? 80
ix
Diagram 5.22 Statement 22: Do you feel that you have a
competitive advantage? 81
effective? 84
sustainable? 85
profitable? 86
to your business? 93
x
LIST OF FIGURES
LIST OF ANNEXTURES
ANNEXTURE DESCRIPTION
positioning questionnaire
xi
CHAPTER 1
1.1 INTRODUCTION
The South African Government white paper states that the government realized
that the way to boost the economy of the country is through the development
and sustainability of Small, Micro and Medium Enterprises (SMME).
Government’s white paper on SMME intends to address the following
(Government papers, 2003):
• The creation of new SMME
• The development and growth of existing SMME
• Targeted support to manufacturing SMME (new and existing)
• Enhance productivity and competitiveness.
SMME’s form 97.5 per cent of all businesses in South Africa, generate 34.8 per
cent of the gross domestic product (GDP) and contribute 42.7 per cent of the
total value of salaries and wages paid in South Africa. Hence, they employ 54.5
per cent of all formal private sector employees (Kroon, 1998:64).
The above information shows that development of SMME is important for the
alleviation of hunger and unemployment. However, Statistics South Africa
shows the statistics of SMME registration in SA being higher than other
countries. The statistics also indicates the high number of voluntary liquidations
of SMME in South Africa. For example, 2164 companies were liquidated in the
first eight months of 2003 (Statistics South Africa, 2003).
The table below is the snapshot from Statistics South Africa and it depicts the
number of liquidated companies at the end of August 2003.
1
Key figures as at the end of August 2003 regarding the number of
liquidations
Number of
Liquidations 406 1 090 +19,8 +17,0 -1,2
It is also substantiated by reports that venture failure vary and range between
30 and 80 per cent of all new enterprise within the first two years after
establishment. SMME’s fail in first two years of their existence because of
mismanagement of cash flow problems (DTI, 2000).
As indicated above, one of the major challenges facing SMMEs is the lack of
sustainable markets for their products and services. They tend to produce and
offer services that do not have a ready market (Kroon, 1998:33).
Nieman (2003:10) also says that small businesses should usually set
themselves strategic objectives in relation to:
• Market targets
• Market development
• Market share
• Market position
Therefore failure of the SMME is not directly linked to marketing, it can be due
to mismanagement of the business, but marketing is the underlying factor. Most
SMME fail due to lack of finance, which is directly linked to lack of customers
and/or markets. Thus the effective of segmentation and targeting of the market
as well as positioning and promotion of SMME is questioned (Pattern, 1985:
51).
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This leads to the problem statement, which is:
Can market segmentation, targeting and positioning assist an
Engineering SMME to position itself in the market place?
1.3 SUB-PROBLEMS
The study level will be limited to owners or managing members and managers
of the business.
Organisations employing more than three but less than 200 employees with a
maximum of R10 000 000 annual turnover will be used. This delimitation is in
line with what the Department of Trade and Industries (DTI) defines an SMME..
Companies with turnover of more than R10 000 000 can argue that marketing
is not a necessity for them.
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1.4.3 Geographical demarcation
1.4.4 Marketing
The aim of the study is to evaluate the use of the theoretical best practice for
segmentation, targeting and positioning of the Engineering SMME in a
competitive market with what the owners or managers are doing.
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businesses. In fact, marketing people are involved in marketing 10 types of
entities: goods, services, experiences, events, persons, places, properties,
organizations, information, and ideas. In this study marketing will be defined as
the task of creating, promoting, and delivering goods and services to
consumers and businesses.
Targeting your market is simply defining who your primary customer will be.
The market should be measurable, sufficiently large and reachable (Minett,
2002: 35).
Once the target market is defined, based upon the knowledge of product
appeals and market analysis, and can be measured, should determine whether
the target audience is large enough to sustain the business on an ongoing
basis. In addition, your target market needs to be reachable. There must be
ways of talking to your target audience (MaGee, 2003).
In this study target markets and segments will be defined as who primary
customers will be and the grouping of customers or consumers with similar
needs.
1.5.3 Positioning
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In this study positioning will be defined as the act of designing the company’s
offering and image to occupy a meaningful and distinct competitive position in
the target customer’s mind.
According to the Department of Trade and Industry (DTI), Small and Medium
Manufacturing Enterprises (SMME) are organisations, which employ between
three and 200 employees. This organisation must be manufacturing a
component or a full product, which is sold to other businesses or directly to
consumers. All automotive related small businesses are also treated as SMME
in the DTI’s eyes (Government papers, 2003).
In this study SMME will be defined as organisations employing more than three
but less than 200 employees with maximum of R10 000 000 as an annual
turnover. SMME will also be referred to as small engineering companies during
the study.
1.6 ASSUMPTIONS
It is assumed that all SMME use the same marketing principles (market
segmentation, targeting and positioning) irrespective of their size.
According to Buss and Day (1995: 2), an organisation makes a profit when it
transfers the ownership of goods and services to a customer and gets paid for
them. To make profit customers are needed.
Since no business has the skills and resources to be all things to all people,
companies must identify which customer needs and wants can and should be
met. Therefore a company must target a market. According to Cartwright
(2002:69) a market is a group of existing or potential customers within a
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particular product market toward which the business directs its marketing
efforts.
After targeting the markets, the business must persuade the customer
decisions to buy their product. Persuasive messages as well as the goods on
offer influence customer decisions. These persuasive messages are trying to
convince customers to do something: buy a product. These messages are
expensive to send, but they do the job. In today’s market place, a competitive,
persuasive message is needed to sell a competitive product or service (Buss
and Day, 1995: 2).
These persuasive messages not only need to be sent, they have to be
received, understood and accepted by those you wish to influence (Gorton and
Carr, 1983: 42). Malan (2003: 14) holds that if one is engaged in business,
sales and marketing are the most important functions in such an organisation.
Firms are obliged to scrutinise every area of expenditure to minimise waste and
maximise returns. Perhaps the clearest and most specific of these is the central
role of marketing in determining the health of a firm and the entire economy
(Cannon, 1998: 1).
Statistics South Africa shows the statistics of SMME registration in South Africa
being higher than other countries. It also shows the high number of voluntary
liquidation of SMME in South Africa. For example 2164 companies were
liquidated in the first eight months of 2003 (Statistics South Africa, 2003).
It then appears that there are many good ideas and business that are not
supported and funded because they are not market correctly. These ideas are
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stillborn because they are not presented in a form that will gain support for
them.
The marketer must try to understand the target market’s needs, wants, and
demands. Needs describe basic human requirements. People need food, air,
water, clothing, and entertainment. These needs become wants when they are
directed to specific objects that might satisfy the need. An American needs food
but wants hamburger, French fries and a soft drink. Wants are shaped by one’s
society (Kotler, 2000: 11). Cartwright (2002: 113) is of the opinion that need is
something that people cannot do without; a want is the method by which people
would like the need to be satisfied. Demands are wants for specific products
backed by an ability to pay (Kotler, 2000: 8).
These distinctions shed light on the frequent criticism that “marketers create
needs” or “marketers get people to buy things they do not want.” Marketers do
not create needs: Needs pre-exist marketers. The marketer, along with other
societal factors, influence wants (Oates, 1990: 28 and Kroon, 1998: 78).
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1.8.2 Segment and target markets
Having divided the market into segments, managers must decide which
segment to target to reach the organisation’s overall objectives. Organisations
do not necessarily choose the most profitable segment: an organisation may
decide to aim for a particular segment of the market which is currently
neglected, perhaps because it has high growth potential or low competitive
pressures (Blythe, 2003: 110).
1.8.3 Competition
Kotler (2000: 14) contends that competition includes all the actual and potential
rival offerings and substitutes that a buyer might consider. There are four
distinguishable levels of competition, based on degree of product
substitutability. These are:
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In this study, competition will be defined as all rivals that offer the same product
or substitute product to buyers.
According to Kotler (2000: 15), the marketing mix is the set of marketing tools
that the firm uses to pursue its marketing objectives in the target market. These
tools are classified into four groups that are called the four Ps of marketing:
product, price, place and promotion.
• Products or Offering
Kotler (2000: 395) describe a product as anything that can be offered to a
market to satisfy a want or need. A product is anything desired by a target
market. In a consumer market it usually has physical characteristics or
attributes that constitute the major reason people buy it.
Products posses extrinsic symbolic attributes that can satisfy the consumer’s
need for recognition and status (Buss and Day, 1995: 149). Cannon (1998:
293) suggests that a product can be divided into quality levels, special features,
styling, branding, product range or mix, service back up, warranty, durability
and packaging.
In a producer market the product is processed for sale to other producers or
resellers. Reseller markets purchase products for sale (Reeder and Brierty,
1991: 210). Products can include physical objects, services, persons, places,
organisations and ideas (Buss and Day, 1995: 149).
