Strategic Marketing-Case Study
1 Executive summary
2 Part 1: Analysis of past marketing related problem or opportunity within case study.
3 Part 2: Critique of the course of action taken at that time.
4 Part 3: Recommendations for future action.
5 Interdependencies and reflection
The analysis is based on Vertu, which is the leading company in the luxury phone market. Based on the analysis, the identified opportunity is market segmentation initiatives adopted while entering the market. Through marketing segmentation initiatives, Vertu offered value based products on the identified consumer behaviours, characteristics, and needs. Through segmentation initiatives, Vertu enjoys the first mover advantages, high market share, an increase in demand, increased competition coupled by increase in sales and profits. Besides, segmentation initiatives have promoted business value and brand equity which accelerates cash flows to its shareholders. The company applied marketing orientation coupled by value-based marketing activities to realise the expectations of the targeted customers. To achieve customer orientation, Vertu provided quality products, customer value, and customer service through service proposition. To stimulate high demand for the products, Vertu offered higher levels of utility to consumer, supported with high prices. To capitalize on the marketing initiative taken to promote segmentation initiatives, the proposed approach is to improve on its marketing mix.
Part 1: Analysis of a significant past opportunity
The past marketing related opportunity identified in the case study of Vertu, is market segmentation initiatives adopted while entering the market. Segmentation is described as the process used by a company to divide the targeted markets into unique and distinctive groups based on consumer behaviours, characteristics, and needs (Dibb & Simkin 2010). Through this market process, a company offers value based on the identified consumer behaviours, characteristics, and needs. The major segmentation variables adopted in marketing are demographical, geographic, behavioral, and psychographic.
With regard to Vertu as indicated in the case study, the market segmentation initiatives form the past opportunity that impacted the company positively. The company identified and selected the key variables necessary to segment the market for luxury phones (Wyner, 2005). The company saw the opportunity to provide high-end and expensive phones to customers and people in high social status positions to provide extraordinary and expensive luxury phones with unique experience. Concentrated targeting strategy was adopted by, Nokia through Vertu to reach the identified market segment (Pride, Hughes & Kapoor 2010). As such, the segmentation activity was to target a small niche of concentrated customers, with closer related needs, behaviours, and characteristics.
Based on the segmentation variables, Vertu employs geographic, demographical, psychographic, and behavioral variables. For instance, in regard to psychographic variables, Vertu segmented its market based on lifestyles, motives, and lifestyles. For example, Vertu targets special VIP parties’, events, and celebrity endorsements, on addition to people of expensive lifestyle coupled with unique taste of handsets. On geographic variables, Vertu segmented regions with fine accessories and high-end products such as Asia, Middle East, and Europe (Thomas 2013). Majority of the Vertu’s luxury phones are sold in private suites in the major cities of the world such as Tokyo, Paris, London, and New York (Pride et al. 2010). On behavioral variable, factors such as benefit expectation, price sensitivity, end user, and brand loyalty were considered in the segmentation process. For example, Vertu phones are never about technology by quality, experience, and craftsmanship (Thomas 2013). The consumers have high income and purchasing power to spend over 4,000 Euros on a single handset. As such, Vertu targeted affluent consumers, with high expectations on quality of products. All Vertu’s handsets have the best encryption protection that guards the information of the user making them attractive to the affluent consumers.
Impacts of Segmentation Initiatives on Vertu
The segmentation activities employed by Vertu have impacted the company positively. For example, the company still enjoys the first mover advantages as its closer competitors such as Goldvish, Mobiado, and Gresso have not been able to compete favourably. Through its segmentation activities, Vertu has planned to increase its boutique stores, as a result of an increased demand. For example, currently the organization has around 350,000 customers from all over the world (O'Reilly 2013). Additionally, the company has continued to enjoy increased competition coupled by increase in sales and profits. In ‘Vertu seeks a broader market for luxe Smartphones and new audio accessories’, Bien Perez observes that Vertu’s annual sales are estimated to be €300 million (HK$3.2 billion) (Perez 2013). The implication made is that through segmentation activities, Vertu has improved its sales. Having intensified its operations to target Smartphone users, the company has increased its market share by enticing a new generation of affluent mobile phone consumers. Thus, segmentation initiatives employed by Vertu have not only increased the sales, but also increased its market share and international presence.
