2 Market Segmentation, Targeting and Positioning
2.1 Segmentation
Market segmentation presents the first step in the marketing strategy preparation. In the segmentation process, the target market is divided into coherent, substantial, distinctive, relevant, accessible and actionable segments comprising consumers sharing common features and behavioural patterns diminishing customers' heterogeneity. (Dibb, 1998) Furthermore, organising consumers into segments imposes the requirements for marketing communication in order to reach a particular segment through media channels and messages. (Dibb, 1998; Král et al., 2016) Therefore, the establishment of effective marketing communication relies on the precise market segmentation since consumers within a given segment are expected to react to marketing communication and stimuli distinctively compared to other segments.
In order to segment the target market properly and thoroughly, segmentation is performed owing to the adopted geographic, demographic, socio-economic, behavioural and psychographic variables relevant for the product or service offered. (Pelsmacker et al., 2013, 122-3) Consequently, segmentation variables organized in the geographic, demographic and socio-economic sub-groups comprise solely descriptive data about consumers, which can be easily obtained from publicly accessible secondary sources, such as statistical offices or reports. However, these descriptive data neither influence consumer purchasing behaviour nor promote their inner motivation for the purchase. Therefore, distinguishing data points for the sub-groups mentioned above are utilised solely to create persona skeletons or so-called descriptive profiles, and particular skeletons should be subsequently prioritized in accordance with the company strategy. (Adlin and Pruitt, 2010) Contrary to descriptive variables, behavioural variables provide specific data about the target consumers. However, in order to obtain relevant data for these variables, primary research has to be conducted utilizing various qualitative, e.g. interviews, and quantitative
15 methods, e.g. questionnaire survey, implying increased expenditures. Moreover, collected personalised data provide detailed information regarding consumer inner motivation and purchasing behaviour inevitable for establishing the point of differentiation of a product or service compared to the competitors and for completing persona profiles. (Pelsmacker et al., 2013) These data can be further utilised along with the storytelling technique in the attractiveness of the market segment. (Pelsmacker et al., 2013) The segment attractiveness is objectively measured as a potential of a given segment to generate sales, and thus profit, in relation to other segments. The set of attractiveness determining factors has to be appointed specifically to the target market and further categorised into three groups, more precisely growth rate, accessible segment size and profit potential. However, in order to
16 design a sustainable strategy, the time horizon and informed predictions about the segment size have to be considered in the attractiveness evaluation. (McDonald, 2012)
Moreover, in order to facilitate and unify the market segmentation process, various groups and institutions established the segmentation frameworks. One of the most commonly utilised frameworks is the Values and Lifestyles segmentation framework, further VALS, established as a result of the cooperation of Berkley and Stanford universities. The framework proposes a division of consumers into eight categories considering their primary motivation (ideals, achievement or self-expression) and resources (psychological, physical, demographic and material means and individual capacities in terms of education, income, self-confidence, health and energy levels) as the empirically proven decisive factors determining consumer purchasing behaviour on the market. (Saputra, 2019; Strategic Business Insights, 2020)
Even though the distribution of consumers among the eight categories is market-specific, and therefore needs to be checked prior to the selection of the target segment in a particular market, the VALS framework is applicable internationally since all of the consumer groups are present in each market with the following consumers' characteristics (Strategic Business Insights, 2020):
Innovators - motivated by ideals, achievement and self-expression, abundant in resources, confident, conduct the highest number of transactions, active consumers, experiment, self-directed and future-oriented individualists with international exposure, always informed, consider R&D and science to be credible and reliable sources yet sceptical towards advertising, highly receptive to technological innovations and novelties, enjoy a wide variety of activities,
Thinkers - motivated by ideals, abundant in resources, prefer traditional intellectual pursuits over trends, tend to view the world in the perspective of the historical values, value generally accepted social norms as benchmarks for individuals' behaviour, have significantly long decision-making process which can result in a tendency to suffer from analysis paralysis, conservative buyers of proven products, look for functionality and endurance rather than design,
Believers: motivated by ideals, have limited resources at their disposal, rely on spirituality and faith and communities they live in, adhere to traditional and conservative values, consider advertising to be a reliable source of information,
17 intolerant towards ambiguity of any sort, binge-watch soap operas and read romantic novels in order to escape reality, prefer social status quo over changes, considerably receptive to fast-fashion trends,