• Price
Price is the mechanism of exchange between the firm and a customer (Cannon
1998: 294). Cannon is of the viewpoint that price incorporates level(s), credit
(terms and sources), discounts, margins, resources, financial services (e.g.
advice), allowances or trade-ins and strategy tactics. One firm might have high
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premium price but offers generous credit terms, while another might have a far
lower price but give virtually no credit (Clark and Huston, 1993: 294).
• Promotion
According to Cannon (1998: 294), promotion encompasses the two broad
areas of advertising (including below-the-line); merchandising (promotional
support for the retailer); personal selling (salesman’s special discounts); and
publicity (press and public relations).
• Place
Cannon states that place makes the product physically available. Place falls
into two broad areas – channels and physical distribution – and covers channel
strategy, intermediary systems, outlet, warehouse and factory location, service
levels, documentation, coverage, stocks, freight and insurance (Cannon, 1998:
294).
Decisions taken in one area have effects, which go far beyond their immediate
context. For example, a decision to adopt a penetration-pricing stance calls for
extensive distribution, probably high stocks, high customer awareness (perhaps
from media advertising) and high volume production capacity (Pino, 1994: 152).
The following procedure will be adopted to solve the main and sub-problems:
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1.9.2 Empirical study
• Interview survey
A quantitative survey through a structured interview will be conducted among
the sampled owners/managing members of the selected Engineering SMME.
The purpose will be to establish the methods used by SMME’s to market
themselves. The reason for choosing owners/managing members is that they
are the ones who run the entire business activities and therefore are in a
position to know which methods are used to market the business.
• Measuring instrument
The researcher will develop a comprehensive structured questionnaire for this
research project to determine the marketing methods for SMME’s.
• Sample
The computerised database of Eastern Cape Manufacturing Advisory Centre
will be used to gain the names and addresses of all organisations within the
manufacturing sector including the engineering. A statistically significant
random sample of those which employs more than three but less than 200
employees with maximum of R7 000 000 as an annual turnover will be
selected.
The reason for selecting organisations which employs between three and 200
employees are that Department of Trade and Industry (DTI) defines an SMME
as such. Companies with a turnover of more than R7 000 000 can argue that
marketing is not a necessity for them.
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1.9.3 Comparisons of and the development of a better method
The results of literature survey and the empirical results will be compared
premised upon these findings a better method will be developed for SMME’s to
effectively market the company and products.
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CHAPTER 2
2.1 INTRODUCTION
In this chapter the elaboration and literature review of segmenting and targeting
markets commences. Authors vary in the sequence and components in the way
in which they postulate their finding and comments pertaining to market
segmentation and targeting. The researcher extracted the common elements of
the procedures that are embraced by a spectrum of authors to form the
cornerstone upon which he proposes this framework.
If all consumers were alike, if they all had the same needs, wants, and desires,
and the same background, education, and experience, mass (undifferentiated)
marketing would be a logical strategy. One advertising campaign is all that is
needed, one marketing strategy is all that is developed, and one standardised
product is all that is offered (Kanuk and Schiffman, 1994: 46).
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• Establish and communicate the products’ key distinctive benefits in the
market (market positioning). The latter stage will be dealt with in following
chapter, after which a marketing plan is developed.
2.2 SEGMENTATION
If companies don't know who their customers are, how will they be able to
assess whether they are meeting their needs? Since success depends on them
being able to meet customers' needs and desires, they must know who their
customers are, what they want, where they live and what they can afford
(Kotler, 2000:8).
2.2.1 Definition
Boshoff, et al (2002:131) state that, markets are segmented for three important
reasons:
• First, segmentation enables companies to identify groups of customers with
similar needs and to analyse the characteristics and buying behaviour of
these groups.
• Second, segmentation provides companies with information to help them
design marketing mixes specifically matched with the characteristics and
desires of one or more segments.
• Third, segmentation is consistent with the marketing concept: satisfying
customer wants and needs while meeting the firm’s objectives.
• Higher Profits
It is often difficult to increase prices for the whole market. Nevertheless, it is
possible to develop premium segments in which customers accept a higher
price level. Such segments could be distinguished from the mass market by
features like additional services, exclusive points of sale, product variations and
the like. A typical segment-based price variation is by region. The generally
higher price level in big cities is evidence for this. When differentiating prices by
segments, organizations have to take care that there is no chance for
cannibalization between high-priced products with high margins and budget
offers in different segments. The less distinguished the segments are the
higher the risk (The Manager, 2004).
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• Sustainable customer relationships in all phases of the customer life
cycle
Customers change their preferences and patterns of behavior over time.
Organizations that serve different segments along a customer’s life cycle can
guide their customers from stage to stage by always offering them a special
solution for their particular needs. For example, many car manufacturers offer a
product range that caters for the needs of all phases of a customer life cycle:
first car for early twenties, fun-car for young professionals, family car for young
families, and so on. Skin care cosmetics brands often offer special series for
babies, teens, normal skin, and elder skin (The Manager, 2004).
• Targeted communication
It is necessary to communicate in a segment-specific way even if product
features and brand identity are identical in all market segments. Such a
targeted communications allows the company to stress those criteria that are
most relevant for each particular segment (e.g. price vs. reliability vs. prestige)
(The Manager, 2004).
• Stimulating Innovation
An undifferentiated marketing strategy that targets all customers in the total
market necessarily reduces customers’ preferences to the smallest common
basis. Segmentation provides information about smaller units in the total
market that share particular needs. Only the identification of these needs
enables a planned development of new or improved products that better meet
the wishes of these customer groups. If a product meets and exceeds a
customer’s expectations by adding superior value, the customers normally is
willing to pay a higher price for that product. Thus, profit margins and
profitability of the innovating organizations increase (The Manager, 2004).
How does a company segment a market? There are criteria that need to be
followed to segment a market. These criteria are now explained.
• Substantiality
A market must be large enough to warrant developing and maintaining a
special marketing mix. This criterion does not necessarily mean that a segment
must have many potential customers but that companies must develop
marketing strategies tailored to each potential customer’s needs. It has to be
possible to approach each segment with a particular marketing program and to
draw advantages from it (The Manager, 2004).
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• Accessibility
The company must be able to reach members of targeted segments with
customised marketing mixes. The segment has to be accessible and servable
for the organization. That means, for instance, that there are target-group
specific advertising media such as magazines or websites the target audience
like to use (The Manager:2004).
• Responsiveness
Markets can be segmented using any criteria that seem logical. However,
unless one market segment responds to a marketing mix differently from other
segments, that segment need not be treated separately. For instance, if all
customers are equally price-conscious about a product, there is no need to
offer high-, medium-, and low-priced versions to different segments (The
Manager: 2004).
Before the company can segment a market the types of markets existing need
to be understood in relation to the product the company sells.
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• The reseller market
Middlemen or intermediaries, such as wholesalers and retailers, who buy
finished goods and resell them for a profit.
Once the company has established the market type, the target market can be
identified (Kanuk and Schiffman, 1994:48).
Boshoff et al (2002:140), state that the first step in identifying the company
target market is through understanding what products/services the firm have to
offer to a group of people or businesses. To do this, the company has to
identify their product or service's features and benefits. A feature is a
characteristic of a product/service that automatically comes with it. While
features are valuable and can enhance the product, benefits motivate people to
buy. By knowing what the product/service has to offer and what will make
customers buy, the company can begin to identify common characteristics of
their potential market. For example, there are many different consumers who
desire safety as a benefit when purchasing a car. Rather than targeting
everyone in the promotional strategy, a car manufacturer may opt to target a
specific group of consumers with similar characteristics, such as families with
young children. This is an example of market segmentation (Smith, 2003:30).
It is a natural instinct for business to want to target as many people and groups
as possible. However, by doing this their promotional strategy will never talk
specifically to any one group, and they will most likely turn many potential
customers off. Their promotional budget will be much more cost effective if they
promote to one type of customer and speak directly to that audience. This
activity allows the firm to create a highly focused campaign that will directly
meet the needs and desires of a specific group. This is called market
segmentation (Kotler, 2000:255).
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Segmentation will help companies customize a product/service or other parts of
a marketing mix, such as advertising to reach and meet the specific needs of a
narrowly defined customer group. Another example of market segmentation is
the athletic shoe industry. Major manufactures of athletic shoes have several
segmented markets. One segment is based on gender and the other segment
is based on the type of sport or activity. They have different promotional
campaigns for each segmented market (Boshoff et al, 2002:142).
According to Kotler (2000:257), larger markets are most typically divided into
smaller target market segments on the basis of the following characteristics:
• Geographic
• Demographic
• Psychographic
Many businesses offer products based on the attitudes, beliefs and emotions of
their target market. The desire for status, enhanced appearance and more
money are examples of psychographic variables. The above are the factors
that influence your customers' purchasing decision. A seller of luxury items
would appeal to an individual's desire for status symbols.
• Behaviouristic
Products and services are purchased for a variety of reasons. Business owners
must determine what those reasons are. Examples would be: brand, loyalty,
cost, how frequently they use and consume products, and time of the year. It is
important to understand the buying habits and patterns of the customers.
