Lecture 3 - Consumer Segmentation and Targeting (Chp. 6)

What happens after a target segment has been selected?

- A brand offering must exist or be created with a TARGETED MARKETING MIX to reach and appeal to the segment (with minimal wastage to those outside the segment). - For example: Under Promotion>> Marketers select well targeted media to get their messge to their taget market efficiently. For example the Financial Review in Australia achieves 75% of its readers in the top social class.

What happens after market segmentation?

- A target segment or segments is selected. - Alternatively the company can deicde to employ mass marketing. - Marketing mix is tailored to the segment.

What is the purpose of market segmentation? What are the pros and cons?

- Allows you target your customers and arguably/if done right make your marketing more effective. As it is more personal/tailored to customer and you can address their specific needs/the benefits they are seeking directly. - Allows produces to avoid head on confrontation (by differentiating by price, styling, packaging, promotional appeal, usage and distribution) - HOWEVER: increased costs of segmentation (i.e. shorter production runs, different promotional campaigns, consumer research) - The alternative is mass marketing. This is appropriate if all consumers respond to a similar marketing mix. However, this is unlikely due to variety in our complex behaviour.

Discuss brand segmentation over time.

- Although brand segmentation does not exist, because competition erases any meaningful difference between the competitiors, individual consumers DO HOWEVER OVER TIME COME TO IDENTIFY WITH THEIR PARTICULAR BRANDS. - Popular mantra: "I use it, therefore I like it"

Do the user profile of competing brands actually differ? What is a more useful way of thinking of segmentation?

- Brand segmentation takes into consideration differences in the user-makeup of competitive brands such as Kodak and Fuji for film. - The results from studies day "No"! Therefore, the real marketing issue in a competitive mass market is not, "Who buys my brand" but rather "How many buy it?" - Compared user profiles of various categories to the average user of the category. Overall, the individaul brands percentage profiles deviated from each other by an average of 2 to 3 percentage points. This is considered small - and in effect zero. - Production segmentation is more useful and includes profile difference between the users of functionally distinct categories (e.g. camera vs. projectors) or subcategories (e.g. professional vs. disposable cameras).

What is the main pitfall of segmentation in regards to the Double Jeopardy law?

- Brand should be as inclusive as possible (rather than being focused on too small a segment/too exclusive, as this limits their possible market size and therefore loyalty). - The reality is that a small, targeted campaign can only have a small effect on overall sales. But it can take up a lot of management time and resources that could have been invested elsewhere. Focusing on any segment (for example past users) can lead you to neglect other customers—especially light customers, who we know are important for growth

What is the problem with positioning?

- Empirical evidence shows competing brands do not really have different sorts of customers bases. >> BRAND SPECIFIC SEGMENTS GENERALLY DO NOT EXIST - INTERCHANGEABLE BRANDS USUALLY COMPETE IN WHAT FOR THEM IS A SINGLE, UNSEGMENTED MASS MARKET. - There is no support for the idea that competing brands each appeal to a unique sub-set of users that look different from the customer bases of competitors. >> Consumers are consumers of the category overall, not the individual brand. - Therefore it should in theory not be fruitful to use resources on positioning/differentiating your brand (it is just a waste of resources). Exceptions do exist, and are mostly obvious: for example local banks skew to their home markets.

Discuss criticism from the logic of targeting

- If segmentation were succesful, with real segments being identified and validated, there is still no logical reason to adopt target marketing. - The only possible justification for targeting would be that it gives a greater overall market response than alternatives, like mass marketing, yet target marketing does not necessarily lead to this.

Discuss critisicm from falsifying evidence

- In fact the empirical evidence which is availble falsifies rather than supports segmentation and targeting theory: - Study shows that the same people purchase products which are aimed at completley different segments. - Collins first used panel data to demonstrate that highly loyal customers only represent a very small proportion of purchasers, and argued that the relatively low brand loyalty in the product classes he examined demonstrated that perfect segmentation simply did not exist. He concluded that there was no pair of brands which appealed to diff. segments. Collins therefore concluded that for most brands the bulk of sales will be to the mass market. - CONVERSELY, it is very hard to find any studies that demonstrate that segmentation and target marketing lead to higher sales, or that there are discrete groups of consumers who prefer particular brands. -

What are the implication of the lack of brand segmentation for marketing/brand positioning?

