- Log In/Sign Up
- P-ISSN1738-3110
- E-ISSN2093-7717
- SCOPUS, ESCI
ISSN : 1738-3110
Comparative Analyses of Mass Marketing and Target Marketing Based on Price Elasticity and Production Cost
Abstract
Purpose - It is widely accepted that the process of developing marketing strategy is composed of three steps: market segmentation, target market selection and positioning. However, mass marketing strategy based on cost reduction through economies of scale and standardized products, can be also an effective strategic option. Many marketing scholars including Theodore Levitt emphasize the importance of applying the mass production concept to various industries including service industries. Especially, in times of economic downturn, the capability of providing consumers with low-priced, value products can be an important source of competitive advantage, as well as the ability of providing high-priced premium products. Marketers should decide whether they will implement mass marketing strategy or target marketing strategy. The present study theoretically shows that firms should understand the target customers' price elasticity as well as the firm's cost structure in order to make such a strategic decision. Research design, data, and methodology - Instead of implementing an empirical study, this study provides a theoretical(mathematical) investigation on the effect of consumers' price elasticity on a firm's optimal price level, profit, sales volume, revenue, and cost. The results are mostly deduced from derivative calculations and several graphs are utilized to represent the results on the relationships between the variables under study. Results - The analytical results suggest that it is more profitable for a firm to adopt the segment/target marketing strategy (more specifically the differentiation strategy) when the degree of consumers' heterogeneity is high and the proportion of the fixed cost in the total cost is low. On the other hand, if the degree of consumers' heterogeneity is low and the fixed cost is high, it is better to adopt the mass marketing strategy or the cost leadership strategy. The strategy of concentrating on a single target market will be effective when consumers' needs are highly heterogeneous but the fixed cost is high. Any of the three types of generic strategies proposed my Porter(1980, 1985) can be applied when both the consumers' heterogeneity and the fixed cost are low. This study also proposes the contribution-margin-based method for developing the optimal pricing strategy. Conclusions - One of the primary roles of marketers is to find a proper compromise between the two conflicting goals of maximizing customer satisfaction and minimizing cost. In order to do so, he or she should understand the characteristics of the target customers as well as the cost structure of the firm. In addition to the theoretical analyses, this study discusses several business cases and explains how superior companies find the optimal compromise position between these two goals and dominate the market. One of the radical changes recently taking place in business arena is the reduction of production and distribution costs of both physical goods and information due to the advancement and the wide diffusion of information technology. The cost reduction combined with lowered priced elasticity incurred by customized products and services, will enable many firms to adopt the mass customization strategy.
- keywords
- Mass Marketing, Target Marketing, Differentiation, Price Elasticity, Cost Structure
Reference
Anderson, Chris (2006), The Long Tail: Why the Future of Business is Selling Less of More, New York: Hyperion.
Bordley, Robert (2003), "Determining the Appropriate Depth and Breadth of a Firm's Product Portfolio," Journal of Marketing Research, 40(Feb.), 39-53.
Chamberlain, Edward H. (1965), The Theory of Monopolistic Competition, Cambridge, MA: Harvard University Press.
Dean, Joel (1951), Managerial Economics, Englewood Cliffs, N. J.: Prentice-Hall Inc.
Dickson, Peter R. & Ginter, James L. (1987), "Market Segmentation, Product Differentiation, and Marketing Strategy," Journal of Marketing, 51(April), 1-10.
Drucker, Peter F. (1999), Management Challenges for the 21st Century, New York: Harper Collins Publishers Inc..
Dutta, Y. (1996), "Market Segmentation: an Integrated Framework," Long Range Planning, Vol.29, No.6, pp.797-811
Fishbein, Martin & Icek, Ajzen (1975), Beliefs, Attitudes, Intentions, and Behaviors: An Introduction to Theory and Research, Mass.: Addison Wesley.
Galbraith, John Kenneth (1967), The New Industrial State, Boston: Houghton-Mifflin Company.
Haley, Russel I.(1968), "Benefit Segmentation: A Decision-oriented Research Tool," Journal of Marketing, 32(July), 30-35.