Consumers do not rush and buy the first car they see, or the first sofa they sit
on. A Fortune 500 company doesn't typically make quick purchasing decisions
(Kotler, 2000:257).
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enough money to purchase their offering or if they are in a location that is
accessible to the product. Most businesses then use the psychographic and
behaviouristic factors to construct a promotional campaign that will appeal to
the target market (Kotler, 2000:257). The purpose of market segmentation is to
identify marketing opportunities. This involves a segmented process, which is
now described.
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Step 5: Profile and analyse homogeneous segments
The profile of individual segments should include the segments’ size, expected
growth, purchase frequency, current brand usage, brand loyalty, and long-term
sales and profit potential.
• Concentration strategies
A concentration strategy is when a single segment is targeted with a one
marketing mix. The marketing mix consist of:
• Pricing strategy,
• Promotional program aimed at everybody,
• Type of product with little/no variation, and
• Distribution system aimed at entire segment.
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As each strategy has advantages and disadvantages. The concentration
strategy are addressed below:
• Advantages include:
- It allows a firm to specialize in a specific market,
- A firm can focus all energies on satisfying one group's needs, and
- A firm with limited resources can compete with larger organizations.
• Disadvantages include:
- The firm puts all of its eggs into one basket,
- Small shift in the population or consumer tastes can greatly affect the
firm, and
- The firm may have trouble expanding into new markets (especially up-
market).
• Multi-segment strategy
A multi-segment strategy is when two or more segments are sought with a
marketing mix for each segment and a different marketing plan for each
segment. This approach combines the best attributes of undifferentiated
marketing and concentrated marketing. Undifferentiated marketing is when a
single marketing mix is used for the entire market.
There are also advantages as well as disadvantage for this strategy. These are
now addressed.
• Advantages include:
- To shift excess production capacity, to amplify it,
- The firm achieve same market coverage as with mass marketing,
- Price differentials among different brands can be maintained,
- Consumers in each segment may be willing to pay a premium for the
tailor-made product, and
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- There is less risk thus the firm does not rely on one market.
• Disadvantages include:
- Demands a greater number of production processes.
- The process involves more costs and resources and increased
marketing costs due to selling through different channels and promoting
more brands, using different packaging.
- The firm must be careful to maintain the product distinctiveness in each
consumer group and guard its overall image.
2.3 TARGETING
Targeting the market is simply defining who the primary customer will be. The
market should be measurable, sufficiently large and reachable (The Manager:
2004). Market targeting involves evaluating each market segment's
attractiveness and selecting one or more segments to enter. An organization
should target segments in which it can generate the greatest customer value
and sustain it over time. An organization with limited resources might decide to
serve only one or a few special segments. Or, an organization might choose to
serve several related segments - perhaps those with different kinds of
consumers but with the same basic wants. Alternatively a larger organization
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might decide to offer a complete range of services and memberships to serve
all market segments (Kanuk and Schiffman, 1994:46). According to Solomon
and Stuart (1997:277), the decision process involved in evaluating whether it is
worthwhile entering a market is more complex than simply quantifying demand
and estimating market share.
Boshoff et al (2002:143), say that there are three general strategies to select
the target market. These are undifferentiated, concentrated, and multi-
segment/differentiated targeting strategy, illustrated by figure 2.2 and amplified
below:
A B
B B B
C B
D B
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• Concentrated targeting strategy
Boshoff et al (2002:143) are of the opinion that, with the concentrated targeting
strategy, a niche market (one segment of a market) is selected to target market
efforts. Appealing to a single segment presents the opportunity of concentrating
on understanding the needs, motives and satisfactions of that segment’s
members and on developing and maintaining a highly specialised marketing
mix. A strong knowledge of the segment’s needs knowledge is gained and a
strong market presence is achieved. The company can also enjoy operating
economies through specialising its production, distribution, and promotion.
Because the product offering is aimed at one market segment only, it could be
fair to argue that the enterprise will also be able to achieve greater customer
satisfaction in this singular market segment (Cant et al, 2002:187). A high
return on investment can be earned if a firm captures segment leadership. For
example Dunhill operates only at the high-priced, luxury end of its markets
(Kotler, 1999:275).
A concentrated strategy can also be disastrous for a firm that is not successful
in its narrowly defined target market. It also carries a very significant risk in that
the market niche may dry up or be attacked (Boshoff et al, 2002:145). Cant et
al (2002: 187) hold that the big disadvantage is that all efforts are then
concentrated on one source. This means that the risk of product failure and
non-acceptance of the product is thus concentrated in a single target market.
Should the preference of the target market change, or should competitors enter
the market with improved product, the company may lose the business.
• Multi-segment strategy
Multi-segment targeting strategy transpires when a company chooses to serve
two or more well defined market segments and develops a distinct marketing
mix for each. Different promotional appeals, rather than completely different
marketing mix, as the basis for a multi-segment strategy are used. The basic
marketing strategy (e.g. for the soft drink manufacturer-the shape of the bottle,
the distribution strategy, the price strategy) remains the same. The basic
product may be similar, but the names and product attributes are designed to
31
meet different wants. Some of the benefits that can be gained from this strategy
are greater sales volumes, higher profits, larger market share, and economies
of scale in manufacturing and marketing. However, the strategy implementation
involves high costs (Boshoff et al, 2002: 145).
The multi-segmented strategy is similar to the differentiated strategy, which
means that the company offers different things to different segments (Randall,
2003:124). This strategy allows the company to cater for the diverse needs of
the different segments. It is, however, a costly strategy. An example is the Ford
Motor Company, which today has a model for almost every segment in the
market. Such an approach can produce higher total sales than an
undifferentiated strategy, but there are risks of eating away the sales
(cannibalisation) and reducing profitability (Cant et al, 2002: 187).
• Single-Segment Concentration
This single-segment concentration targeting is the same as the concentration
strategy mentioned above.
• Selective Specialisation
This pattern is also similar to multi-segment strategy, whereby a number of
segments are selected. Each would be objectively attractive and appropriate.
Selective specialisation is choosing a few segments unrelated to each other.
• Product Specialisation
In this pattern, the company specialises in making a certain product that it sells
to several segments. For example, the company makes different microscopes
for different customer groups but does not manufacture other instruments that
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laboratories might use. Through a product specialisation strategy, the firm
builds a strong reputation in the specific product area. Product specialisation
means marketing a particular type of product or service that all segments want.
• Market Specialisation
With this pattern the company concentrates on serving many needs of a
particular customer group. An example would be a company selling all the
laboratory instruments and equipments to university laboratories. The company
gains a strong reputation in serving this customer group and becomes a
channel for further products that the customer could use. The downside is the
risk that the customer may have its budget cut. Market specialisation is
focusing on a segment and offering the entire product or services that is
required by that market.
Which strategy a company chooses will depend partly on its strengths and
weaknesses. Smaller companies are more likely to be able to implement a
concentrated strategy. While companies, which are, flexible and innovative may
be better able to cover many segments with a differentiated strategy in a
manner superior to the monolithic and rigid companies (Randall, 2001:125).
33
2.4 SUMMARY
In this chapter the researcher introduced and defined the concept of market
segmentation. The rationale underpinning segmentation and the criteria to do
so were expanded. The discussion also included the characteristics and steps
involved in segmenting markets. The different kinds of segmentation and
targeting strategies, al. The above information enabled a firm to define and
measure its chosen market segment and establish if it would be sustainable on
an ongoing basis.
Having isolated its potential and established its financial worthwhileness, the
next challenge for the firm would be to differentiate its offerings from those of its
competitors and to position itself strategically. This topic is addressed in the
following chapter.
34
CHAPTER 3
POSITIONING
3.1 INTRODUCTION
In chapter two the researcher elaborated on how companies can divide their
markets into subsets (segmenting) and how to define their primary customers
(targeting). The aim of this chapter is to outline how firms can position
themselves or their product in the minds of customers.
Once the organisation has decided which market segments to enter, they must
decide what position they want to occupy in those segments. The organisations
position is the place it occupies relative to its competitors in the mind of
customers. Ultimately it is the consumer who dictates whether to support a firm
or not. If an organization offers services or attractions exactly like another in the
market, consumers would have no reason to support it (Campagne Associates,
2004).
There are two types of positioning, namely market and product positioning:
• Market positioning
Market positioning is arranging for an organization or its services to occupy
a clear, distinctive, and desirable place in the minds of target consumers
relative to competing organizations. Thus, firms should plan positions that
35
distinguish their organisation from competitors and which give them a
strategic advantage (Croft, 1994: 58).
• Product positioning
Product positioning refers to the way customers perceive a product in terms
of its characteristics and advantages and its competitive positioning. It
involves the creation, in the minds of the targeted buyers, of a distinctive
position with regard to the organisation’s product relative to the products of
competing organisation (Cant et al, 2002: 188).
