Marketing Chapter 7 - Segmentation, Targeting, and Positioning

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Positioning by Using Perceptual Mapping - 1) Determine consumer perceptions & evaluations of product/service in relation to competitors

1) Determine consumer perceptions & evaluations of product/service in relation to competitors'. Determine their brand's position by asking consumers a series of questions about their and competitors' products. -> How the consumer uses the existing product or services, what items the consumer regards as alternative sources to satisfy his or her needs, what the person likes/dislikes about the brand in relation to competitors, and what might make that person choose one brand

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - 4 positioning methods - 1) Value

1) Value: popular positioning method because the relationship of price to quality is among the most important considerations for consumers when they make a purchase decision. o Value positioning may open up avenues to attract new customer segments that the company previously had neglected -> cheaper price hits a new (less rich) segment o High-price positioning strategy o Another strategy for value = emphasize that consumers are offered the best product/service but must pay a premium price to cover the additional cost. o Company may go after a competitor by offering a comparable product at a lower price-> often used for high-end products or luxury brands such as hotels and sports cars. o Some companies claim that they are offering the same value for much less money. -> common along wireless service providers (ex: TELUS), cable/satellite TV and radio providers (Roger's), electronics retailers (Future Shop), and department stores (Zellers o companies may use value positioning that lets consumers know they are getting much less but they are also paying much less -> good strategy for cost-conscious consumers

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Positioning by Using Perceptual Mapping - 2) Identify competitors' positions

2) Identify competitors' positions. Study how those competitors position themselves.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - 4 positioning methods - 2) Product attributes

2) Product attributes: attributes that are most important to the target market. -> Focus on product leadership, emphasizing dimensions such as innovation, quality, performance, design, & reliability.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - 4 positioning methods - 3) Benefits and Symbolism

3) Benefits and Symbolism: emphasizes the benefits of the brand as well as the psychological meaning of the brand to consumers. o For example, JACOB is about comfort in a casual, modern style. Abercrombie & Fitch is about casual luxury -> meanings created by these brands are often the reasons why consumers buy them rather than lesser known brands that sometimes offer similar benefits or quality. o For established companies, a well-known symbol can also be used as a positioning tool, especially to appeal to loyal customers -> distinguishes it from its competition.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Positioning by Using Perceptual Mapping - 3) Determine consumer preferences.

3) Determine consumer preferences. We already know what the consumer thinks of products/ services in the marketplace and their relative positions. Now find out what the consumer really wants—the "ideal" product or service that appeals to each market. o Ex: (see map above) huge market exists for Gatorade, shared with PowerAde. Gatorade recognizes a market (ideal product for segment 5 on the perceptual map) of consumers who prefer a less sweet, less calorie-laden drink that offers the same rejuvenating properties as Gatorade. Currently, no product is adequately serving market 5.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - 4 positioning methods - 4) Competition

4) Competition: position products/services head-to-head against a specific competitor or an entire product/service classification on similar attributes within the target market. o Head-to-head positioning often leads to price wars such as the "cola wars" and "airline wars," which are good for consumers but bad for businesses. o Careful not to position their product too closely to their competition because they risk confusing customers or facing legal challenges o can also choose a differentiation strategy by going after a less competitive, smaller niche -> this is to avoid competition and focus on a different market

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Positioning by Using Perceptual Mapping - 4) Select the position

4) Select the position. For example, Gatorade has 3 choices to appeal to the "less sweet sports drink" target market 5. It could develop a new product to meet their needs. OR it could adjust/reposition its marketing approach—its product and promotion—to sell original Gatorade to market 5 (arrow pointing down from Gatorade to the ideal point for segment 5). Finally, it could ignore what target market 5 really wants and hope that consumers will be attracted to the original Gatorade because it is closer to their ideal product than anything else on the market (arrow pointing up)

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Positioning by Using Perceptual Mapping - 5) Monitor the positioning strategy

5) Monitor the positioning strategy. Consumers' tastes shift, and competitors react to those shifts. Attempting to maintain the same position year after year can spell disaster. Thus, firms must always view the first 3 steps of the positioning process as ongoing, with adjustments in step 4.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 3: Evaluate Segment Attractiveness - Assess the potential profitability of each segment