Achievers: motivated by achievement, abundant in resources, individualists considering money to be the source of authority, determined, punctual and goal-oriented professionals, advocate moderate ideas and opinions, favour technological innovations increasing productivity, prone to purchase premium and prestigious products, balance family and work life, consider peers and their opinions when making decisions,
Strivers: motivated by achievement, have limited resources at their disposal, frequently temporarily unemployed or have revolving employment, rely on public means of transport, active in the low-status street cultural sphere, tend to imitate their idols and role models by showing off their wealth through their appearance and aesthetics, consider money to be an indicator of success, strive to enhance their lives but struggle in making an actionable decision to achieve their goals, active impulsive consumers,
Experiencers: motivated by self-expression, abundant in resources, amiable and sociable considering friends to be of particular importance, seek sensation in any form, highly receptive and adaptive to fashion trends, have outstanding and distinctive aesthetics, react spontaneously, purchase eagerly and impulsively, especially responsive to visual simulation,
Makers: motivated by self-expression, have limited resources at their disposal, believe in traditional gender roles distribution, distrust government, sceptic towards innovations, highly protective towards their property, prefer land ownership and product value over prestige and luxury, interested in automotive and outdoor activities, e.g. fishing and hunting, perceived to be anti-intellectual and potentially quarrelsome by their surrounding,
Survivors: do not exhibit any primary motivation, lack resources, oldest risk-averse and thrifty consumers frequently making use of discounts, consoled by routine, loyal to familiar brands, tend to live in single households and spend time alone, heavy TV viewers, not likely to use internet or any advanced technology, most likely still to use a landline as the only telecommunication channel.
18 Source: Töpfer and Bug - Classical Consumer Lifestyle Segmentation Methods, 2015
Therefore, the primary benefit of the utilisation of the VALS framework in the segmentation process implies the advantage in the further targeting and positioning process as the choice of the appropriate VALS segment defines the subsequent selection of the relevant media channels and the style of marketing communication with the highest potential to reach and attract the target segment.
Moreover, considering designing a market entry strategy for a product within the premium healthy food category, it is advisable to analyse the orientation of consumers' lifestyle, e.g. to what extend potential customers are concerned with the healthiness of the products, social justice, sustainability as well as the environmental impact associated with its production. In order to facilitate the segmentation of the market according to these criteria, Natural Marketing Institute proposed in its report to segment the target market into five segments (Natural Marketing Institute, 2008; Schüpbach et al., 2007):
Lohas - most environmentally concerned, socially responsible, actively influencing their surrounding, politically active in environment protection, loyal customers, not price-sensitive, health-conscious and most likely to be flexitarian, vegetarian or vegan, earn a high income, well-educated, physically active, holistically active in the community, highly responsive to socially responsible corporate activities,
Figure 4 VALS Framework
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Naturalites - prefer personal health and wellness to environment protection, avid consumers of organic and natural products, interested in being educated about environment protection and its potential future impact, low income restrains them from buying more eco-friendly products, lack higher or college education, prefer relaxing exercising, regularly attend community events,
Drifters - usually present the largest segment, frequently switch among the latest trends ranging from dietary to sustainability trends, impressionable customers, not loyal, inconsistent in environment protection, earn a moderate income, consider price to be the barrier to a sustainable and healthy lifestyle, active in team sports, sociable,
Conventionals - lead sustainable lifestyle yet motivated by practicality and frugality rather than environmental protection, educated, earn a considerably high income, gravitate towards conservative attitudes, engage in recycling and decreasing energy consumption,
Unconcerneds - evince no interest in environmental protection and sustainability, relatively educated, earn a rather low income, significantly price sensitive, not likely to participate in any community activities, not physically active, least responsive to socially responsible corporate activities.
Additionally, the eagerness of trying new eco-friendly products and the adoption of the latest trends is reported to be aligned with the level of concern about health and environmental protection. Therefore, Lohas are characterised as early adopters, followed by naturalites, conventional and drifters present early and late majority and unconcerneds are classified as laggards. (Natural Marketing Institute, 2008; Ottman, 2011)
Concerning the mature German market, the Lohas segment is continuously growing and currently comprises ca. 30 % of the population, representing a 50 % increase in the last five years. Therefore, the Lohas segment can be considered to be prominent in Germany.
Moreover, the persona skeleton for this segment was described by VuMA Touchpoints as a woman aged from 20 to 70 who completed higher education and currently earns higher income. However, the distribution of consumers among the particular age groups is equal.