- Instead of being restricted to a specific market segment, marketers more often operate in a large, virtually unsegmented mass market, or at least in a large submarket like luxury cars or handyman cars. - Not being limited to a small niche, however, also means that you have more direct competitors. This means there is more scope, and more need, for plain marketing (i.e. promotion, selling, logistics, quality control, advertising and brand maintenance).

Should we always target the segment with the greatest response?

- It is a fallacy to claim that we should always target the segment with the greatest response (unless we were forced to choose only one segment, such as a single geographical segment). - Segments outside the target group are usually exposed to the marketing mix, and targeting the segment with the greatest response is not necessarily the same as producing the marketing mix with the greatest market response. - Leakage of the pensioner marketing mix into the yuppy segment means that the greatest overall market response comes from targeting the less responsive segment. - If seperate delivery of the marketing mix to segments was possible (perhaps due to geographic segmentation, database marketing or personal selling), then "leakage" of the marketing mix to non-targeted segments could be eliminated. In this case, it would be true to say that the optimum marketing mix would not be the same for all segments. >>> However, this still does not justify targeting the segment with the greatest response, not does it establish that the miz should be tailored to each segment. It is quite possible, for example that a mass-marketing effort could have a better overall return.

What are the 2 broad types of marketing approaches?

- Market segmentation - Mass Marketing

What is the assumption that segmentation works on?

- Marketers often assume buyers differ from one another in their buying behaviour and their needs. - This may often be the case but it is not always.

What characteristics must the selected target segment have in order for marketing efforts tailored for the segment, to be rewarded?

- SIZE: It must be large enough to be profitably served by a given marketing mix (substantial enough so that the expenditure of resources in tageting and reaching them will give the business a good chance of being profitable). - REACHABLE: indivudals in it must be reachable and respond in a similar way (by defintion a segment responds to marketing activities in a similar way). THE SEGMENTS WORTHY OR BEING TARGETED MUST BE OF A CERTAIN SIZE AND TARGETABLE.

Can market segmentation criteria be combined?

- Segmentation criteria can be combined to end up with a more specfici/niche target group. - This may be beneficial is the market is very large, and the "first filter" segmentation/only one critera results in very large segments. - Forexample woman aged 25-39 who are fashion conscious and earn more tha 40,000 dollars a year.

Discuss criticism from segment identification

- Segmentation involves a number of assumptions and arbitrary decisions, and that the solutions are often not robust or stable. Specifically, when using cluster analysis (most common post hoc segmentation approach) to identify segments, researchers must make decisions about: 1. The basis to be used for segmentation 2. Variables to be used to measure and express this basis 3. The analysis methods to be used to identify the segment solutions 4. The # and composition of the segments they choose to have. ^For each of these decisions, there is no reason why one of the alternatives should necessarily produce better results than another, and there are few guidelines about which alternatives are most suitable for different situations; IDENTIFYING SEGMENTS APPEARS TO BE A FUNDAMENTALLY ARBITRARY PROCESS. - So different clustering techniques may produce different solutions, and even the same technique may produce different results for the same set of data, because each technique requires substantial input from the researchers at various stages... - Real segments can only be said to exist if several different algorithms locate the same segments. In practice few researchers describe the results of these or other verification exercises.

Discuss the argmument that segmentation develops understanding of the organisation´s market

- Segmentation studies can help to improve managerial understanding of the marketplace, and help to generate ideas about marketing actions; there is overwhelming evidence from business that, when they are applied correctly, these methods result in a higher overall market response. - First problem: is that the evidence in favour of this argument is anecdotal. (how do we know that there are not an equal # of cases in which segmentation and targeting proved disastrous?) - Second problem: no particular reason to give segmentation and targeting the credit for improved performance. In particular, there may well be an "activity effect" such that any carefully considered and properly supported initiative will help improve business position. IF SEGMENTATION CANNOT BE SHOWN TO HAVE A GREATER IMPACT THAN THE "ACTIVITY EFFECT" THERE IS NO REASON TO USE IT.

What is the text book view on the 2 marketing strategies. Which is better and what is the history?