Assess the potential profitability of each segment, both current and future. Key factors: market growth: current size and expected growth rate market competitiveness: #of competitors, entry barriers, product substitutes market access: ease of developing or accessing distribution channels and brand familiarity Segment profitability=(segment size)*(segment adoption%)*(purchase behaviour)*(profit margin %)-fixed costs Segment size = # of people in the segment Segment adoption % = % of customers in the segment who are likely to adopt product/service Purchase behaviour = Purchase price × # times the customer would buy the product/service during a given time period Profit margin %= (Selling price − Variable costs) ÷ Selling price Fixed costs = Advertising expenditure, rent, utilities, insurance, administration, salaries Several segments may appear to be equally profitable according to this formula. Sometimes, it is more accurate to evaluate the profitability of a segment over the lifetime of one of its typical customers -> customer lifetime value (CLV): total value of purchases of the customer over a lifetime of patronage. Marketers consider factors such as how long the customer will remain loyal, the defection rate (% of customers who switch on a yearly basis), the costs of replacing lost customers (promotion), whether customers will buy more/more-expensive stuff in the future

SEGMENTATION-TARGETING-POSITIONING PROCESS

Step 1: establish Overall Strategy or Objectives Step 2: Segmentation Bases Step 3: Evaluate Segment Attractiveness Step 4: Select Target Market Step 5: Identify and Develop Positioning Strategy

Market segmentation

dividing the market into groups of customers who have different needs, wants, or characteristics and who might appreciate products or services geared especially for them. • define the marketing mix variables so that the target customers have a clear, distinctive, desirable understanding of what the product or services do or represent, relative to competing products

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 2: Segmentation Bases - Determining Psychographic segmentation - Three Components

o Determining psychographics involves three components: self-values, self-concept, and lifestyles. 1. Self-values: life goals. Overriding desires that drive how a person lives his or her life. -> Self-respect, self-fulfillment, belonging. -> causes people to develop self-images of how they want to be and then determine a way of life that will help them arrive at these goals. -> help determine the benefits the target market may be looking for from a product. 2. Self-concept: image people have of themselves. This is how self-values affect us. A person who has a goal to belong may see, or want to see, himself as a fun-loving -> marketers use this image by showing their products being used by groups of laughing people who are having a good time -> connect your product to how people see themselves 3. Lifestyles: the ways we live. If values provide an end goal and self-concept is the way one sees oneself in the context of that goal, lifestyles are how we live our lives to achieve goals. Someone with a strong sense of belonging who sees himself as a "people person" will probably live in a well-populated area that allows for many activities.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 2: Segmentation Bases - Psychographic Segmentation - VALS

o Marketers have a built-in target group with similar interests and buying desires. o The most widely used psychographic system is the VALS™: based on answers to the VALS™ questionnaire, consumers are classified into the 8 segments in the 2 dimensions on the diagram -> On the vertical dimension, segments are described by their resources (income, education, health, energy level, innovativeness). The upper segments have more resources and are more innovative than the bottom. The horizontal dimension shows the segment's primary motivation. Consumers buy stuff because of their primary motivation: how they see themselves, how that self-image governs their activities. 3 universal primary motives: 1. People who are primarily motivated by ideals are guided by knowledge/ principles, 2. those motivated by achievement look for products that show success to their peers 3. self-expression: see chart below VALS™ enables firms to identify target segments and their underlying motivations. It shows correlations between psychology and lifestyle choices. -> Ex: identify those customers most interested in and able to afford cosmetic surgery. By identifying the underlying motivations of its target customers, develop campaign o psychographics are a very good complement to demographics to produce an in-depth profile o Psychographics are not as objective as demographics, and it is harder to identify potential customers. With demographics, a firm can easily identify its customers as men/women & then direct its marketing strategies to each group differently. The problem is that not all men are alike. Women are not all alike either. ->be difficult to identify and target "thinkers" vs. "makers," See 8 segments of VALS

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 2: Segmentation Bases - Behavioural (benefit) segmentation

• Behavioural (benefit) segmentation groups consumers based on the benefits they derive from products/services, their usage rates of products or services, their user status, and their loyalty. o Because marketing is about satisfying consumers' needs and wants, dividing the market into segments whose needs/wants are best satisfied by the product benefits can be very powerful. o It is easy to portray benefits in communication strategies: their usage rates, user status, loyalty. o Track consumer behaviour and use it for better customer experiences/ interactions with the firm. o Loyal customers feel so strongly that the firm can meet their relevant needs best that any competitors are virtually excluded from their consideration-> most profitable in the long term. o companies are using loyalty segmentation and investing in retention and loyalty initiatives to retain their most profitable customers. Canadians are crazy about loyalty cards

