Ch 9 - Foundations of Marketing

To derive a perceptual map, marketers follow six steps:

1. Determine consumers' perceptions and evaluations of the product or service in relation to competitors' product or service. 2. Identify the market's ideal points and size. 3. Identify competitors' positions. 4. Determine consumer preferences. 5. Select the position. 6. Monitor the positioning strategy.

The main value proposition components are:

1. Target market 2. Offering name or brand 3. Product/service category or concept 4. Unique point of difference/benefits

undifferentiated targeting strategy (or mass marketing)

A marketing strategy a firm can use if the product or service is perceived to provide the same benefits to everyone, with no need to develop separate strategies for different groups.

concentrated targeting strategy

A marketing strategy of selecting a single, primary target market and focusing all energies on providing a product to fit that market's needs.

market basket analysis

A mathematical modeling technique that utilizes millions of customer purchases, often referred to as big data (discussed in Chapter 10), to determine an association between a group of items that customers purchase at the same time and place into their actual or virtual market basket. This analysis enables the firm to classify customers into behaviorally oriented market segments.

psychographic segmentation

A method of segmenting customers based on how they spend their time and money, what activities they pursue, and their attitudes and opinions about the world in which they live.

behavioral segmentation

A segmentation method that divides customers into groups based on how they use the product or service. Some common behavioral measures include occasion and loyalty.

differentiated targeting strategy

A strategy through which a firm targets several market segments with a different offering for each.

occasion segmentation

A type of behavioral segmentation based on when a product or service is purchased or consumed.

Occasion

Behavioral segmentation based on when a product or service is purchased or consumed is called occasion segmentation. Men's Wearhouse uses this type of segmentation to develop its merchandise selection and its promotions. Sometimes men need a suit for their everyday work, but other suits are expressly for special occasions such as a prom or a wedding. Snack food companies such as Frito-Lay also make and promote snacks for various occasions—individual servings of potato chips for a snack on the run but 16-ounce bags for parties.

The fourth step in the STP process is to select a target market. The key factor likely to affect this decision is the marketer's ability to pursue such an opportunity or target segment. Thus, as we mentioned in Chapter 2, a firm very carefully assesses both the attractiveness of the target market (opportunities and threats based on the SWOT analysis and the profitability of the segment) and its own competencies (strengths and weaknesses based on the SWOT analysis).

Determining how to select target markets is not always straightforward, as we discuss in more detail next and illustrate in Exhibit 9.7 with several targeting strategies.

perceptual map

Displays, in two or more dimensions, the position of products or brands in the consumer's mind.

Substantial

Once the firm has identified its potential target markets, it needs to measure their sizes. If a market is too small or its buying power insignificant, it won't generate sufficient profits or be able to support the marketing mix activities. As China's economy started growing, there were not enough middle-class car buyers to push foreign automakers to design an entry-level vehicle. It was only after that number grew substantially that it became worthwhile for them to market to these identified consumers.

Profitable

Segment profitability = (Segment size × Segment adoption percentage × Purchase behavior × Profit margin percentage) − Fixed costs

Reachable

The best product or service cannot have any impact, no matter how identifiable or substantial the target market is, if that market cannot be reached (or accessed) through persuasive communications and product distribution. The consumer must know that the product or service exists, understand what it can do for him or her, and recognize how to buy it. If Victoria's Secret fails to tell women that it is offering some less luxurious, more affordable options, shoppers will just walk right past the store and buy basic bras from the Macy's store in the same mall.

demographic segmentation

The grouping of consumers according to easily measured, objective characteristics such as age, gender, income, and education.

geodemographic segmentation

The grouping of consumers on the basis of a combination of geographic, demographic, and lifestyle characteristics.

benefit segmentation

The grouping of consumers on the basis of the benefits they derive from products or services.

geographic segmentation

The grouping of consumers on the basis of where they live.

self-concept

The image a person has of himself or herself; a component of psychographics.

ideal point

The position at which a particular market segment's ideal product would lie on a perceptual map.

The last step in developing a market segmentation strategy is positioning. Market positioning involves a process of defining the marketing mix variables so that target customers have a clear, distinctive, desirable understanding of what the product does or represents in comparison with competing products.