- The current textbook view of taget marketing is that trying to sell to the entire market is wrong and that modern marketers have moved beyond this. - A typical story (e.g. Kotler) is that marketing has passed through stages: 1. MASS MARKETING (during production era) - mass product, mass distribute and mass promote their SINGLE product to buyers. 2. PRODUCT-VARIETY MARKETING: when firms produce 2 or more products that have features, styles, quality, sizes and so on, for example Coca-Cola producing several soft drinks packaged in different sizes and in different flavors, DESIGNED TO OFFER VARIETY TO BUYERS RATHER THAN TO APPEAL TO DIFFERENT SEGMENTS, because consumers have DIFFERENT TASTES IN DIFFERENT SITUATIONS. 3. TARGET MARKETING: when firms identify market segments, selects one or more of them, and develop products and marketing mixes tailored to the people in each. For example, Coca-Cola now produces soft drinks for the sugared-cola segment, the diet segment and the non-cola segment. The unsupported argument is that the third approach works better. Certainly this sort of argument has influenced marketing practice, but real-world evidence does not support the idea that it is best.

Why does brand segmentation not exist?

- The key reason for the prevailing lack of brand segmenation results is that competitive products are usually substitutable. - They do not differ much from each other in taste, technical formulation, performance devliery system, or any other functional or emotional feature of importance, including often even their appearence (subject to the legal limitations of "passing off"). >> This similarity of brands is not due to technology, but due to competition. Michael Porter´s competitive advantages are copied as soon as possible and are not sustainble for long. - Consumers therefore maintain a steady repetoire of several brands within the category. >>> "When there is little to distinguish one brand from another functionally, any reputable brand will do for the consumer" - Robert Heath

What is a critisicm of target marketing with regards to returns on investment?

- The process of segmentation and targeting does not guarantee the maximum return from marketing expenditure. - Even where it does guarantee the MAXIMUM SALES RESPONSE FOR A GIVEN SEGMENT, this does NOT coincide with the MOST EFFECTIVE OVERALL SPEND >>> SUCCESS OF A COMPANY DEPENDS ON TOTAL SALES NOT SALES TO IN A PARTICULAR SEGMENT

Give examples of market segmentation

-Auto manufacturers thrive on their ability to correctly identify market segments, and then create products and advertising campaigns that appeal to those segments. Cereal producers market actively to three or four market segments at a time, pushing their traditional brands that appeal to older consumers and their healthy brands to health conscious consumers, while building brand loyalty among the youngest consumers by tying their products to popular movie themes. A sports shoe manufacturer might define several market segments that include elite athletes, frequent gym-goers, fashion-conscious women and middle-aged men who want quality and comfort in their shoes. In all cases, the manufacturer's marketing intelligence about each segment enables it to develop and advertise products with high appeal (FITS THE CONSUMERS NEED) more efficiently than trying to appeal to the broader masses.

What are the 2 main assumption, upon which segment/target marketing is based? And what is the problem with them?

1. Consumer preferences will be relatively homogenous within these segments, but relatively heterogenous between these segments 2. Payoffs may be greater when companies match their products and marketing mixes to a particular segment within a market. PROBLEMS: - The problem is the lack of empirical evidence for 2 key assumptions - that the particular segments really are assosciated with a specific set of preferences, and that targeting segments actually gives better return than other approaches. - We have become used to accepting most segmentation and taget marketing uncritically without questioning these underlying assumptions. >> There is very little evidence that practitioners or academics bother either to investigate the reality and stability of their segments, or to predict and measure the effects on the target market. >>> MOST SEGMENTATION AND TARGETING EFFORTS ARE BASED ON DUBIOUS ASSUMPTIONS which, if false, would then invalidate the whole process.

What are the 4 common bases/variables used in CONSUMER segmenation studies

1. Demographics: age, gender, income, occupation, education, family size, ethniticity and geopgraphy, AGE AND LIFE CYCLE STAGE (needs and wants vary with stage) --> Needs and want typically go hand in hand with these, like gender determines the clothes you wear. HOWEVER, risk of stereotyped assumptions. 2.Psychographics: attitudes opinions, activities, personality, lifestyle, interets values, social class (SOCIO-ECONOMIC, VALUES AND ATTITUDES) - COMBINED with DEMOGRAPHICS 3. Geographic: divid market into seperate geographic units. e.g. nations, regions, provinces etc. Develop regional marketing programs, this is likely in global marketing programs. >> it is assumed that alot of the demographic assumptions are clustered under the geographic units, like ethiniticy, education etc. 3. Behavioral/usage: uses/benefits (long distance shoe or basket ball show for example) usage rate, loyalty status, buyer-readiness, decision role (initiation, influencer, decider, buyer, user > Alot taget kids to pursuade parents to buy) 4. Other: Occasion/situation, benefits sought, media habits.