SEGMENTATION-TARGETING-POSITIONING PROCESS - Repositioning - Brand Repositioning

• Brand repositioning: marketers change a brand's focus to target new markets or realign the brand's core emphasis with changing market preferences • New marketing opportunities also may spur firms to reposition their brands. -> ex: growing youth segment, its purchasing power, and its increasing influence on household purchasing decisions • Repositioning can change the quality image of the brand • Repositioning breathes life into old brands -> revitalization sometimes can result from changing the packaging and/or altering the characteristics of the brand -> ex: more convenient lotion bottles • Comes with costs and risks -> money to make tangible changes to the product/packages, & intangible changes to image through advertising -> costs may not be recovered if the repositioned brand/messages are not credible to the consumer or if the firm has mistaken a fad for a LT trend.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 4: Select Target Market - Segmentation Strategies - Concentrated (Niche) Segmentation Strategy

• Concentrated (Niche) Segmentation Strategy: organization selects a single, primary target market and focuses all its energies on providing a product to fit that market's needs, o Entrepreneurial start-up ventures often benefit from this; allows them to employ their limited resources more efficiently.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 4: Select Target Market - Segmentation Strategies - Cost vs Value

• Degree to which firms should segment their markets—from no segmentation to one segment to multiple segments to one-to-one segments—depends on the balance the firm wants to achieve between the added perceived customer value that segmentation can offer and its cost.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 2: Segmentation Bases - Demographic segmentation

• Demographic segmentation groups consumers according to easily measured, objective characteristics such as age, gender, income, education, race, occupation, religion, marital status, family size, family life cycle, and home ownership. ->Easy to reach. o If Pizza Hut wants to advertise their pizza to kids, they can easily determine that the best time for TV ads would be during cartoons shown on Saturday morning or after school on weekdays. o TV viewing habits vary significantly between men and women. Men tend to channel surf and watch primetime shows more often if they are action-oriented and have physically attractive cast members. Women view shows to which they can personally relate through the situational plot or characters and shows recommended by friends o For example, demographics are poor predictors of the users of activewear. Nike assumed that activewear would be purchased exclusively by young, active people, but the health and fitness trend has led people of all ages to buy such merchandise. Furthermore, relatively inactive consumers of all ages, incomes, and education find activewear more comfortable. o depending on the nature of the product/market, it might be better to combine demographic segmentation with other segmentation bases.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 2: Segmentation Bases - Using the Internet

• Developing a market segmentation strategy over the Internet usually is easier than developing it for traditional channels -> facilitates implementation of segmentation strategies in many ways: 1) Offers the possibility to cater to very small segments, sometimes as small as one customer at a time, very efficiently and inexpensively (e.g., mortgage and insurance sites that provide personalized quotes). A personalized website experience can be executed at a significantly lower cost than would be possible in other venues, such as in a retail store or over the phone. 2) It simplifies the identification of customers and provides a lot of info about them. Cookies provide identification of each potential customer who visits a website and detail how he has searched through the site. Marketers also can ask visitors to fill out an online registration form 3) Company can make a variety of recommendations to customers on the basis of their site visit patterns and how they search the site. 4) Marketing strategy can be customized in real time according to known data about the customer. -> Ex: Staples can offer merchandise at different prices in different parts of the country by simply asking customers to enter their postal codes. • Growth of Internet-based segmentation also has prompted increased consumer concerns and public policy mandates. -> most Internet sites now include privacy policies that clearly state what types of consumer info are collected and how that info is used

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 4: Select Target Market - Segmentation Strategies - Differentiated Segmentation Strategy

• Differentiated Segmentation Strategy: target several market segments with a different offering for each-> La Senza employs 3 store formats to appeal to three different segments: (1) confident, fashion-forward 18- to 35-year-old women; (2) younger girls; and (3) women looking for the ultimate destination for bras and panties for everyday and trend-forward styles. o helps obtain a bigger share of the market and increase the market for their products overall o Providing products or services that appeal to multiple segments helps diversify the business thereby lowering the company's overall risk -> if a line directed toward one segment is performing poorly, the impact on the firm's profitability can be offset by another line o Can be expensive -> firm must develop, manufacture, transport, store, and promote the accessories separately for each of its store concepts.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Effective Positioning

• Effective positioning: marketers not only shape customers' thinking/feelings, but also evolve these feelings as they reposition their products and brands to keep up with the dynamic marketplace. • Let consumers know what the company's unique value proposition is and for whom it is intended. Clarity of this message is crucial-> determine target market's needs/wants & deliver the best value • Firm's positioning strategies must focus on the value a product or service offers the target consumer, or how it is better than competitors' products and services. • Positioning strategies are realized by communicating particular messages (positioning statement) in persuasive communications through different media.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 2: Segmentation Bases - Geographic segmentation