3.2 DIFFERENTIATION
36
• Sustainability
Can the company sustain the advantage over an extended period of time? If
not, it is not competitive advantage.
• Cost effective
Can the company manufacture and market the product at a price a
consumer will be prepared to pay? If not, it is not a competitive advantage.
• Profitability
Is it profitable? If not it is not a competitive advantage.
If the answers to these questions are yes the differentiating variable can be
described as a competitive advantage and it can form the basis of the
subsequent positioning strategy. Normally consumers opt for those products
that provide them with the most value to maximise their need satisfaction. It is
therefore important that the company understands the needs and shopping
processes of the potential buyers (Boshoff et al, 2002: 155).
The number of differentiation opportunities varies with the type of industry, says
Kotler (2003:286) as well as Boshoff et al (2002: 155). There are four basic
types of industries, which are:
• Volume industry
In volume industry, companies can gain only a few, but rather large,
competitive advantages. This is where the company strives for a low-cost
position or a highly differentiated position and benefits largely on either
basis. Profitability is correlated with company size and market share.
• Stalemated industry
There are few potential competitive advantages and each is small. For
example in the steel industry, it is hard to differentiate the product or
decrease manufacturing cost. Profitability is unrelated to company market
share.
• Fragmented industry
In this instance where companies face many opportunities for differentiation,
but each opportunity for competitive advantage is small. As an example
both large and small restaurants can be profitable or unprofitable.
37
• Specialised industry
In this situation one in which companies face many differentiation
opportunities, and each differentiation can have a high payoff. Among
companies making specialised machinery for selected market segments,
some small companies can be as profitable as large companies.
Competitive advantages can unfortunately have a limited lifespan for any firm.
Some differential advantages are quickly copied or limited by competing
companies. For a company to retain the initiative that flows from its competitive
advantage it is necessary to continue identifying new potential advantages for
consumers and then introduce them one by one to keep competitors off
balance. The intention is thus to introduce a series of advantages that will
enhance a company’s position; and hopefully market share, over time (Boshoff
et al, 2002: 155).
Boshoff et al (2002: 155) says that a company can differentiate its product from
that of its competitors in a number of ways. The typical bases available to a
company for differentiation are related to the product’s features or attributes,
accompanying services, personnel and image.
38
their products from those of competitors. The distinctions can be either real or
perceived. A company has the choice to offer either a standardised product or
a product that is highly differentiated. Although standardised products such as
steel are difficult to differentiate, some companies manage to differentiate
successfully. There are products that can be differentiated along a range of
characteristics. Boshoff et al (2002: 157) state that major characteristics utilised
for product differentiation are as follows:
• Features
Features are product characteristics that enhance the product’s basic
functioning. For example motor vehicle manufacturer can offer automatic
transmission or air conditioning as a feature. Features are competitive tools
that can be employed to differentiate a firm’s product. To add features to the
product there are two steps that a company need to do:
- Firstly the company must find out from the recent buyers how they like
their products and what need to be added to improve the consumer’s
satisfaction, with the product, and
- Then decide which features they will add to their products (Kotler, 2003:
289).
• Performance
Performance refers to the levels at which a product’s primary characteristics
function/operate. An example is the personal computer where-by one firm
will position its products through having faster processing capabilities and a
larger memory than the counter-part. Here the firm must establish if offering
a product with greater performance will produce higher profit. If the market
allows them a higher premium due to high product performance than
competitors then this will be the way to go. This simply means the firm must
design a performance level appropriate to the target market and
competitors’ performance level (Kotler, 2003: 289).
• Durability
Durability is a measure of a product’s expected operating life under natural
or stressful conditions. This is valued attribute to certain products. An
example is the Volvo car manufacturer that claims that its cars have a long
lifespan. Similarly, the Duracell battery manufacturer claims that their
39
products have a long lifespan. Customers are most of the time willing to pay
more for such products (Kotler, 2003: 289)
• Reliability
Reliability is a measure of the probability that a product will not malfunction
or fail within a specified time period. Buyers will normally pay a premium for
more reliable products. An example is a Mercedes-Benz, which will be more
reliable when compared to Daewoo as perceived by most customers
(Kotler, 2003: 289).
• Repairability
Repairability is a measure of the probability of fixing a product that
malfunctions or fails. Ideal repairability refers to a situation where users
could fix the product themselves with little or no cost or time lost. This
situation is whereby a user can simply remove the defective part and
replace it with a new part (Kotler, 2003: 289).
• Style
Style is a subjective measure, which describes how the product looks and
feels to the buyer. Car buyers are normally prepared to pay a premium for
products that are attractively styled. Some products are yawn producing
rather than eye-catching. Exceptional styling has the advantage of creating
product distinctiveness that makes it hard for competitors to copy.
Packaging is also a component of the style of consumer products (Kotler,
2003: 289).
• Reseller brands
Marketing an own brand has the advantage of being able to establish a
label that ensures continuity at a specific quality level. An example is a
Woolworth that offers the consumer a fashionable assortment of
merchandise at a consistent value-for-money price. Pep Stores on the other
hand supplies the lower part of the market (Boshoff et al, 2002: 158).
• Product range
The product range offered by the company is an important source of
differentiation. In retailing the company can offer a product range that is
basic and low in fashion content as is done by Pep Stores (Boshoff et al,
2002: 158).
40
3.2.1.2 Accompanying services differentiation
When the physical product cannot easily be differentiated, the key to
competitive success may lie in adding valued services and improving their
quality. Those services that accompany a product can also be used to
differentiate the product offering (Buss and Day, 1995: 149). The major service
variables are described below:
• Delivery
Delivery refers to how well a service or product is delivered to the customer. It
includes speed, accuracy and care attending the delivery process. An example
would be a guaranteed fast delivery service as a basis of differentiation for
bigger household appliances (Kotler, 2003: 289).
• Installation
Installation refers to the work done to make a product operational in its planned
location. It includes all the activities that have to be undertaken to make a
product function. An example would be the assembly for a product that need to
be installed properly before it can function. This would present an opportunity
for differentiation (Buss and Day, 1995: 149).
• Customer training
Customer training refers to the training of the customer or customers’
employees to use the firm’s equipment properly and efficiently. This type of
training can used as a differentiation mechanism for a company (Kotler, 2003:
289).
• Consulting service
Customer consulting is advice, data, and information systems offered to buyers
of a product for free or at a low price. This consulting can be done prior or after
the buying of the product (Boshoff et al, 2002: 158).
• Maintenance and Repairs
Maintenance and Repair refers to the quality and variety of maintenance and
repair services available to the buyers of the firm’s product. For motor vehicle
manufacturers and various other products manufacturers, maintenance and
repairs are offered as a part of the product guarantee (Kotler, 2003: 289).
41
3.2.1.3 Personnel differentiation
Companies can gain a strong competitive advantage by carefully selecting and
training people to be more competent than the staff of the competitors. Most
well known firms invest a lot in their staff to ensure that they are customer-
orientated and courteous. Boshoff et al (2002: 158) state that according to
research, better-trained people exhibit the following six characteristics:
• Competence
Competence is the possession of the required skill and knowledge by the
employee.
• Courtesy
Courtesy is when employees show friendliness, respect and consideration
when talking to customers.
• Credibility
Credibility is when employees are trustworthy to the company and
customers.
• Reliability
Reliability is when employees show consistency and accuracy in the
performance of the service they perform.
• Responsiveness
Responsiveness is when employees respond quickly to customer’s requests
and problems.
• Communication
This is when the employees make the effort to understand and
communicate clearly with the customer.
3.3 POSITIONING
44
• Price and quality
This positioning base can focus on high price as a signal of quality or
emphasise low price as an indication of value. Alfa Romeo and Michel Herbelin
watches are all positioned as expensive but high quality products.
• Use of application
Stressing the uses or the application can be an effective means of positioning a
product. Orange juice, for example is often positioned as a breakfast drink.
• Product user
This positioning base focuses on a personality or type of user. For example
Sport and Surf is a retailer where the real surfer shops.
• Product class
The objective here is to position the product as being associated with a
particular category of products. An example is to position a margarine brand
relative to butter.
• Competitor
Positioning against competitors is part of any positioning strategy. An example
is the Avis car rental, which has positioned itself against its competitors.
• Origin
Some firms want to be associated with a certain geographical region or origin.
An example is the Scotch whisky.
45
Once the base has been clearly established by the company, there is a process
that is normally followed to position a product. The process will be discussed in
a following section.
46
Step 4: Analyse the intensity of a brand’s current position
When a consumer is unaware of a brand, such a brand cannot occupy a
position in the mind of the consumer. Therefore brand awareness must first be
established. However, when a consumer is aware of a brand, the intensity of
awareness may vary. When there are more than 20 brands in the product
class, the awareness set for that product class might be as little as three or
fewer brands. This simply means that the company with a lesser-known brand
must increase the intensity of awareness by developing a strong relationship
between the brand and a limited number of variables. It is not advisable to
compete directly with dominant brands, instead the company must target a
market that is not dominated by strong brands (Cant et al, 2002: 191).