What are the 2 questions marketers must ask themselves once market segmentation is complete?

1. Who are the buyers? How many buyers are within this segment? 2. How can we reach these buyers? - what media? - how are they different from other segments? - where are people within this segment located? where do they purchase? - what are their intersts and behaviours?

Give examples of Demographic variables

Age Education Income Level Family Ethnicity

Give 2 examples of a product tailored to segments

Airplane seating/pricing: e.g. melbourne to london Economy: 1400 dollars, very basic seating and service, as the name suggests customers in this group are more economically conscious, less flexible or unwilling to spend large sums on planes. First class: 8,400 dollars, luxury seating/beds, service _______________ Colgate provides numerous varieties to the market, each successfully targeting and meeting the needs of a unique segment of buyers. along with 'normal' toothpaste, these include toothpastes for children and for those with sensitive teeth, variants such as gel toothpaste, toothpastes for tooth whitening and tartar control, and toothpaste with extra strong fluoride. From the toothpaste packs, we may infer some of the segments to which these offerings appeal.

What does a market look like before segmentation?

An entire market comprises of distinct, HETEROGENOUS needs (e.g. cars for leisure, racing, transport). Typically the market will have groups of individuals sharing more homogenous needs (there are subsets of the larger market/universal set).

What criteria must segment bases/variables fulfill to be useful?

Bases/variables must be: 1. observable (must be able to notice the specific difference in buyer behviour, needs or attitudes for it to be useful to marketers) 2.measurable (must be measurable, if you cant meausure ihow many people fit into the varible, then the marketer cannot use it as a segmentation base and it will not provide useful ) 3.stable (the base must be stable because otherwise the resulting segments will be changing, and thus make investment in marketing that caters for the specific segment futile). 4. Must segment the market into groups with substantial differences in buying, such that there is likely value in targeting customised marketing mixes to these different segments.

List the 3 critisisms that undermine the key assumptions of segmentation and target marketing?

Criticism from: 1. Segment identification 2. The logic of targeting 3. Falsifying evidence

Define positioning

Developing a brand image to appeal to a particular target segment. "Positioning is how you differentiate yourself in the mind of the prospect" >> Done by tailoring the marketing mix.

What are typical positioning strategies?

Differentiation through: 1. Price/quality: - Emphasize value in terms of quality, price or both. - E.g Stella Artois: "Reassuringly expensive" 2. Product Attributes: - Chateristics/features as a positioning base - e.g. Volvo brand is positioned on "Safety," while the BMW brand is positioned on "Driving" 3. Product usage: - Positioning based on a products typical use - e.g. Nutri-Grain Bars replacing cereal 4. Against a competitor: - E.g. Avis tries harder because its in 2nd place.

Discuss profitability as a way to segment the market

Many businesses use profitability segmentation to target profitable consumers e.g.: 1. Airlines: business travellers get priority check in baggage 2. Banks: high value customers get their own 1800 number: Toll free numbers allow callers to reach businesses and/or individuals without being charged for the call.

What happens after a segment has been targeted?

Market positions: Developing a brand image to appeal to a particular target segment.

Define market segmenation and what are its benefits and draw backs?

Market segmentation is a marketing term referring to the aggregating of prospective buyers into groups, or segments, that have COMMON NEEDS & RESPOND SIMILARLY TO MARKETING ACTION. Benefits: - Enables the orginisation to achieve a better understanding of itself and its environment. - To guide the redesign and repositioning of existing products (products/services fit more closely what customers want) -To find new market segments. Drawbacks: - Risk of poor definition and implementatino of segmentation. - Knowing where to stop. - Assumption that customers only fit one segment. - Assumption that it is PROFITABLE to tailor products to each segment.