Hauser, John R. & Shugan, Steven M. (1983), "Defensive Marketing Strategies," Marketing Science, 2(Fall), 319-60.
Hauser, John R. & Simmie, Patricia (1981), "Profit Maximizing Perceptual Positions: An Integrated for the Selection of Product Features and Price," Management Science, 27(Jan.), 33-56.
Keith, Robert J. (1960), "The Marketing Revolution," Journal of Marketing, 24(1), 35-38.
Kotler, Philip (2002), Marketing Management, 11th edition, Englewood Cliffs, NJ: Prentice-Hall, Inc..
Krugman, Paul (1979), "Increasing Returns, Monopolistic Competition, and International Trade," Journal of International Economics, 9, 69-479
Lancaster, Kelvin (1966), "A New Approach to Consumer Theory," Journal of Political Economy, 74(2), 132-157.
Lancaster, Kelvin (1975), "Socially Optimal Product Differentiation," American Economic Review, 65(4), 567-585
Lancaster, Kelvin (1980), "Competition and Product Variety," Journal of Business, 53(3), S79-S103.
Lancaster, Kelvin (1979), Variety, Equity, and Efficiency, New York: Columbia University Press.
Levitt, Theodore (1960), "Marketing Myopia," Harvard Business Review, 38(July-August), 24-47.
Levitt, Theodore (1972), "Production-Line Approach to Service," Harvard Business Review, 50(September-October), 1-10.
Lilien, Gary L. & Rangaswamy, Arvind (2003), Marketing Engineering: Computer-Assisted Marketing Analysis and Planning, Upper Saddle River, New Jersey: Prentice Hall.
Mariotti, John L. (2008), The Complexity Crisis: Why Too Many Products, Markets, and Customers Are Crippling Your Business and What to Do About It, Avon, Miami: Adams Media Corporation.
Marshall, Alfred (1920), Principles of Economics, 8th ed. London: Macmillan.
McKenna, Regis (1991), Relationship Marketing, Reading MA: Addison-Wesley.
Mitra, Anusree and John G. Lynch, Jr. (1995), "Toward a Reconciliation of Market Power and Information Theories of Advertising Effects on Price Elasticity," Journal of Consumer Research, 21(March), 644-659
Peppers, Don & Rogers, Martha (1993), The One to One Future: Building Relationships One Customer at a Time, New York: Currency Doubleday.
Perreault, William D. & McCarthy, E. Jerome (2005), Basic Marketing: A Global-Managerial Approach, 15th ed. New York: McGraw-Hill/Irwin.
Peters, Tom & Waterman, Robert (1982), In Search of Excellence, New York: HarperCollins Publishers Inc..
Porter, Michael E. (1976), Interbrand Choice, Strategy, and Bilateral Market Power, Cambridge, MA: Harvard University Press.
Porter, Michael E. (1980), Competitive Strategy, New York: The Free Press.
Porter, Michael E. (1985), Competitive Advantage, New York: Collier Macmillan.
Rosen, Sherwin (1974), "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, 82(Jan./Feb.) 34-55.
Samuelson, Paul A.(1976), Economics, New York: McGraw-Hill Book Company.
Schultz, Howard & Joanne Gordon (2011), Onward: How Starbucks Fought for Its Life without Losing Its Soul, New York: Rodale Books.
Shaw, Arch W. (1912), "Some Problems in Market Distribution," Quarterly Journal of Economics, (August), 703-65.
Smith, Adam (1776), The Wealth of Nations, reprinted in 2003, New York; Bantam Books.
Smith, Wendell (1956), "Product Differentiation and Market Segmentation as Alternative Marketing Strategies," Journal of Marketing, 21(July), 3-8.
Tellis, Jerard J. & Golder, Peter N. (2001), Will and Vision, New York: McGraw-Hill.
Tversky, Amos (1972), "Elimination by Aspects: A Theory of Choice," Psychological Review, 79(4), 281-299.
- Downloaded
- Viewed
- 0KCI Citations
- 0WOS Citations