47
When the process of positioning has been followed to or the methods that will
be used need to be considered as well. These will now be addressed.
There are seven distinguishable positioning methods (Cant et al, 2002: 191):
• Attribute positioning
The firm can position itself in terms of one or more attributes or features.
Benson and Hedges has chosen to position its cigarettes in terms of lightness
and taste.
• Benefit positioning
This positioning method emphasises the unique benefits that the firm or
product offers its customers. Gillette Contour blades promise a closer shave.
• Use/application positioning
A firm can position itself or its products in terms of the product use or
application possibility. Graca wine is positioned as a wine to be enjoyed at all
kinds of fun occasions.
• User positioning
The firm may position their products with their users in mind. Marketers of
bungee jumping can position their market offering to appeal to thrill-seekers.
• Competitor positioning
Some products can best be positioned against competitive offerings. BMW
finds it useful to position their cars directly against that of Mercedes-Benz.
• Product category positioning
A firm can position itself in a product category not traditionally associated with
it, thereby expanding business opportunities. A museum may position itself as
a tourist attraction.
• Quality/price positioning
The firm may claim their product is of exceptional quality, or the lowest price.
Edgars might be known for high quality garments while Pep Stores is known for
unbeatable prices.
48
3.3.4 Positioning errors
As companies increase the claims for their brand, they risk disbelief and a loss
of clear positioning. In general, a company must avoid four major positioning
errors (Kotler, 2000:300). These are briefly mentioned below:
• Under positioning
Under positioning is when buyers have only a vague idea of the brand. They
see the brand as just another entry in the market place. Buyers cannot relate
the positioning method with the benefit they gain from the product .
• Over positioning
Over positioning is when buyers have too narrow an image of the brand. That
means buyers may think diamond rings at Tiffany start at R5 000 when they
actually start at R1 000.
• Confused positioning
With confused positioning, buyers have a confused image of the brand
resulting from the company’s making too many claims or changing the brand’s
positioning strategy. Therefore the company needs to confines the number of
strategies they use.
• Doubtful positioning
Doubtful positioning is when the buyers find it hard to believe the brand claims
in view of the product’s features, price, or manufacturer. What the company
claims about the product must be in line with the manufacturer capability, price
and the product attributes/features.
Once the company has clearly established the positioning strategy that it will
adopt, that positioning must be effectively communicate to buyers/consumers.
How it is communicated will depend on the strategy adopted. For example,
quality is communicated by choosing those physical signs and cues that people
normally use to judge quality (Kotler, 2000:300).
49
3.4 SUMMARY
In this chapter, the researcher emphasised how the company can differentiate
itself or its product offerings from that of competitors. Once the company has
identified its competitive advantage it then needs to position itself or its product
in the mind of the consumers or buyers.
In the next chapter the researcher outlines the empirical study. This includes a
discussion on the research design, methodology used and the construction of
the questionnaire.
50
CHAPTER 4
4.1 INTRODUCTION
51
the use of such data in achieving the final outcome of the research project
(Leedy, 2001: 91).
The data was collected from the Nelson Mandela Metropolitan, which consists
of Port Elizabeth, Despatch and Uitenhage. The main objective of the study
was to establish if small engineering companies apply the principles of
segmenting and targeting of their markets as well as positioning concepts.
The research method that was followed included a literature study and an
empirical study. These were employed to solve the main and sub-problems as
stated in chapter one. The following broad procedure was followed:
• Literature survey
A literature survey was conducted to determine what the marketing gurus are
saying about the methods that companies normally follow to segment and
target the market as well as positioning of the companies. The objective of the
literature survey was to provide a theoretical framework of guidelines that can
serve as a basis for the evaluation of companies.
52
• Literature overview
Guidelines for evaluation of companies were identified from the literature. The
literature study underlined the importance of segmenting and targeting of
markets and the positioning of the company or products.
• Empirical study
The researcher obtained the empirical data by means of personal interviews in
order to measure the extent to which the companies adhere to the theoretical
framework. A personal interview, in the form of a questionnaire, was drawn up
by the researcher and was conducted among owners and mangers of forty
firms. The reason for choosing the above-mentioned owners and managers
was because they are responsible for ensuring that the company gets
customers and prospers. Therefore they are the ones who know what attracts
customers to their company.
• Integration of results
The empirical and the literature findings were integrated into a proposed
guideline for the small engineering companies and other companies supplying
customised products and who are striving to group their target markets and
distinguish themselves from their competitors.
53
4.4 QUESTIONNAIRE CONSTRUCTION
Other information that the researcher found necessary to include was the age
of the business, the number of employees, turnover and the reason for starting
the business. This information assisted in identifying the differences that exist
amongst the companies in the way they operate.
54
that suited his /her opinion and in some cases an explanation was needed to
expand the choice. The researcher grouped the questions for the managers
and owners into two specific sequences, namely segmenting and targeting of
markets, and positioning of companies or products. This sequence was
purposefully done to ensure that the managers and owners respond precisely
and completed to the questions. The respondents had to complete a
questionnaire consisting of fifty-four statements.
In each meeting the researcher explained in detail the reason for the interview
and the importance of the response by the interviewee. To avoid interference
with the response or any influence that would pre-empt responses, the
researcher adhered strictly to the prepared questionnaire and minimal
expansion/explanation were provided. After completion of the questionnaires
the data was recorded and tabulated on the computer programme, Microsoft
Excel.
55
4.4.3 Measuring instrument
The researcher then analysed the data according to segmenting and targeting
concepts, and the positioning of companies or products concepts.
The researcher targeted the managers or owners running the company. The
decision to target the manager or owners of the companies was based on the
assumption that they were the people with the authority as well as the
knowledge of the company’s environments and performance.
Due to the interview format that was used, the researcher had to document the
name and the title of the respondent. The intention was ensure that the
researcher is able to give feedback to the respective companies that are
interested in the outcome of the study. No pressure or force was used on the
respondent to take part in the empirical study. The companies had a choice to
agree or not to agree to take part in the study.
The aim of the pilot study was to ensure that all questions were understood to
all parties involved and that they were relevant to the research programme. A
56
pilot study ensures clear and unambiguous questions (Calitz, 2001:76). This is
done through administering the questionnaire to a small sample of subjects
drawn from the same group as those that will be administered for the final
version (Gofton & Ness, 1997:110).
Four companies were pilot tested. Two involved interviewing owners and two
surveying managers. After the pilot study the questionnaire was adjusted and
the final questionnaires were prepared and printed.
The integrity of the research depends on the validity and reliability of the study,
as stated by Leedy (2001:31). Leedy describes the two concepts as follows:
• Validity
Validity measures the extent to which the instrument measures what it is
supposed to measure. There are various types of validity methods used.
Examples are:
- Face validity: This relies on the subjective judgement of the
researcher and refers to whether the statements are appropriate.
- Criterion validity: Validity is determined by relating performance
on one measure to performance on another measure, set as
standard against which to measure the results.
- Content validity: The accuracy with which the instrument
measures the factors in research.
- Internal validity: This validity can be seen freedom from bias in
formulating conclusions, based on the data received.
- External validity: This validity is the degree in generalising the
conclusions reached in research.
• Reliability
Reliability is the consistency with which a measuring instrument yields certain
results when the entity being measured has not changed (Leedy, 2001:31).
57
The researcher (to evaluate the small engineering companies) used
segmentation, targeting and positioning concepts as mentioned earlier, the
questionnaire was drafted from the literature review. For that reason the
researcher believes that the results from this analysis are consistent and
therefore the measuring techniques is reliable.
4.5 SUMMARY
In this chapter the researcher explained the research methodology used. That
includes the construction of the questionnaires, the administration of
questionnaires, the measuring method and the pilot study. The purpose of the
questionnaire was to establish if small engineering companies apply
segmenting, targeting and positioning concepts in their operations.
In the next chapter, detailed analyses of the responses are made and the
findings are tabulated.
58
CHAPTER 5
5.1 INTRODUCTION
In chapter four the researcher discussed the research methodology, design, the
construction of the questionnaire and concluded with the pilot study.
The aim of this chapter is to analyse and interpret the results of the survey. The
median, average and percentage of the responses were calculated.
Forty companies were chosen at random from the Eastern Cape Manufacturing
Advisory Centre (ECMAC) database of the engineering companies for the
interview. Appointments were made by the researcher to meet with the person
running the company. The researcher made appointments by phoning the
company and explaining the purpose of the meeting.
59
reasons for starting a business). The concepts application (includes
segmenting and targeting of markets as well as positioning of companies and
products) was also discussed.
STATEMENT 1
80 75
70
Percentages (%)
60
50
40
30 25
20
10
0
Manager Manager/Owner
Title of respondent
From all the respondents, employed managers run 25% of companies while the
owners run 75%. The reason being that most owners are under the
impressions that no one will run their companies better than themselves.