(AS&S, 2020; VuMA Touchpoints, 2021) 2.2 Targeting
The targeting process refers to the selection of either the appropriate consumer segment or segments for the company's marketing strategy. The choice of the target
20 segment and corresponding targeting strategy has to be in line with the company's objectives as it considerably influences the image of the brand and product, or service, as well as the design of the proposed marketing campaign. Moreover, the choice of the segment, or potentially more segments, is influenced by its attractiveness in terms of size, growth potential, stability and structural attractiveness. However, the ability of the company to establish sustainable competitive advantage outweighs the segment attractiveness and thus can result in the choice of the niche segment as the target one despite its inferior size. (McDonald and Wilson, 2016; Pelsmacker et al., 2013)
Owing to the company objectives and budget, the company opts for the targeting strategy of either market concentration, differentiation or undefined targeting strategy, which are further divided into the following five basic types (Pelsmacker et al., 2013):
concentration on one segment - focused on the one selected market segment developing marketing mix accordingly to its specifics,
selective specialization - focused on several selected attractive segments developing separate marketing mixes for each,
product specialization - focused on providing a particular product/service to various market segments,
market specialization - focused on providing several products to one selected market segment,
full market coverage: focused on providing all products/services to all market segments.
Each of these strategies is associated with the use of different media channels for advertising, sales promotion tools, and PR activities. While a strategy of concentration is associated with a more targeted and personalised advertisement, celebrity endorsement, and premium features implying higher expenses, the undefined targeting strategy of full market coverage is related to the use of mass media and sales promotion tools such as coupons and discounts. (Czinkota and Ronkainen, 2010)
2.3 Positioning
The positioning process aims to establish a point of difference for the offered product or service in the minds of the targeted consumers in order to differentiate the particular product or service from its competitors. Therefore, the most prominent attributes relevant
21 for the target segment should be used as a basis for the positioning strategy since they are most likely to be defeated against competitors' attempts to emulate it. (Czinkota and Ronkainen, 2010; Pelsmacker et al., 2013; Tybout and Calkins, 2019)
Furthermore, the strategy should be summarised in the explicit positioning statement comprising the target consumer, frame of reference, point of differentiation and applied reasoning backing for belief in the product superiority. The frame of reference as well as the point of differentiation are developed from the mentioned prominent attributes and serve as either unique or emotional selling proposition of a product or service and may range from unique product features, price-quality ratio, specific use or application and specific target user to specific cultural symbols represented by the brand or its values.
Moreover, the positioning strategy has to respect the characteristics, consumption, and behavioural patterns of the targeted segment and consider consumers' perceptions, feelings, and impressions of the products comprised in the positioning map. (Czinkota and Ronkainen, 2010; Pelsmacker et al., 2013; Tybout and Calkins, 2019)
In order to depict the competitive position of the company in the target market, it is advisable to conduct the analysis of the competitors' positioning and map it on the descriptive two-dimensional diagram of perceptual mind map since the perception of a brand is influenced by its competitors' image. The dimensions should represent the points of differentiation and the strongest associations that the company intends to communicate via its communication strategy. Moreover, to increase the precision of the mapping, the sizing of the position indicator should correspond to the brand's market share. (Gronlund, 2013; Král et al., 2016; Riezebos and van der Grinten, 2012)
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3 Current Nutritional Trends
Thorough knowledge of the current market situation is considered crucial to assess the appropriateness and readiness of the target market for the introduction of a product or service and subsequently to design an appropriate market entry strategy. Therefore, the following chapter introduces current trends in nutrition on the German target market influencing purchasing behaviour of German consumers.
Since the COVID-19 pandemic significantly impacted current nutritional trends, they are expected to persist beyond the pandemic and proceed with shaping the German food industry. Therefore, the outcomes of the analysis of those trends and their implications for purchasing behaviour of German consumers provide a theoretical background for the design of an effective and sustainable market entry strategy.
3.1 Nutritional and Related Trends
Since diet choice significantly influences other food choices and purchasing behaviour, dietary trends can be considered the most influential trends in the food industry.