• Geographic segmentation: groups based on where they live. Market could be grouped by country, by region, by province, city, or by climate and topography (warm, cold) -> useful for companies whose products satisfy needs that vary by region. Firms can provide the same basic goods/services to all segments, but make adjustments to meet the needs of smaller geographic groups.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 4: Select Target Market

• Key factor: marketer's ability to pursue such an opportunity or target segment. • Firm is likely to assess both the attractiveness of the opportunity (OT of SWOT, segment profitability) and its own competencies (SW of SWOT) very carefully. • Firm might match its competencies with the attractiveness of various alternative segments and use this process to pick the best fit. Establishing a basic segmentation strategy is not always easy/clear • Some firms specialize in their product or service line to meet the needs of small groups

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Market Leadership

• Market Leadership: emphasize leadership position within industry. Canadian companies such as RBC play up their status as market leaders in their respective industry -> consumers often perceive them as setting the standards of their industry.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 4: Select Target Market - Ethical Concerns

• Market selection also can raise serious ethical concerns. For example: o High-end designers are taking advantage of teens' desire for fashion and bragging rights to sell apparel to younger consumers by targeting them intensively with advertising and product placements. The effects of intense advertising to kids also appear in the form of more sophisticated brand opinions among younger and younger consumers. o Resulted in massive increases in "fashion bullying"—that is, when students are targeted because they do not wear the "right" clothing or designers. More than one-third of all middle school students say that they have been bullied because of what they wear. o Some advertising appears to be encouraging fashion bullying.

Segmentation, Targeting, and Positioning

• Marketing is about satisfying consumers' wants and needs. • It is not enough just to make the product. You must position their products in the minds of the target market so those consumers understand why it meets their needs better than other brands

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 4: Select Target Market - Segmentation Strategies - Micromarketing (1-to-1 marketing)

• Micromarketing (1-to-1 marketing): firm tailors a product or service to suit an individual customer's wants or needs-> extreme form of segmentation; custom made stuff o Easier for small producers to tailor their offering to individual customers than for larger companies to achieve this degree of segmentation. o mass customization: 1-1 marketing to the masses by creating custom-made products or services. o Prior to the Internet era, micromarketing was almost impossible to achieve except for within small, entrepreneurial firms. Internet has made it possible for firms of all sizes and markets.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Positioning by Using Perceptual Mapping.

• Perceptual map displays, in 2 or more dimensions, the position of products/brands in consumer's mind. -> Position of each brand is denoted by a small circle, and the numbered asterisks denote consumers' ideal points—where a particular market segment's ideal product would lie on the map. o Ex: above, there are 2 dimensions: strong vs. light taste (vertical) and fun vs. healthy (horizontal). This industry is complex, but we simplified the diagram to include only a few players.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Positioning Statement formula

• Positioning Statement formula: For (target customer), Who (statement of need or opportunity), The (product name) is a (product category), That (statement of key benefit), Unlike (primary competitive alternative), Our product (statement of primary differentiation) • Positioning is important but difficult& least understood aspect of marketing strategy development. o not easy to shape consumers' perceptions in the way marketers may want o While marketers must keep their positioning fresh to keep abreast with the ever-changing marketplace, consumers' perceptions are enduring and do not change easily. o Risky because if it is not done correctly, the brand may not succeed in the marketplace. • Involves a process of defining the marketing mix variables so that target customers have a clear, distinctive, desirable understanding of what the product does in comparison with competition

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Positioning

• Positioning: mental picture or perception (thoughts, feelings, and impressions) that people have about a company, its products and brands relative to competing products, brands, or companies. o Formed from multiple sources; reference groups, published articles, reports , & experience. • These ideas and emotions drive consumers toward/away from a brand or company. • Positioning is what determines consumers' preference for a company's products or brands. o Preference: consumers want a company's brand and will not accept competitors' substitutes -> drives market share and revenues

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 2: Segmentation Bases - Psychographic segmentation

• Psychographic segmentation: how consumers describe themselves. Allows people to describe themselves by using those characteristics that help them choose how they occupy their time (behaviour) and what underlying psychological reasons determine those choices. o Self-segmentation = knowledge for managers trying to find new ways of attracting customers