60
Statement 2: Qualification
Diagram 5.2
Statement 2 Manager Both
Matric 50 5
Diploma 17 28
Degree 33 17
Other 50
Statement 2
60
5
50
Percentages (%)
40 17
Both
30 28
50 50 Manager
20
33
10 17
0
Matric Diploma Degree Other
Qualifications
The response shows that of all employed managers 50% hold a matric
certificate, 33% hold a degree and 17% hold a diploma. On the other hand,
from owner/managers 50% hold other forms of qualification, which are a trade,
28% hold a diploma in engineering, 17% hold a degree and 5% hold a matric
certificate. These statistics indicate that the managers have to hold a certain
qualification to be employed while most owners are just using their trade
experience to run the business.
61
5.3.2 The firms background
The goal of statement three is to analyse the age of the business. Diagram 5.3
summarises the age of the business in the number of years in existence.
Statement 3
140
120
100 33
Percentages
80 Both
60 Manager
40 83
33
20 33
17
0 0
11> (6-10) (0-5)
Ages
The graph shows that companies ran by managers are equally spread in terms
of the percentages, which are 33% across the board. On the other hand, only
17% percent of companies in the 0-5 years old bracket are run by managers
and 83% of companies above eleven years old. The companies above eleven
years old were initially run by owners but now have ventured into something
different.
The aim of statement four is to analyse the turnover of the businesses run by
managers as opposed to those ran by owners. Diagram 5.4 summarises the
results of the turnovers.
62
Statement 4: Turnover of the business
Diagram 5.4
Statement 4 Manager Both
(4-7) 100 33
(2-3) 0 45
(0,5-1) 0 22
Statement 4
140
120 33
Percentages (%)
100
80 Both
60 Manager
100
40
20 45
22
0 0 0
(4-7) (2-3) (0,5-1)
Turnover
The response shows that 100% of companies run by managers are turning
over between R4 and R7 million as opposed to only 33% of companies run by
owners. It also shows that 45% of companies run by owners are turning over
between R2 and R3 million; and 22% are turning over between R0,5 and R1
million. The difference is because companies running at R4 to R7 million
demand a dedicate person to take it forward and also the owner can afford
such a person.
63
Statement 5: Number of employees
Diagram 5.5
Statement 5 Manager Both
10+ 83 66
(6-10) 17 17
(0-5) 0 17
Statement 5
160
140
Percentages (%)
120 66
100
Both
80
Manager
60
40 83
20 17
17 17
0 0
10+ (6-10) (0-5)
Employees
64
Statement 6: How do you pick/select your customer?
Diagram 5.6
Statement 6 Manager Both
No rule 33 61
Product/service 67 39
Market research
Other
Statement 6
120
100
Percentages (%)
39
80
61 Both
60
Manager
40
67
20 33
0
No rule Product/service Market research Other
Rules
The response shows that 61% and 33% of companies run by owners and
managers respectively have no rule to select customers. While 39% and 67%
of companies run by owners and managers respectively select customers
based on the product or service they offer. This shows more companies ran by
owners have no selection rules as compared with companies run by managers.
The opposite holds for companies with selection rules. This is because owners
running the company want to cater for all engineering demands.
The aim of the statement seven is to analyse the criteria used to group the
types of customers the firm would like to serve. Diagram 5.7 summarises the
criteria applied.
65
Statement 7: What criteria do you apply?
Diagram 5.7
Statement 7
120
100
Percentages (%)
44
80
Both
60 56
Manager
40
67
20 33
0
Product/ Nothing Location Company Other
Service size
Criteria
The graph shows that 67% of companies ran by managers use the product or
service offered as a selection criteria for grouping customers as opposed to
44% of companies run by owners. Companies that have no criteria for selecting
customers are represented by 56% of firms run by owners and 33% run by
managers. This shows that more companies run by managers have a selection
criteria as opposed to more companies owned by managers that have no
selection criteria. These findings tend to indicate that companies run by
owners are generalist in terms of product offerings.
66
Statement 8: Do you quantify how many potential customers exist in the
nearby area?
Diagram 5.8
Statement 8 Manager Both
Yes 17 28
No 83 72
Statement 8
120
100
Percentages (%)
80
72 No
60 83
Yes
40
20
28
17
0
Manager Both
Authorities
The goal of statement nine is to analyse the basis that companies use to group
or segment their market. Diagram 5.9 summarises the results.
67
Statement 9: On what basis do you group or segment your market?
Diagram 5.9
Statement 9
140
120
Percentages (%)
100 33
80 Both
60 Manager
40 83
20 50 17
17
0
Geographic Demographic Psychographic Behavioristic
Basis
68
Statement 10: Do you try to establish if the segment you select will be
sustainable?
Diagram 5.10
Statement 10
120
100
Percentages (%)
80
67 61 No
60
Yes
40
20 33 39
0
Manager Both
Authorities
Responses shows that 67% of companies run by employed managers and 61%
of companies run by owners do not establish the sustainability of segments.
This means only 33% of companies run by managers as well as 39% of
companies run by owners try to establish the segment sustainability. This data
could be interpreted that both companies run by managers and owners supply
automotive related companies and the assumption is that their market is
sustainable.
The objective of statement eleven is to analyse what customers buy from the
small engineering companies, whether it is product or service. Diagram 5.11
summarise the results.
69
Statement 11: What do your customers buy?
Diagram 5.11
Statement 11
180
160
Percentages (%)
140
120 83
100 Both
80 Manager
60
40 83
20 17
17
0
Product Service Both
Offerings
The result shows that customers of 83% of both companies run by managers
and owners buy products. While 17% of both companies run by managers and
owners sell combined product and service to customers. These findings imply
that they offer same type of products and services to customers.
70
Statement 12: Which product do you supply?
Diagram 5.12
Statement 12
120
100
Percentages (%)
80 Other
60 General
100 100
40 Customised
20
0
Manager Both
Authorities
The graph shows that 100% of both companies run by managers and owners
supply customised products. There is no difference because engineering
companies serve same type of customer base.
71
Statement 13: Which service do you provide?
Diagram 5.13
Statement 13
120
100
Percentages (%)
80 Other
60 General
100 100
40 Customised
20
0
Manager Both
Authorities
This result also shows that both companies run by managers and owners offer
customised services. There is no difference again because engineering
companies serve the same type of customer base.
72
Statement 14: What determines which products or services you provide?
Diagram 5.14
Statement 14
250
Percentages (%)
200
150 100 Both
100 Manager
50 100
0 Combination
Other
Competitor
Customer
Market
needs
requests
Determinants
The results shows that 100% both of companies run by managers and owners
offer products according to customer request. There is no difference because
they both serve same type of products to same types of customers.
73
Statement 15: Do you ever contact a customer to establish if they need
new or modified products?
Diagram 5.15
Statement 15
120
100
Percentages (%)
80
No
60 83 78
Yes
40
20
17 22
0
Manager Both
Authorities
The results show that 83% of companies run by managers and 78% of
companies run by owners do not offer product development to customers. The
response indicates that they offer customised products and services to
customers.
The goal of statement sixteen is to analyse if the companies supply the same
product or service to customers. Diagram 5.16 summarise the results.
74
Statement 16: Do you tend to supply the same product or service to your
customers?
Diagram 5.16
Statement 16
120
100 100
100
Percentages (%)
80
Yes
60
No
40
20
0
Manager Both
Authorities
The result shows that 100% of companies run by both managers and owners
supply the same products to customers. This is because they both supply
customised products.
The aim of statement seventeen is analyse if the companies tend to supply new
products. Diagram 5.17 summarise the results.
75
Statement 17: Do you tend to supply the new product to your customers?
Diagram 5.17
Statement 17
120
100
Percentages (%)
80
No
60 83
94 Yes
40
20
17
0 6
Manager Both
Authorities
The results summarised in the graph show that 83% of companies run by
managers as well as 94% of companies run by owners do not supply new
products. It is only a minority that does. This reinforces the fact that companies
supply customised products.
76
Statement 18: Do you specialise in a specific field of product offerings?
Diagram 5.18
Statement 18
120
100 100
100
Percentages (%)
80
Yes
60
No
40
20
0
Manager Both
Authorities
The results show that 100% of both companies run by managers or owners do
specialise in certain field. This is due to the type of trade or technology the
company possesses as an asset.
77
Statement 19: If yes, in which field?
Diagram 5.19
Statement 19
35
30
30
25 25
Percentages (%)
25
20 20 20 20
20 Manager
15 15
15 Both
10
10
5
0
Assembly Fabrication Machining Tooling Combination
Fields
The result shows that the big differences appear only in fabrication and
combination. Fabrication is done by 15% of companies run by managers and
25% of companies run by owners. While combination is done by 30% of
companies run by managers and 10% of companies run by owners. This shows
that companies run by managers offer a combinations of fields to attract
different customers. Owners tend to focus on their speciality.
78
Statement 20: Is your company dependant on one or limited customers?
