When talking about size we usually tend to think of the size of the company but the size of the company in itself, it is not a real point. The point is the matching between the size of the company and the size of the market. It is important to move the attention from the size of the company to the size of the market. We know that every market can be segmented. That is to say, every market can be broken down into different segments, each one of which can have a size. A segmentation is a creative act of the company, that is to say, a single company can segment the market in many different ways. Basically it can come up with segments, each one of them can have a different size. The point is to find a way that matches, basically, the size of the company with the size of the market. When talking about the size of the market, and so the match between the size of the market and the size of the company, one very important managerial issue is to try to figure out which is the approach that a company wants to have in the market. We can figure out a continuum. On one opposite, one extreme, of this continuum, there are niche markets. On the other side, there are mass markets. Basically these are the two opposites, and in between there are many different options that a single company can pursue. What is a niche market? A market is a small market which is basically made of customers whose expectations are very different from the other expectations, the expectations of the other customers of the market. A company that wants to pursue a niche strategy is a company whose offering, whose value proposition is so different from that of its competitors and so aligned with the expectations, of a very sophisticated small part of the market that is able to match these expectations. This is a niche market and a niche marketing company. On the opposite side there is a mass marketer, so a mass marketing company. That is to say a company which basically approaches the market with one single value proposition: The same value proposition for the whole market. We know that the market can be segmented, but the company for its own reasons. Financial reasons, competitive reasons, image reasons, and/or strategic reasons, it decides to approach a market with one single value proposition. Obviously this is an extreme. In today's markets, in food and beverage businesses it is very unlikely and uncommon to find a company which tends to approach the market exactly the same way with the same value proposition, but in theory there is this option. In most of the situations, companies chose a strategy in between. Close to the niche marketing strategy there is a specialization, segment specialization. That is to say, a company decides to focus on one single segment, which is not so narrow as a niche one, which can be very broad, but the company serves all the needs of the people, the customers in the segment. For this reason, it is specialized. One example is companies specialized in baby food. Baby foods depends on age, it depends on the specific requirements of the mothers or the families. I can decide to focus on that segment, to be specialized in baby food, and so to serve all the customers in that segment with all the needs they have. One very nice example is HiPP. HiPP is one of the most popular brands, and so companies in this business, which is completely specialized in organic food for babies. Close to the mass marketing approach, there is the macro segmentation approach. The company splits, divides the market into very big segments, few but big segments. In this case, the value propositions are different but are different only for big segments. The company doesn't go into more specific segments. One example in this case could be a burger chain like McDonald's. McDonald's has a very standardized approach all over the world, so it can seem very mass marketing, but then a few years ago McDonald's launched McCafé. With McCafé, the company wanted to target another segment, for the occasions of usage, which is basically breakfast or breaks along the day. They have the traditional McDonald's restaurant and then the McCafé. In this case, there are two macro segments divided by the occasion of usage served with two different value propositions. In between, there are multi-segmentation strategies: companies which try to approach the market and each segment of the market with different value propositions. This is very market-oriented because the company recognizes that in the market, there are different segments with different expectations, and so the company decides to serve each single segment with a different value proposition. Usually, this value proposition is represented internally by a specific brand. There are companies with very huge brand portfolios; each one is devoted to a specific segment. In food and beverage business, this is the typical approach of big multinationals. If you think about Dannone in the yogurt market, they have many different brands for each different segment within the market. If you think about spirits, we have big groups like DIGO or Bacardi and they have different spirits, so different value propositions for each segment within the spirits market. Besides the continuum between niche and mass market, there is another which is parallel to this, another continuum that we can take into consideration to make managerial decisions, which is the continuum between personalization and standardization. Personalization basically means that I give the specific segment a specific value proposition. At an extreme, it means that each single customer can have a specific value proposition. With standardization, we have exactly the opposite. One single value proposition for everyone. Usually, standardization backs a mass-marketing approach, whereas personalization backs the niche marketing approach. Also in this case you can have many different options in between. That is to say, if you have a multi-segment strategy, it means that you give some value propositions to specific segments which are more personally, meeting the expectation of that specific segment. Let's take an example: The food service business. The typical example of standardization is a restaurant with a predefined tasting menu. You go into the restaurant and you cannot choose what to eat, basically. There is a tasting menu, you can take only this one option. On the opposite side, complete personalization, you get into the restaurant and you ask for the recipe you want to have. Obviously this is very uncommon in restaurants because if you pursue this strategy you should be able to have all the ingredients that can be combined to give customers all the potential recipes they like and they prefer. In this case there are other options in between. The typical example is a restaurant where you have a tasting menu and a menu à la carte where basically you can choose a predefined menu or you can choose a combination of recipes that you like most. And we go ahead, we move into the theme of consumption. Needless to say, since I like my specific recipes, I don't go to the restaurant, but I prepare them for myself. But also in this case, a company can provide you with help and so with a specific value proposition. Maybe you are not so competent in cooking, maybe you're not so competent in portioning the food that you want to prepare and eat. In this case, there is a good example, which is HelloFresh, which is a company basically providing you with all the ingredients of a recipe that you can prepare at home by yourself. The only thing you have to do is to prepare the recipe with the ingredients that have been chosen and portioned by the company. As you see, there are many different options in terms of personalization and in terms of standardization. The point is that in each market, for each product and each service, we can imagine a standardization and a personalization. One nice example of personalization is a project by PepsiCo which is called Spire. Basically, Spire is a digital soda fountain machine: a machine where you can get your soda that is your drink, and you can mix ingredients to make the drink you like; which is a revolutionary project in a business where usually, customers are not able to mix the ingredients, they can only get the brand with the flavors that they like. Also in this business it is possible. You have to choose between personalization and standardization, and so between a niche marketing approach or mass marketing approach. Obviously there are advantages and disadvantages in both. If you go for a mass market with a standardized value proposition, you, by definition are very efficient. Your costs will be reduced, you have a lot of synergies: commercial synergies, production synergies, and communication synergies, but on the other side, you will standardize. You are basically asking your customers who have different expectations to reduce their expectations in order to be aligned to your value proposition. On the other side, you have personalization, which is very effective, The real advantage is effectiveness, because, as an extreme, you give each single consumer a specific value proposition, or each different segment a specific value proposition. By doing so, you have to differentiate your value propositions. You have to diversify, and by doing this, you increase the cost, because you cannot use the same combination of production factors, or commercial factors, or communication factors for everyone, for every brand and/or product. In this case you increase the effectiveness but lose efficiency. Again, it is a point, a managerial choice of the company to chose what he strategy to pursue is, what is the position the company wants to have in this continuum: closer to the niche, closer to the mass, closer to personalization, closer to standardization? Starbucks is a good example of a mass marketing approach. Obviously as a consumer you could say, when I go into a Starbucks restaurant, I can choose the combination of products that I want. You would be right, but the point is the format. Starbucks restaurants are a format of restaurants, and the format is always the same. Maybe you can slightly different formats in city centers or in airports or in other locations, but the basic format is more less the same. It's very close to the mass marketing approach. A nice and interesting example in the personalization of food service is Subway. Subway is a big chain of fast food. You can eat sandwiches, panini, and other different recipes, but one way to approach the personalization issue is to provide customers with the possibility of making their own sandwich. Subway allows consumers to choose different breads, different fillings, different dressings, by doing so, each single customer can get exactly the recipe he or she wants.