SEGMENTATION-TARGETING-POSITIONING PROCESS - Repositioning

• Sometimes firms try to change positioning. -> Ex: junk-food companies try to reposition themselves as offering healthier choices by using multigrain and healthier-looking websites • Disadvantage: if it's not done well, the company alienates core customers & fail to attract new ones • Advantage: it strengthens the brand in the marketplace-> keep its core customers, draw new ones • Good marketers constantly re-evaluate their brand's position to determine when to reposition it to keep up with changes in the marketplace or to put a fresh spin on their stale and stodgy brand. • "if it ain't broke, then don't fix it" -> becomes too late to reposition if you think this way. The result is that their positioning is so badly damaged that it takes years and huge budgets to rebuild. • Proactive companies change or tinker with their positioning to keep up with market dynamics. For example, for most of General Electric Company's history, its positioning was based on product • Repositioning is not an easy task because consumers' perceptions do not change readily, even though the marketplace is changing rapidly.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 5: Identify and Develop Positioning Strategy - Positioning by Using Perceptual Mapping - 5 Steps

• To derive a perceptual map such as this, marketers follow five steps. 1) Determine consumer perceptions & evaluations of product/service in relation to competitors 2) Identify competitors' positions 3) Determine consumer preferences 4) Select the position 5) Monitor the positioning strategy

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 4: Select Target Market - Segmentation Strategies - Undifferentiated Segmentation Strategy, or Mass Marketing

• Undifferentiated Segmentation Strategy, or Mass Marketing: when everyone might be considered a potential user of its product, & if the product or service is perceived to provide the same benefits to everyone -> no need to develop separate strategies for different groups. o effective for very basic items, such as salt, sugar, or greetings cards o common among smaller firms that offer products or services that consumers perceive to be indistinguishable, such as a neighbourhood bakery o but now orgs are trying to differentiate themselves from competition. By making their commodity-like products appear special, these companies add value for the customer.

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 2: Segmentation Bases - Using Multiple Segmentation Methods

• Using Multiple Segmentation Methods each method has its unique advantages and disadvantages. o Because "birds of a feather flock together," companies use a combination of geographic, demographic, and lifestyle characteristics, called geodemographic segmentation-> Consumers in the same neighbourhoods tend to buy the same types of cars, appliances, and apparel, shop at the same types of retailers, and behave similarly to media and promotions. o widely used tool for geodemographic segmentation in Canada = PSYTE cluster profiles: groups all neighbourhoods in Canada into 60 different lifestyles clusters with specific locations. o Geodemographic segmentation is useful for retailers because customers typically patronize stores close to their neighbourhood. Thus, retailers can tailor each store's assortment to the preferences of the local community. o useful for finding new locations; retailers identify their "best" locations and determine what type of people live in the area surrounding those stores, according to the geodemographic clusters. Then, they can find other potential locations where similar segments reside. o Geodemographic systems help marketers compare performance among various clusters

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 1: establish Overall Strategy or Objectives

• articulate the mission and the objectives of the company's marketing strategy clearly. • Segmentation strategy must be consistent with and derived from the firm's mission and objectives, as well as its current situation (use SWOT)

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 3: Evaluate Segment Attractiveness

• evaluating the attractiveness of the various segments -> marketers first must determine whether the segment is worth pursuing by using 4 descriptive criteria: 1) Identifiable: determine who is within their market to design products/ services to meet their needs. Ensure that the segments are distinct because too much overlap between segments means that distinct marketing strategies aren't necessary to meet segment members' needs. 2) Reachable: through persuasive communications and product distribution. Consumers must know the product/service exists, understand what it can do for them, and recognize how to buy it. Firms trying to reach university students have a difficult time because students' media habits are quite diverse, and generally they are cynical about firms that try too hard. Other hard-to-reach segments are people with disabilities or those whose religious beliefs restrict their media choices. 3) Responsive: customers in the segment must react similarly and positively to the firm's offering. If the firm cannot provide products or services to that segment, it should not target it. 4) Substantial and Profitable: measure the target market's size and growth potential. If a market or its buying power is too small, it won't generate sufficient profits to support the marketing mix

SEGMENTATION-TARGETING-POSITIONING PROCESS Step 2: Segmentation Bases

• use a formal approach to segment the market • Develop descriptions of the different segments; their needs, wants, and characteristics ->help firms better understand the profile of the customers in each segment. • Distinguish the customer similarities within a segment and dissimilarities across segments. -> this segmentation method is based on the benefits that consumers derive from the products. • Marketers use various segmentation bases, including geographic, demographic, psychographic, and behavioural, or a combination of these segmentation approaches