Therefore, the proposed market entry strategy should align with those trends. According to the survey conducted by research agency Kitchen Stories in December 2019 among German citizens. The survey results provide a comprehensive overview of the German market and state that the prevailing nutritional diet among Germans is the low carbohydrate diet followed by more than 33 % of respondents. Moreover, ca. 25 % of respondents have lately adopted a low sugar diet. However, the popularity of all the below mentioned dietary programs are on the increase (Statista, 2020a):
low carbohydrate diet – restricting consumption of carbohydrates to less than 20 % of the intake of calories per day (Last and Wilson, 2006),
low sugar diet – presenting a version of low carbohydrate diet considering sugar to be a type of carbohydrate (Last and Wilson, 2006),
vegan diet – restricting diet to solely plant-based products,
flexitarian diet – promoting increased consumption of fruits, vegetables, legumes, whole grains and plant-based protein while consuming the animal products in moderation, limiting the consumption of processed food and added sugar (Streit, 2019),
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high protein diet – promoting high protein intake limiting the intake of carbohydrates (Fletcher, 2019),
high fibre diet – promoting consumption of 20-35 g of non-digestible plant fibre daily (Wolever and Jenkins, 1997).
Therefore, any product which is to be introduced on the German food market should advisably be in line with the mentioned dietary programs in order to have the potential to earn and maintain the market share.
Furthermore, according to the consulting company Expansion.eco, specialising in the assistance to companies by market entry to Germany, the online food trade, beyond plastic trend, the trend of functional food, healthy and tasty dietary trends, healthy hedonism and sustainability trend significantly prevail on the German market comparably to the global market. (Expansion.eco, 2020)
Firstly, according to the Statista Digital Market Outlook from June 2020, the share of online food sales in Germany has been growing steadily in recent years. However, the outbreak of the COVID-19 pandemic in spring 2020 boosted the online demand for food leading to a 22.6 % peak in sales revenues. Moreover, the growth and online food trend is projected to continue and demonstrate an annual growth of 7 % till 2024 and thus reach the total market volume of 393 Mio. EUR. (Statista, 2020b)
Consequently, according to EHI Retail Institute, the German research institute for retail, the rapidly increasing demand for online food delivery promoted the entry of small delivery providers specialised in serving the demand for specific products, e.g. vegan and vegetarian, to the market along with the biggest online supermarkets, e.g. Rewe, Edeka and AllyouneedFresh. (EHI Retail Institute, 2020) Moreover, these small or middle-sized delivery providers are not threatened by the biggest supermarket chains operating on the German market, e.g. Penny, Aldi and Kaufland, which do not provide the in-house grocery delivery service since they are competing among themselves in the considerably severe price war and providing such service would be too costly for them to implement.
(Deutsche Welle, 2018; Marlene Triltsch, 2020)
Therefore, any market entry strategy for a product to the German food market should advisably consider utilising the existing distribution channels of delivery providers, providing that their positioning is in line with the intended positioning of the market entry strategy.
24 Figure 5 Ranking of the Grocery Retailers according to Sales (in Mio. EUR)
Source: EHI Retail Institute - Lebensmittelhandel: Stabiles Wachstum, 2020
Furthermore, the increased demand for food packaging arising from growing online food deliveries and purchasing of packaged food presents a business challenge for the sustainability of business operation and production resulting in the trend reported by Rützler as beyond plastic. (Rützler, 2019) Additionally, the directive 2019/904 on reducing the use of single-use plastic, enforced by the European Union in June 2019, reinforced the influence of the beyond plastic trend on the German market. (Morrison, 2020) Therefore, the current situation in the food market presents a business opportunity for innovations in terms of reusable or recyclable food packaging, which would meet the customers' demand.
Therefore, the utilisation of this market opportunity should be reasonably implemented in the proposed market entry strategy, provided that the connection to the beyond plastic trend is in accordance with the product and brand image.
Moreover, the COVID-19 pandemic outbreak is reported to have reinforced the focus on healthy diet and nutrition, which were already clearly present in the German market in the pre-pandemic situation. Consequently, the Bundesministerium für Ernährung und Landwirtschaft, further BMEL, introduced the Nutri score in the form of ample nutrition and caloric labelling on the front of the packaging of the processed food. The Nutri score applies a five-degree scale from A, superior nutritional quality, to E, poor nutritional
25 quality. (Nestlé, n.d.) Additionally, producers were committed by BMEL to reducing sugar, fat, and salt content due to the consumers' interest in nutrition. (Bundesministerium für Ernährung und Landwirtschaft, 2020; forsa Politik- und Sozialforschung GmbH, 2020)
Despite the preference for nutrition, the trend of healthy hedonism impacted the
Despite the preference for nutrition, the trend of healthy hedonism impacted the