Define market segmentation

Market segmentation is a marketing term referring to the aggregating of prospective buyers into groups, or segments, that have COMMON NEEDS & RESPOND SIMILARLY TO MARKETING ACTION. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another. It is useful if it allows a marketer to target particular people (segment members). >> Identify target segment. >> Group markets into clusters of buyers, where each cluster has similar responses to each other and different responses to respondents in other groupings/clusters. The end result of the statistical segmentation is a small number of segments - usually specified beforehand by the analyst (usually less than 7).

Should marketing efforts be concentrated on heavy or light buyers?

Marketing efforts should not be concentrated on the heaviest, most profitable customers, but on the customers who will react most to the marketing attention. These usually turn out to be the lightest buyers of the brand, not its most loyal buyers. It is easy to get a high response on a sales activity if you only approach people who are likely to buy anyway (your heavy customers), especially if you are giving them a special offer (which is reducing your margin). But this is not what brands need to do if they want to grow. All brands lose a number of customers with the passing of time (some move, die or just forget about the brand). Growing brands acquire more new customers than they lose (Riebe, forthcoming). Thus, broad reaching activity becomes a necessity for finding possible new customers as well as maintaining light and current customers.

When is mass marketing most effective?

Mass marketing is most effective when used to advertise products that are considered necessities, which a large number of people are already guaranteed to be shopping for anyway. By building brand awareness through memorable advertisements, this strategy aims to alter the behavior of consumers so they will be directed towards the product being marketed. By producing goods that are needed by a large market and offering them at competitive prices, a mass marketing strategy increases the potential for high volume sales while reducing the costs of manufacturing through mass production. APPROPRIATE: if all consumers respong to a similar marketing mix

Use the shotgun vs. riffle analogy to explain mass marketing

Mass marketing, or UNDIFFERENTIATED marketing, came before customer segmentation. It evolved along with mass production and involves selling the same product to everybody. You can think of mass marketing as a shotgun approach: you blast out as many marketing messages as possible on every medium available as often as you can afford (Spellings, 2009). By contrast, targeted marketing is more like shooting a rifle; you take careful aim at one type of customer with your message.

Define mass marketing and what are its benefits and drawbacks?

Offering the same product (no differentiation) and marketing mix to all consumers. - This is appropriate if all consumers respond to a similar marketing mix. *** Mass marketing is a market strategy whose aim is to appeal to the largest portion of the market while ignoring demographic differences in order to reach the highest number of potential customers possible. This strategy focuses on high sales volumes at lower price points, traditionally using radio, television and print media to gain maximum exposure for the product. This market coverage strategy is the opposite of niche marketing and seeks to appeal to all customers regardless of niche or segmentation by offering products that are useful to a wide variety of people with different needs. **** Benefits: it is a low cost marketing strategy (one advertising and promotional strategy targeted to a single market for a generic product). Drawbacks: does not directly tailor the marketing to adress the needs and wants of the specific customers.

Give an example of how a perceptial map can be used to visualise consumer segments

Perceptual maps are read like road maps—with things that are close together being said to be similar >>> For example, Colgate Cavity protection is a good fit with children), and things a long distance from each other seen as different (cinnamon flavour is not a good fit with Colgate max Fresh or any of the brand offerings shown). Attributes in the centre of the map define the category (for example 'mint' and 'clean teeth').

What do marketers do to ensure that they are no over-targeting?

Smart marketers take a number of steps to ensure they do not over-target. They: - Make sure they understand and document who buys the category - Always check real numbers instead of relying only on indices - Quantify any skews in brands and media - Realise that adding a brand, SKU or focusing on a specific occasion is typically about selling more to the same people. - Know that heavy buyers are not the key to growth - Use overall profit contribu.on rather than campaign ROI to assess marke.ng performance - Look to maximise overall sales and margins, not just response from the target market.

Discuss how market segmentation can be used to highlight which market should be served by the company (both industrial and consumer)

Suppliers need to assess whether their capabilities are adequate to serve a wide range of customer needs and, if so, how best to do that; or whether to ignore some market segments for which the firm does not have appropriate capabilities to adequately match the needs of customers comprising those segments. For example, a low-cost manufacturer might lack sophisticated research and development (r&d) capabilities (since development of those capabilities would increase overhead costs) and, therefore, probably should not attempt to compete within a market segment demanding high-quality products, product innovation and r&d collaboration.