In the book Handbook of Market Segmentation, Weinstein (2004) has listed the major benefits associated with a successful segmentation analysis, and one of them is meeting the demands and needs of the marketplace. Through segmentation initiatives, Vertu has met the needs of the luxury phone market since for the last 12 years; the organization has been providing products that meet consumer preferences. Vertu mixes quality, functionality, and craftsmanship to provide an experience to the end users, thus satisfying the needs of the market. Consequently, the company has realized customer satisfaction, and in turn, making profits (Weinstein 2004). Moreover, Vertu has created a competitive advantage in the mobile phone industry as a whole, because through segmentation initiatives, it has identified a group of consumers that it can easily satisfy its wants and needs over its competitors (Weinstein 2004). As such, Vertu has remained the market leader in the luxury mobile phone market.
Since segmentation is not one time affair as described by Palmer and Miller (2004), Vertu through its marketing initiatives has continued to increase its market share by targeting affluent consumers interested in unique smartphones. As part of the segmentation initiatives, business value and brand equity have been developed, which accelerates cash flows (Payne & Holt 2001).
Overview of the organisation (SWOT analysis)
Vertu is a Luxury mobile phone brand, that concentrates on the benefits and quality of product features. The company was established 14 years ago to provide phones in the untapped market segment. The company designs high end phones that are made for specific segment of consumers interested in not just owning a phone, but possessing a phone that is unique from what the masses have. Under this segment, Vertu has targeted high net worth, social status seeking, with a demanding, and international lifestyle customers, who prefer finer things with a handmade touch. The targeted consumers according to the CEO, Massimiliano Pogliani, never acquire ordinary things in their whole lives, but instead go for exceptional products. Seeing the opportunity, Vertu sought to provide products which were of high quality. So far, Vertu is the leader in the luxury mobile phone market. The company has always bridged the existing gap between technology and luxury in the phone industry.
Upon its launch, Vertu has undertaken various segmentation initiatives as a part of its marketing strategy to increase its presence in the phone industry. As indicated in the case study, the London-based boutique company, Vertu has continued to develop high-end phones such as the Vertu Ti. The Vertu Ti costs five times more than the highest priced mass market Smartphone, with a starting price of €4000. The major attributes associated with Vertu products is the experience they provide to consumers and the superior craftsmanship used to make each of the phones.
Part 2: Critical analysis of the past course of action
In response to the opportunity, Vertu had to develop value-based marketing activities to realise the expectations of the targeted customers. In this context, a market orientation approach was employed. As such, Vertu focused on understanding the wants and the needs of the customer segments in the luxury phone market, and ensuring that its phones meet consumer needs (Doyle 2002).
Figure 1: Market orientation
(Adapted from Doyle, 2002, p39)
By virtue, Vertu is a customer led company that provides high-end phones to its customers. Doyle (2002) says that “A customer-led company recognizes that its only true assets are satisfied customers. Without satisfied customers the balance sheet’s assets are merely scrap” (p. 40). In response, Vertu had to build its presence in the 'luxury handset' category. As part of marketing orientation, the company took advantage of the fact that the luxury handset market was not exploited. After identifying the possible market opportunity, Vertu formed a luxury brand with a loyal customer base, which targeted a niche user characterized by high net worth and social status seeking consumers who demand international lifestyle. Although its production capabilities do not allow mass productions, the company ensures quality production and craftsmanship employed. Vertu’s introduced its products in the market and received a positive feedback it increased its segmentation initiatives. In regard to services, Vertu promoted services proposition through a set of curate offers and services. All this resulted to customer satisfaction, in addition to reaching the company’s goals.
Value and Value Delivery
Since Vertu is a marketing oriented organization (Jaworski et al. 2000), the company it has aligned itself in the market industry to achieve the segmentation initiatives. For example, the three components of marketing orientation, which are interfunctional co-ordination, competitor orientation, and customer orientation were all part of Vertu’s action plan (Narver & Slater, 1990). To achieve customer orientation, Vertu provided quality products, customer value, and customer service through service proposition (Sargeant 1999). Competition orientation was achieved through building a competitive edge achieved through quality and customized products to meet and satisfy and needs of its consumers (Weinstein 2004). In other words, the initiative taken by Vertu have exceeded customer’s expectations and subsequently driven added value in regard to competitive offerings. The company has capitalized on its strengths such as the ability to combine price, quality, functionality and variety create added value to its customers and add value to its business.
