133Table 5.1 Steps in positioning

1 What is to be analysed:

products/services?

competition (firms)?

2 Identify decision criteria of customers.

3 Determine group whose perceptions are to be examined.

4 Select mapping methodology.

5 Develop data-collection instrument.

6 Apply mapping techniques.

7 Analyse market positions.

8 Determine strategy:

solidify and hold position.

reposition.

bank 1 lies close to the ‘friendly tellers’ attribute line but is half the length of the line from the origin to the plot. The mapping approach used in this figure places the length of the attribute position lines equal to the strength of association between the attributes and the perceptual configurations. However, this is not the case with all the techniques that may be applied to produce perceptual maps. ‘Best bank for the individual’ and

‘first with new services’ are very close together in the map. This indicates that the responses to services are very close together in the map. This indicates that the responses to these questions were correlated and that both would not have been included if only a simple plot had been used to map the perceptual positions of the financial companies. Bank 4 is perceived as being quite different from the other firms and as being more of a business than an individual-oriented financial company. This map was generated from a random sample of possible bank customers in a market area and within this market we expect to find several market segments with differing banking needs. Figure 5.2 presents this same perceptual map with the location of the respondents’ ideal banks shown as large circles.

Low loan rates

Figure 5.1 Perceptual map of five financial competitors and attributes.

Low loan rates

Figure 5.2 Perceptual map of five financial competitors and attributes: ideal points.

This step in the positioning–mapping methodology was conducted by using a computer technique called cluster analysis to determine groups of respondents with similar ‘ideal’ financial institutions. The mean ideal locations were then plotted onto the perceptual map. The size of the circle indicates the relative size of the market segment preferring each ideal institution. Bank 1 lies very close to the largest ideal bank position. This was expected, as bank 1 was the dominant bank in the market area.

Further, the largest ideal segment lies directly on the ‘friendly tellers’ attribute line, again indicative of this bank feature in the small town in which the study was conducted. The study was conducted as a survey of consumer, not business, banking, which resulted in the lack of an ideal group near the position of bank 4 and the business orientation. The position of bank 3 and the ideal segment B is very interesting. The bank is very close to a group that appears to desire convenient locations above all other features. This bank had recently added a new branch and several automatic-teller locations and promoted its convenience heavily in the market.

It should be emphasised that the concept of positioning the company in the market-place relevant to its competition involving the entire marketing mix. Many financial companies have responded to competition involving the entire marketing mix. Many financial companies have responded to competition from non-banks to new bank products by attempting to position themselves as multi-service providers by simply changing their logos and their names. Other companies have added non-bank services without addressing the impact of these changes on their competitive position. A simple name change to some broad financial term does nothing to reposition the bank in the marketplace without the other elements of the marketing mix. Simlarly, decisions to add services or to reposition should not be taken lightly, as change can cost current customers.

For example, banks considering expanding to include non-bank products, such as insurance and real estate as a means of positioning themselves to capture related business, should consider how existing customers in these business areas might perceive such change.

Overall, the position of the bank is one of the major elements in relating the bank and its strategy to the marketplace. Bank management needs to realise how it is perceived in the marketplace and to have a consistent strategy in keeping with its desired position.

Question

The positioning map may be used as a basis for the development of strategies to reposition the company within the perceptual marketplace to a more advantageous position. The described consumer study has been commissioned by the First United Bank (bank 2) as its management wants to develop new strategies to reposition the institution within this particular market area. Therefore, and according to the analysis of the perceptual maps, recommend alternative repositioning strategies that could be implemented by the First United Bank.

(M) Problem 5.2 Make-or-buy analysis Introductory comments

Some parts, components, sub-assemblies and services can be purchased from suppliers at lower costs than if they were produced in-house. A question fundamental to product

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policy and process planning is: should we produce it or should we buy it? Make-or-buy analysis provides product-process planners with economic comparisons of these alternatives. Managers typically evaluate these make-or-buy decisions by taking into account the following managerial information and stages:

1 Develop the following estimates:

2 Develop the annual cost of each alternative:

Total annual costs Fixed cost
volume (variable cost)

3 Calculate at what annual volume should the company switch from buying to making the product on process A. Total annual cost using process A total annual cost of buying.

4 Calculate at what volume should the company switch from process A to process B (TC total annual costs):

TC_A TCB

When outside suppliers specialise in particular processes, they can often produce products/services at lower costs than other organisations that must gear up technologi-cally. A number of factors other than cost are also important in make-or-buy decisions.

Can suppliers give us the needed volume and quality? Volume and quality may be as important as cost in make-or-buy decisions. Production and Operations Management (POM) teams usually visit candidate suppliers to assure themselves that these outside suppliers can measure up to volume and quality requirements. If a supplier is selected, it can expect periodic visits from customers’ engineers regarding delivery and quality performance.

Problem

Orlicky, a medium-sized manufacturer of oilfield pumps, is located in Halifax, West Yorkshire. The company has developed a new model of its high-pressure secondary-recovery purge pump with improved performance. Neil Taylor, manager of process engineering and Alastair Davies, marketing manager, are trying to decide whether Orlicky should make or buy the electronically controlled input valve for the new pump.

Alternatives

Make (process A) Make (process B) Buy

Annual volume — — —

Fixed cost/year — — —

Variable cost/unit — — —

Figure 5.3 Product/service replacement strategies.

Source: Adapted from Saunders, J. and Jobber, D. (1994) Strategies for product launch and deletion, in Saunders, J (ed.) The Marketing Initiative, Hemel Hempstead: Prentice-Hall, p. 227.

Questions

1 Should Orlicky make the valve using process A, make the valve using process B or buy the valve?

2 At what annual volume should Orlicky switch from buying to making the valve on process A?

3 At what annual volume should Orlicky switch from process A to process B?

(I) Problem 5.3 Product replacement strategies Introductory comments

As we found at the start of this chapter product replacement is the most common form of new product introduction. A study of the marketing strategies used to position product replacements in the marketplace found eight approaches based upon a combination of product change, and other marketing modifications (i.e. marketing mix and target market changes). Figure 5.3 shows the eight replacement strategies used by companies.

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