Blackwell Reference Online

Extract

As markets mature, the opportunities to carefully segment them increase. Usually, cherry picking tends to mean that a competitor selects an upmarket segment to attack with a product/service package that is differentiable and that is perceived by customers to be superior to alternate offerings. For example, Harley Davidson motorcycles has been reborn by appealing to a particular group of dedicated enthusiasts in the US and overseas who are looking for values such as distinctiveness, individualism, and power rather than a simple means of transport. Some purchasers of expensive hi‐fi systems can actually detect superior sound qualities; others buy such systems to feel good in front of their friends. Most golfers have high handicaps, but many buy expensive clubs because it makes them feel better. Such upmarket segmentation is common and readily observed. However, it is possible to segment other market areas in which cost leadership can be combined with differentiation to achieve significant competitive advantage . Direct Line Insurance thus transformed the motor insurance market by offering a direct telephone service, so eliminating the need for brokers; and with a built‐in cost advantage of at least 30 percent and by carefully selecting the motor risks that the company was interested in insuring, it achieved a higher level of profitability and lower risk while providing customers ... log in or subscribe to read full text