Diagram 5.20
Statement 20
120
100
Percentages (%)
80 33
67 No
60
Yes
40
67
20 33
0
Manager Both
Authorities
The results show that 67% of companies run by managers said no while 67%
of companies run by owners said yes. The difference might be attributed to the
fact that owners started a business focusing on one or limited customers and
therefore maintain that relationship. On the other hand companies run by
employed managers focus on increasing the customer database.
79
Statement 21: Do most of your sales come from one product?
Diagram 5.21
Statement 21
120
100
Percentages
80 50 56 No
60
Yes
40
20 50 44
0
Manager Both
Authorities
The graph shows that companies run by managers 50% said yes and the other
50% said no. While companies run by owners 56% said no and 44% said yes.
The difference is not large and could be attributed to the fact that they offer
similar types of products to similar customers.
5.3.4 Positioning
The goal of the statement twenty-two is to analyse if the companies have a
competitive advantage. Diagram 5.22 summarises the results of the rules used.
80
Statement 22: Do you feel that you have a competitive advantage?
Diagram 5.22
Statement 22
101
100
Percentages (%)
99
98
5
97 No
96 100 Yes
95
94
95
93
92
Manager Both
Authorities
The results shows that 100% of companies run by managers feel that they
have a competitive advantage while 95% of companies ran by owners feelthe
same way. The difference is not large because both companies feel that they
have a competitive advantage.
81
Statement 23: Do you specifically regard any of the following items as a
competitive advantage?
Diagram 5.23
Somewhat Not
Statement 23 Essential Important important important
Price 55 36 9 0
Quality 83 17 0 0
Product
attributes
Services
Other
Statement 23
90 83
80 Essential
Percentages (%)
70 Important
60 55
Somewhat important
50
36 Not important
40
30 17
20 9
10 0 00
0
Price Quality Product Services Other
attributes
Competitive advantages
The results show that price and quality are the key determinants of competitive
differentiation. Of the respondents that have chosen price, 55% feels that it is
essential while of the respondents that have chosen quality, 83% feels that
price is essential.
82
Statement 24: Is the item you selected in previous statement consistence
with what the customer want?
Diagram 5.24
Statement 24
120
100 100
100
Percentages (%)
80
Yes
60
No
40
20
0
Manager Both
Authorities
The response graph shows that 100% of both companies run by managers and
owners feels that the item they selected in previous statement is in consistence
with what the customer want. The selection was based on gut feel and
experience.
83
Statement 25: Is your competitive advantage cost effective?
Diagram 5.25
Statement 25
120
100 100
100
Percentages (%)
80
Yes
60
No
40
20
0
Manager Both
Authorities
In this analysis the results show that 100% of both companies run by managers
as well as companies run by owners felt that their mode of difference was cost
effective. That is because if the price favours the company then profit can be
made. With quality less rejects and less waste can be achieved.
84
Statement 26: Is your competitive advantage sustainable?
Diagram 5.26
Statement 26
120
100 100
100
Percentages (%)
80
Yes
60
No
40
20
0
Manager Both
Authorities
The results shows that 100% of both companies run by managers as well as
companies run by owners felt that their competitive advantage was sustainable.
The reason cited was that with competitive price relevant overheads could be
covered including marketing. When it comes to quality, the ISO 9000 quality
system can be used to sustain the quality of products and services.
85
Statement 27: Is your competitive advantage profitable?
Diagram 5.27
Statement 27
120
100 100
100
Percentages (%)
80
Yes
60
No
40
20
0
Manager Both
Authorities
In this analysis the results show that 100% of both companies run by managers
as well as companies run by owners felt that their competitive advantage was
profitable. A good price for a product or service offered means more profit.
Good quality means effective and efficient product and service delivery.
86
Statement 28: Is your product differentiated from that of your
competitors?
Diagram 5.28
Statement 28
120
100
Percentages (%)
80 50
No
60 78
Yes
40
20 50
22
0
Manager Both
Authorities
There was a split vote by companies run by managers. With firms run by
managers, 78% said yes and the remaining 22% reported no. The reason cited
for this difference was that products are differentiated in terms of durability due
to the quality of material used.
The goal of statement twenty-nine is to analyse how the companies rank the
order of importance of stated criteria to their target market. Diagram 5.29
summarise the results.
87
Statement 29: Rank the order of importance of the following criteria to
your target market?
Diagram 5.29
Somewhat Not
Statement 29 Essential Important important important
Price 67 29 4 0
Quality 92 8 0 0
Brand name 0 25 33 42
Packaging 4 50 42 4
After sales 4 16 50 30
Location 8 42 30 20
Payment terms 20 58 4 18
Other
Statement 29
120
Percentages (%)
100 0
4 0
8 4 Not important
30 20 18
80 29 42 42 4
30 Somewhat important
60
92 50 58 Important
40 33
67 50 42
20 Essential
25 16 20
0 0 4 4 8
r
it y
n
e
es
e
m
m
in
tio
ic
th
l
al
ua
Pr
ag
er
na
ca
O
rs
tt
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Pa
Af
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Criteria
Price and quality emerge as essential criteria that are important to target
markets. Payment terms, packaging and location are also seen as important.
After sales service is of lesser significance to customers and brand name
clearly emerges as the least significant.
88
Statement 30: Do you have direct competitors?
Diagram 5.30
Statement 30
120
100 11
Percentages (%)
17
80
No
60
Yes
40 83 89
20
0
Manager Both
Authorities
The graph shows that 83% of companies run by managers as well as 89% of
companies run by owners report having direct competitors. They only know
about their competitors through word of mouth or during the submission of
quotations or tenders.
89
Statement 31: Do you have indirect competitors?
Diagram 5.31
Statement 31
120
100
Percentages (%)
17
80 50
No
60
Yes
40 83
20 50
0
Manager Both
Authorities
The results show that firms run by managers are equally split in their idea of
indirect competitors. The majority of owner managers are aware of the indirect
competitors and only a mere 17% claim not to have indirect competitors.
90
Statement 32: What do you regard as your competitors’ best two strength
and weakness?
Diagram 5.32
Statement 32
50 46
42
Percentages (%)
40
30 25 25 Strength
17 17 17
20 13 13 Weakness
10
0
n
e
e
gy
er
tio
as
nc
tis
th
lo
ni
r
b
na
O
no
pe
og
er
Fi
ch
Ex
ec
Te
to
R
us
C
According to the results, the best two strengths are finance with 46% and
recognition with 42%. Core weaknesses reported equally significantly are
expertise, customer base and recognition.
91
Statement 33: What do you regard as your company’s’ core two strength
and weakness?
Diagram 5.33
Statement 33
80
Percentages (%)
70
60 17
50 17 17 Weakness
40 4
30 13 54 8 Strength
20 42 38 38
10 25 25
0
n
y
e
er
ce
se
og
o
s
th
ba
iti
n
rti
l
na
O
gn
no
pe
er
Fi
ch
o
Ex
om
ec
Te
R
t
us
C
From the analysis, the result shows that expertise and recognition are the key
strengths as voted by companies. Expertise, recognition and other (which is
business contact or Black Economic Empowerment (BEE)) all are voted equally
with 17% as major weaknesses. The elements with high ratings are regarded
as important strengths for companies.
92
Statement 34: Is customer relationship important to your business?
Diagram 5.34
Statement 34
120
100 100
100
Percentages (%)
80
Yes
60
No
40
20
0
Manager Both
Authorities
The graph shows that the 100% of both companies run by managers and
owners feel that customer relationships are important to their businesses.
Companies feel that through good customer relationships and a close
collaboration future business can be secured. Issues can also be resolved
before they escalate into problem situation.
93
5.4 SUMMARY
In this chapter the researcher analysed and interpreted the results of the
survey.
Each question was analysed, the results tabulated and bar charts drawn.
Chapter six will deal with the recommendations based on findings of the
literature study and the analysis of the data obtained through the survey.
94
CHAPTER 6
6.1 INTRODUCTION
In chapter five the empirical study was analysed statement by statement. The
result of each statement was tabulated and bar chart drawn to represents the
results. In this chapter, the researcher makes concluding statements and a
summary of the influence the person in authority’s background; the firm’s
background has in applying concepts and of analysis if small engineering
companies do apply the concepts (includes segmenting and targeting of
markets as well as positioning of companies and products). The chapter
concludes with recommendation for further research in the role customer
relationship play in ensuring continuous business for the small engineering
companies.
6.2 SUMMARY
The topic researched in this dissertation was “An evaluation of the use of
segmentation, targeting and positioning strategies by selected small, micro and
medium engineering manufacturing enterprises to sustain and grow customer
base.”
In chapter one the researcher identified and analysed the main and sub-
problems to segment and target the markets as well as to position the
engineering companies. Chapter two and three had a specific purpose, which
was to give an overview of related literature regarding segmenting and
targeting of markets and positioning of a company or products in a market.
