Market segmentation sits at the heart of marketing strategy. Segmentation is essential because consumers are not homogeneous. That is, they respond differently to one market offering. Segmentation is in a way a compromise between effectiveness and efficiency. Mass marketing is efficient strategy because one product is offered to all consumers irrespective of their difference. However, customization is effective because product is designed as per unique needs and wants of each consumer. But constraints at the production end often obstruct firms in their path to customization. Flexible operations permit variations of a product in which common production platform is used. This a common practice in durable products like cars, computers, televisions, mobiles and air-conditioners. This way a firm manages to extend multiple responses to cater to different consumer groups. Consider HUL has four different detergents that cater to different segments: Wheel for economy, Rin (whiteness seekers) and Surf for mid price, Surf Excel for the top end quality.
Segmentation is proper when it is based on real consumer differences. Real differences manifest in heterogeneous demand. This prevents use of one strategy (marketing stimuli) in different segment. Effectively it implies in marketing you can’t kill two birds with one arrow. Wheel does not offer correct solution to the needs of Surf Excel consumers and vice versa. Often segmentation studies reveal interesting picture of consumer differences. As consumers move up the income ladder, consumption begins to acquire psycho-cultural overtones. Consumer preferences begin to shift from real product differences to symbolic because they want their brands to reflect their personality and lifestyle. Quality excellence is essential first step in marketing to these segments as a result it ceases to be a differentiator. Consider the case of luxury perfumes, clothing, bags, shoes, and bikes. Most Italian brands provide exceptional quality of fit and fabric but their differentiation lies in heritage and signature. Similar is the case with Swiss watch brands.
One of the strategies to fire at two targets with one bullet is cross badging. This involves when a product of one firm is also sold by another firm in cosmetically changed form. One of the old examples of this strategy has been GM’s Prizm and Toyota Corolla. Geo Prizm was same as Corolla in terms of basic design. This strategy allows a firm to increase market participation by increasing its bouquet without making corresponding investment product development. Prizm allows GM to participate in sub-compact sedan segment and Toyota gains by getting a cut from sales pie of its modified Corolla. But moves of this kind can damage the cross badged brand in absence of appropriate equity insulating measures. Although Prizm and Corolla are same cars with different names yet the latter sells much better. Brand name ‘Prizm’ itself insulates Toyota from possible damage to its equity and at the same time it does not allow GM to directly plug into its huge trust (built quality) factor.
Cross badging is a common practice in car industry. For instance Maruti’s A Star is corss badged as Nissan Pixe in Europe and Toyota IQ goes as Aston Martin Cygnet. In India the cross badging is employed to its maximum by Nissan Motor and Renault. Do you get confused between a Nissan Micra and Renault Pulse; Nissan Sunny and Renault Scala. If yes, then cross badging strategy has not worked well. The internal similarity in terms of production systems is fine but if brands have overlapping image it is a sure recipe of branding disaster. Confusion is the biggest enemy of branding. Consider the case of Skoda Rapid and Volkswagen Vento. Do get confused? Probably not, their brand imagery acts to insulate one from the other although they come from the same stable.
Cross alliances and technology sharing permits firms to cross badge products with an unprecedented ease. But the real reasons for cross badging should not be internal. The differences in the market or consumers should be at the center of cross badging decisions not the manufacturing.