To stimulate high demand for the products, Vertu offered higher levels of utility to consumer, supported with high prices. The marketing initiative undertaken had the four elements to customer value applied were functional value, experiential value, symbolic value and cost value (Brock Smith & Colgate 2007). For example, based on the case study, Vertu provides luxury brands that provides luxury and sensory experience, functionality, high costs of the luxury brands, and product design that provides status symbol.
The opportunity related to segmentation initiatives was realized and delivered value to the organization. Hollensen (2003) defines value is the amount that consumers are willing to pay for the perceived value less the sacrifices made by the consumer to achieve that value. In 2013, the company made revenues nearly €300m, which is an indication that the value it commands in its products and services exceeds the costs drawn in while creating its products and services (Hollensen 2003). For example, Vertu has positioned itself in the luxury brand market, thus achieving a defined competitive position in its chosen segments. Subsequently, Vertu has been ranked as the leading and the largest market shareholder in luxury phone market. Vertu has combined interdependent activities to deliver value to its targeted consumers, thus creating a competitive advantage.
Innovation and new product development are major ways in which an organization can use to create value and improve its competitiveness (Trott, 2005). For example, through its segmentation initiatives, Vertu has shifted its product development to use the Android operating system on its new products to target new Smartphone users. To create overall brand experience, the company combines its products design with craftsmanship, subsequently improving its competitiveness in the market.
Figure 2: Classifications of newness
Adapted from Booz-Allen & Hamilton, 1982
Based on the figure above, the value-based marketing activities carried in the company to create value to the company can be classified as medium. For example, Vertu has developed product-line extensions that supplement the already established products line (Booz-Allen & Hamilton 1982). The Android operating system adopted is an extension of its existing products, which has so far created competitive advantage because the products combine functionality and brand uniqueness. In other words, Vertu looked at its market segmentation and decided to come with a more exclusive product such as Vertu Ti that creates an image of exclusivity to appeal to the high-end market. As a result of segmentation initiatives success, Vertu is planning to open more 49 new stores and extend its operations in new emerging markets in Asia.
Part 3: Recommendations for Future Action.
To capitalize on the marketing initiative taken to promote segmentation initiatives, the proposed approach is to improve on its marketing mix. The major components of a marketing mix are product, price, place, and promotion (Kotler et al. 2012). The other components are people, physical evidence, and processes.
To start with, there is need to improve the product developed by Vertu for it to be at par with high end products that operate using Android operating system such as Samsung and Apple. As such, the company should customize the operating system for Vertu users because technology is always changing. To ensure the success of its segmentation initiative that targets high-net-worth, mobile-savvy consumers in well-known and emerging markets, the company should increase the quality of its products through the adoption of updated operating system with the aim of adding a modern twist in their original brand values. With a growing global mobile market for luxury phone brands, improving the quality in terms of technology would be appropriate for the company. As a result, Vertu shall combine craftsmanship, high-end technology, precision engineering and exclusive personal service dimension, to develop a unique luxury brand. Moreover, mobile technology is characterised by constant upgradation, which modern end user is constantly looking for. Therefore, adapting new technology though perceived by Vertu as unnecessary, it is important because when prices are higher and the operating system is the old version may make consumers feel that they are using an obsolete device, despite its craftsmanship and experience.
Other than adding perceived value to consumers, such a product shall be more attractive to young but wealth consumers from emerging and developing markets, in which, Vertu is targeting. Thus Vertu should adopt KitKat, which is the latest operating system rather than depending entirely on Ice Cream Sandwich. However, to manage the new acquired innovation, B2B realm is required (Kotler et al. 2012), because it ensures that efficiency is realized in an organization (Khosrowpour, 2004). As noted by Hutt and Spech (2002) B2B shall ensure that Vertu management manages the acquired innovation fully. This has been echoed by Khosrowpour (2004) who acknowledge that B2B encourages efficiency and best management opportunities through shared information. As such, consumers will be able to get the best services Vertu can provide at any given moment.