The positioning strategy can help communicate the firm's or the product's value proposition, which communicates the customer benefits to be received from a product or service and thereby provides reasons for wanting to purchase it.

market positioning

The process of defining the marketing mix variables so that target customers have a clear, distinctive, desirable understanding of what the product does or represents in comparison with competing products.

value proposition

The unique value that a product or service provides to its customers and how it is better than and different from those of competitors.

lifestyle

The way a person lives his or her life to achieve goals.

psychographics

Used in segmentation; delves into how consumers describe themselves; allows people to describe themselves using those characteristics that help them choose how they occupy their time (behavior) and what underlying psychological reasons determine those choices.

Value Proposition

Value is a popular positioning method because the relationship of price to quality is among the most important considerations for consumers when they make a purchase decision.

Concentrated Targeting Strategy

When an organization selects a single, primary target market and focuses all its energies on providing a product to fit that market's needs, it is using a concentrated targeting strategy.

Using Multiple Segmentation Methods

Although all segmentation methods are useful, each has its unique advantages and disadvantages. For example, segmenting by demographics and geography is easy because information about who the customers are and where they are located is readily available; however, these characteristics don't help marketers determine their customers' needs. Knowing what benefits customers are seeking or how the product or service fits a particular lifestyle is important for designing an overall marketing strategy, but such segmentation schemes present a problem for marketers attempting to identify specifically which customers are seeking these benefits. Thus, firms often employ a combination of segmentation methods, using purchase behaviors to determine how groups of customers buy and use their products, demographics, and geography to identify and target marketing communications to their customers and then using benefits or lifestyles to design the product or service and the substance of the marketing message.

micromarketing

An extreme form of segmentation that tailors a product or service to suit an individual customer's wants or needs; also called one-to-one marketing.

Salient Attributes

Another common positioning strategy focuses on the product attributes that are most important to the target market.

Loyalty

Firms have long known that it pays to retain loyal customers. Loyal customers are those who feel so strongly that the firm can meet their relevant needs best that any competitors are virtually excluded from their consideration; that is, these customers buy almost exclusively from the firm. These loyal customers are the most profitable in the long term.25 In light of the high cost of finding new customers and the profitability of loyal customers, today's companies are using loyalty segmentation and investing in retention and loyalty initiatives to retain their most profitable customers. From simple "buy 10 sandwiches, get the 11th free" punch cards offered by local restaurants to the elaborate travel-linked programs run by hotel and airline affiliates, such loyalty segmentation approaches are ubiquitous. Starbucks uses its loyalty programs and mobile apps to enhance value for its customers.

Identifiable

Firms must be able to identify who is within their market to be able to design products or services to meet their needs. It is equally important to ensure that the segments are distinct from one another because too much overlap between segments means that distinct marketing strategies aren't necessary to meet segment members' needs.

Differentiated Targeting Strategy

Firms using a differentiated targeting strategy target several market segments with a different offering for each

Responsive

For a segmentation strategy to be successful, the customers in the segment must react similarly and positively to the firm's offering. If, through the firm's distinctive competencies, it cannot provide products or services to that segment, it should not target it. For instance, the Cadillac division of General Motors (GM) has introduced a line of cars to the large and very lucrative luxury car segment. People in this market typically purchase Porsches, BMWs, Audis, and Lexuses. In contrast, GM has been somewhat successful competing for the middle-priced, family-oriented car and light truck segments. Thus, even though the luxury car segment meets all the other criteria for a successful segment, GM took a big risk in attempting to pursue this market.

self-values

Goals for life, not just the goals one wants to accomplish in a day; a component of psychographics that refers to overriding desires that drive how a person lives his or her life.

The Segmentation, Targeting, and Positioning (STP) Process

Step 1: Establish the Overall Strategy or Objectives Step 2: Use Segmentation Methods Step 3: Evaluate Segment Attractiveness Step 4: Select a Target Market Step 5: Identify and Develop Positioning Strategy

loyalty segmentation

Strategy of investing in loyalty initiatives to retain the firm's most profitable customers.

Undifferentiated Targeting Strategy, or Mass Marketing

When everyone might be considered a potential user of its product, a firm uses an undifferentiated targeting strategy (mass marketing). (See Exhibit 9.7.) Clearly, such a targeting strategy focuses on the similarities in needs of the customers as opposed to the differences. If the product or service is perceived to provide similar benefits to most consumers, there simply is little need to develop separate strategies for different groups. Although not a common strategy in today's complex marketplace, an undifferentiated strategy is used for many basic commodities such as salt or sugar. However, even those firms that offer salt and sugar now are trying to differentiate their products. Similarly, everyone with a car needs gasoline. Yet gasoline companies have vigorously moved from an undifferentiated strategy to a differentiated one by targeting their offerings to low-, medium-, and high-octane gasoline users.