What is the most common way to segment a market?

The most common way to segment a market is to do so based on geography, because people who live and/or buy in different regions need different distributions of goods/services and advertising.

Define targeting

The practice of adjusting the marketing mix to cater for different target segments or choosing not to serve some segments. This includes developing a brand image to appeal to a particular segment (often called positioning).

Give an anecdote that illustrates the problem, if the selected segment bases/variables do not follow the 4 criteria.

The salutary tale of one healthcare company that commissioned 18 segmentation studies over a five-year period without implementing any of them serves to highlight the problem (Weinstein, 1993). >> They need to have the 4 criteria in order for it to make sense to implement them.

Describe characteristics that the resulting segments must exhibit

They must be: 1. mutually exclusive (not useful if buyers fit into more than one group) -> Must result in substantial differences in buying behviour between the groups. 2. Colelvtively the segments must include all buyers of the category (buyers cannot be left out, then they are unaccounted for and marketers miss out on a potential market segment).

Discuss marketing

Unless there are compelling, data-driven reasons to do so, the default approach for marketers is that THE ENTIRE MARKET (all people or companies that buy from the category) IS THE TARGET FOR COMMUNICATIONS & OTHER MARKETING ACTIVITIES. The aim should be for INCLUSION rather than EXCLUSION. - This doesn't mean treating all customers the same. As we have discussed, marketers usually offer much customisation, many different options. They understand that their market contains many different sorts of people, and that people vary in their moods and situations. - But sophisticated mass marketers also look for ways to STANDARDISE; to gain scale and cost efficiencies. They aim to market brands that look distinctive, while making the brand and its marketing as appealing as possible to as many category users as possible. ie. APPLE.

Give examples of common bases/variables used in INDUSTRIAL segmenation studies

When business are selling to businnes (B to B). Businness segment the business they sell to into groups, the same way as consumers are. The spectrum of the segments is just as broad as with customers, with some segments requiring supply offerings ar opposite extremes on dimensions such as: 1. Demographics: industry, location, number of employees, public or privatley owned, and size all result in different needs of the company (customer). SIZE - companies segment the business market according to size of company customers. This is important because busisnesses with larger market share/sales represent bigger customers (e.g. ferrari makes 9,000 vehicles per yer while general motors makes 9 million a year. GM is a larger customer/segment and so marketing resouces will devoted are more likely to yield profit).> Of course this depends on the capabilities of the supplier. A small but highly specilised supplier of automobile components in Italy might have the same size segmentation, but choose to target ferrari instead, because ferraris needs are a better match with the companies offerings. 2. Strategy: distribution channels, growth amibitions, local or export marketing, product quality (cost will be a secondary factor), low-price (focus on cost of components and less on quality and reliability) strategy.

Who illustrated that target marketing does not always deliver returns on investment?

Wright and Esslemont -1994 SUCCESS OF A COMPANY DEPENDS ON TOTAL SALES NOT SALES TO IN A PARTICULAR SEGMENT. unless the media habits of the segments are very different, then reaching the specific segment without wastage or negative response will generally not be possible. - Suppose our segments are old folks and yuppies. We might research the old folks market, and find that the optimum advertisements showed happy pensioners, sitting by their firesides, and that an extra $10,000 of advertising spending on media that exclusively targets this group would lead to [an] additional $100,000 of sales to pensioners. In the yuppy segment research might show the best advertisements to have youngsters racing their BMWs, and that an extra $10,000 of advertising spent reaching yuppies would result in the yuppies spending an extra $150,000. - The targeter would say that we should therefore target the yuppy segment, since its advertising response is 50 per cent greater than the other segment, and show advertisements with young motorists. But our success as a company depends on total sales, not sales in a particular segment. What we should have done is find out which advertisement would produce the best response from the market as a whole. It is logically possible that the pensioner advertisement would produce $70,000 of purchases from the yuppies, while the yuppy advertisement could irritate the pensioners so much that they buy nothing. In this case the targeter's argument is false—we do not achieve the best result by targeting the segment with the best response. **** They also show that since the focus is on total market response, it is possible for a sub-optimal marketing mix at the individual segment level—say, a mass marketing campaign—to be more successful overall.****