Companies cannot meet or satisfy the need of all customers or markets. In the
competitive markets companies must position themselves in such a way that
they are differentiated from the rest of their competitors.
95
The engineering industry is very competitive and large. This simply means that
there are a number of potential customers and there is different product ranges
required. Engineering companies must understand the needs of different
customers and group them accordingly. In chapter two the researcher outlined
the theories about market segmentation and targeting. That simply means
according to the marketing gurus, the engineering companies must somehow
group customers according to similar needs. Once they have done that they
now have to establish which group they can serve based on their company
objectives, capability to meet the demands and the resources required.
One factor that can enable the companies to be able to segment markets is
research, whether formal or informal of the different customer needs has to be
taken. This will help the company to know their customers better. Chapter two
outlines the four basic criteria that the markets must satisfy, which are
sustainability; identifiability and measurability; accessibility and responsiveness.
It further mentioned the seven steps that can be followed to segment the
market.
Once the needs of different customers have been identified and grouped, one
or more groups have to be selected, which the company will focus on. That is
targeting of the market. In chapter two three types of marketing strategies are
discussed, which are undifferentiated, differentiated and concentrated strategy.
The empirical study shows that engineering companies apply undifferentiated
strategy, whereby the company makes a single offering to the entire market.
Through this strategy the company does achieve the economy of scale.
There are more than one companies offering the same product, the challenge
is how does a company win customers over the competitors. The company has
to appeal to customers in a different way, which means position the company
or its product in the mind of the consumers or customers. For the company to
be able to position itself in the mind of the customer, it must differentiate itself
or offerings from the rest of the competitors. Chapter three outlines the basis
that the company can use to differentiate itself. There are four bases, which are
96
product features, accompanying service, people and image. In case of a
commodity that a company supply as does the engineering companies,
accompanying services and people are the two recommended basis that
engineering companies can use to position itself. In chapter three the
positioning strategies or methods is discussed as well as the positioning
process. The empirical study shows that engineering companies use price or
quality as differentiation strategies.
The empirical study has indicated that the background of the owner and the
companies play a role in application of the segmenting and targeting of markets
concepts. More companies ran by managers do apply the concepts as opposed
by companies ran by owners. This leaves a question as to how does this
company retain old and attract new customer base.
Forty companies were selected for interview as highlighted in the chapter five,
only twenty-four companies responded and this represents sixty percent
response rate. The results showed that engineering companies especially
those ran by managers does apply some of the segmenting and targeting
concepts as well as positioning of a company or its products.
The empirical survey show that 75% of companies are ran by owners, figure
5.1. It also shows that more managers running the company are more qualified
than owners running the company see figure 5.2.
97
Survey also reveals that managers are running the company with a turnover
between R4 and R7 million, figure 5.4. Managers are mostly also running
companies with more than ten employees.
6.3.1.1 Responses
• Selection of customers:
Response shows that 39% and 67% of companies ran by owners and
managers respectively select customers based on product or service they offer.
On the other hand 61% and 33% of companies ran by owners and managers
respectively have no rule to select customers. However this means that more
companies are using basic rules to select customers as compared to others,
which are less when combined. The literature stipulates that consumers are not
alike and they do not have same needs. This simply means that companies use
a one standardised marketing strategy for all segments. It is therefore difficult
to assess whether they satisfy them or not. It is therefore necessary to segment
a market with a particular rule. In the diagram 5.7 the results shows that 67% of
companies ran by managers and 44% of companies ran by owners use product
or service offered as a selection criteria for grouping customers. This can be an
indication that owners use a gut feel to select customers as opposed to formal
marketing principle as implemented by managers. However there are 56% of
companies, ran by owners and 33% of companies ran by managers that do not
apply any criteria. However this can be debated as an undifferentiated
marketing strategy.
98
• What do customers buy:
The diagram 5.11 shows that customers are buying from majority of companies
a product and only few are offering a service. This simply means not much can
be done through the after sales service to enhance the product the company is
selling to a customer. Diagrams 5.12 and 5.13 illustrate that companies are
supplying a customised product and service to customers. This simply means
that product differentiation is not possible for these companies.
• Specialisation
The diagram 5.18 shows that all companies run by managers or owners do
specialise in a certain field. As discussed in chapter five the graph shows that
more companies run by owners tend to focus more on one speciality, which in
most cases is the trade possessed by the owner. These range from machining,
fabrication, tooling, assembly and combination of any two or more speciality.
99
6.3.2 Positioning of companies or products concepts
• Differentiation
Differentiation as defined by Kotler (2003:286) is the act of designing a set of
meaningful differences to distinguish the companies offering from competitors’
offerings. Diagram 5.22 shows that 100% of companies run by managers as
well as 95% of companies run by owners feel that they have a competitive
advantage. Quality received 85% and price followed with 55% of vote as an
essential item (see Diagram 5.23) that gives a company an edge over the
competitors. Diagram 5.28 shows that 78% companies run by owners and 50%
of companies run by managers feels that product are differentiated from that of
competitors. Company authorities feel that quality and price are more essential
while payment terms is important to the targeted market. This indicates that
companies do differentiate either by company image or product.
Companies regard expertise and recognition as the two core strengths as can
be seen in diagram 5.33. Other items such as customer base, finance and
technology follows with lower votes. Expertise, recognition and other that are
black economic empowerment (BEE) received 17% of votes each as a core
weakness. However companies used gut feel to votes for the strengths and
weaknesses while some companies does not have a clue, a more formal
company evaluation should be done to determine the company strengths and
weaknesses.
• Competitors
The diagram 5.30 illustrate that companies are aware of the direct competitors.
However when it comes to indirect competitors, managers running the
company split in to two halves, whereby the one half are aware while the other
half is not aware. There is no formal research done to establish the existence of
this competitors, it is mostly through the word of mouth or during the quotation
or tendering process. This indicates that more formal research is maybe
needed to clearly establish how many competitors do exist in the market.
100
The diagram 5.32 shows that companies feel that finance and recognition are
the two-core competitor’s strengths. While expertise, customer base and
recognition received equal votes of 17% each as a core weakness. The above-
mentioned recommendation still applies to competitors for more formal
research to be performed.
• Customer relationship
All companies feel that customer relationship gives preference over competitors
by customers, secure future business and ensures that potential problems are
discussed and solved in advance. This indicates that customer relationship is
important to companies.
101
REFERENCE LIST
Gofton, L. & Ness, M. 1997. Business Market Reseach. London: Kogan Page
Limited
102
Government Papers [Online]. 2004. Available WWW:
www.dti.gov.za/publications (accessed: 15 October 2004)
Gorton, K. and Carr, I. 1983. Low cost Marketing Research. The McGraw-Hill
Companies
Kotler, P. 2000 Marketing Management. 10th ed. Prentice Hall, Upper Saddle
River, New Jersey
Leedy, P. D. and Ormrod, J. E. 2001. Practical Research. 7th ed. Merill Prentice
Hall
Pattern, D. 1985. Successful Marketing for Small Business. Merill Prentice Hall
103
Randall G (2001). Principles of Marketing. Thomson Learning, Berkshire
House, London
Smith, P. R.: 2003. Great Answers to Tough Marketing Questions. 2nd ed.
Kogan Page, London and Sterlin
104
ANNEXTURE A
SECTION A
BIOGRAPHICAL INFORMATION
1. Name of business: _
2. Name of respondent: _
3. Address of business: __
1
12. How the business started (tick √): (What approach did you take to start your business?)
Start from scratch
Bought an existing business
Joint venture
SECTION B
SEGMENTATION AND TARGETING:
1.3Do you quantify how many potential customers exist in the nearby area? (tick √)
Yes
No
3.1 Do you try to establish if the segment you select will be sustainable? (tick √)
Yes
No
3.2 If yes:
How do you establish sustainability?
_
2
4. Services or product:
4.1 What do your customers buy? (tick √)
Product
Service
Both
6. Do you ever contact a customer to establish if they need new or modified products? (tick √)
Yes
No
SECTION C
POSITIONING:
1.2 In what way do you feel you are different to your competitors?
_
1.3 Do you specifically regard any of the following items as a competitive advantage? Rank in
order of importance? (tick)
Items Essential Important Somewhat Not
important important
Price
Quality
Product
attributes
Service
Other
1.4 Is the item you selected in 1.3 consistence with what the customer want? (tick)
Yes
No
Comment, how _
Comment, how _
4
1.7 Is your competitive advantage profitable? (tick)
Yes
No
Comment, how _
3 Rank the order of importance of the following criteria to your target market? (tick)
Criteria Essential Important Somewhat Not
important important
Price
Quality
Brand name
Packaging
After sales service
Location
Payment terms
Other
4 Competitors:
4.1 Do you have direct competitors? (tick)
Yes
No
5
5.2 Rank the best two strength selected in 5.1: (tick)
Important Not
important
Finance
Expertise
Customer base
Recognition
Technology
Other
Comment how, _
Comment how, _
Comment how, _