Price of Vertu products is considerably higher than some its competitors in the market, although Goldvish has higher prices. As part of its strategy, Vertu should adopt price leadership strategy, by setting its prices higher. This is because Vertu as the market leader has influence on the price of services and products. Through price leadership, Vertu can still command its market share and earn higher profits and revenues. Moreover, higher prices are associated with quality products, which in turn, attract high end users. Moreover, through its efficiencies, Vertu can lower the prices, thus forcing small competitors to lower their prices as well. Already Vertu has developed brand equity and through price leadership, it can attract a price premium for the brand, which subsequently improves shareholder value (Srivastava et al, 1998).
To improve its brand positioning and increase competition, Vertu needs to diverse its promotional strategy and move from the traditional method of celebrity endorsement and special VIP parties. For example, Vertu should adopted advertising to improve brand equity, which in turn, enhances cash flows. Subsequently, shareholder value is improved (Srivastava et al, 1998). Brand equity results to superior market performance and profitability. This assures the management that a strong brand is in position. With regard to place/distribution, Vertu needs to replicate its boutique stores in emerging markets to extend its experience. Therefore, the same detail to attention provided in its products should as well be replicated in Vertu boutique. This shall increase the foot traffic to stores, as they provide intimate feel associated art galleries. As such, the management shall be in a position to increase its market share and improve on its current profits standings.
There is no doubt that Vertu has employed skilled, highly trained, and appropriate people and staff (Shostack, 1977). However, to increase that experience and relationship with key stakeholders, the company is required to train new employees especially when entering into new markets with different language and culture. To the management, such undertaking shall deal with issues related to language barrier and cultural shock in the new markets. In addition, blending the workforce will ensure workforce diversity which acts as a competitive advantage. Moreover, it shall result to demand generation and demand fulfillment.
The objective of the physical evidence is to create unforgettable experience on the consumers. Physical evidence is the articulation of the services and products offered by an organisation through the use of non-verbal messages (Kotler et al. 2012). Some of ways are such a through the use of branding and logos to differentiate yourself from the rest of players in the market, thus creating a competitive edge. For example, Vertu needs to invest more on branding such as B2B brands to maintain strong relationship with its stakeholders to build loyalty, ensure differentiation, create preference, and command a price premium (Kotler & Pfoertsch 2006). Other than the tangible experience created by Vertu products and its boutique stores, the company ought to increase its branding efforts. Branding shall increase competition, improve the luxury brand and extend such experience to its esteemed consumers. Vertu can also develop a product-based consumer brand that entails of tangibleactivities (such as packaging, purpose, functionality, and product features) around which emotional meaning is developed through intangible services such as website activity, public relations, design, and advertising (De Chernatony & McDonald 2003).
Good communication skills and better understanding of the customers’ wants and needs ensure that relationship management is acquired. Processes are the structures that are employed by organisations to ensure that the customers are not only attracted but retained (Matsuo 2007). These processes entail the interaction between the customer and employees thus achieving customer satisfaction. Therefore, the 49 expansion Vertu boutique should have well trained employees who can easily communicate with consumers, with the intension of providing customer satisfaction, at the same realizing relationship management. The achievement results to realization of organizational objectives and goals.
Interdependencies and Reflection:
Operating under Nokia challenged effective competition of the luxury brand with other brands in the market. However, the broader change to complete independence from Nokia addressed this management challenge, as Vertu could make independent decisions. As such, the company has been able to adopt the Android operating system, which has increased its position in the market, thus creating a competitive advantage. Subsequently, Vertu has continued to enjoy increasing sales. Moreover, Vertu has created a niche of luxury brand for its loyal customer base. Operating as an independent entity has been helpful to the company. For instance, Vertu although has sold an estimate of 370,000 units has always been profitable and maintained its market share. Moreover, the company has been in a position to evaluate its market and market share, which has necessitated effective brand management practices. The course of action to be independent has thus resulted to strong brands, which has developed trust across stakeholder groups, build loyalty with targeted consumers, and strengthened awareness among target audience (Hankinson, 2000; Ritchie et al, 1998). In the past, the company was unable to make competitive products, thus creating and sustaining competitive advantage and increasing its market share. Vertu has also developed consumption experience of its products, which is created and maintained through a customer-centred brand relationship (McAlexander et al, 2002). The interdependence has ensured effective business to consumer relationship, subsequently increasing its sales. The ability to make independent decisions has provided a room for Nokia to operate as a global brand that provides products to a specific segment of high end-users in the luxury brand market.
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