Chapter 9: Segmentation, Targeting, and Positioning (textbook and class)

typical lifestyle study

AIOs Product usage Media usage: includes newspaper Demographic/socioeconomic status: Links objective, general variables (demographics and socioeconomic status) with subjective, general variables Links AIO with media use and product use.

Cases in which marketing segmentation is useful (textbook)

( Mass Marketing) when there is one product and multiple target segments (Multi-segment) When there are multiple products and multiple market segments Mass customization

Index Number formula

(% of users in a demographic segment/%of population in the same segment) X 100 Index number below 100 means that the region is below the national average Number below, means above the national average

Points of Parity

Features or benefits deemed "necessary" by consumers for a brand to be a viable entry in the product category - the "basic features" a product needs

when there is one product and multiple target segments

Firms can avoid the necessity of developing a new product investing in advertising and promotion and expanding existing product to a new segment market. Example: Publisher of Harry potter marketed the book to preteen, teen, and adult segments differently

Measurability (ease of assignment)

Firms have to have some basis by which they can measure the people who fall into their markets so they can assign them to different segments. Gender and age are commonly used because of their high level of measurability—it is easy to assign people into segments based on these characteristics. Consumer perceptions and psychographics can also be used.

Segmentation Bases (Measurability). These measures can be classified based on two different dimensions

General vs Specific and Objective vs Subjective

The fiver major segmentation bases

Geographic segmentation Demographics segmentation Physchographic segmentation Behavioral segmentation on benefits sought Behavior segmentation based on usage/patronage

Marketing segmentation typically involves 5 steps

Group potential buyers into segments group products to be sold in categories Develop a market-product grid and estimate the size of the market Select target markets Take appropriate marketing actions to reach target markets

Two main approaches to product repositioning

Head-to-head positioning (comparative advertising or against other brands, against product categories) Differentiation positioning (difference in features and benefits, category, specific use)

When there are multiple products and multiple market segments

If developing a new product for a new segment will pay off in the end, market segmentation may give rise to the creation of multiple products for multiple segments. For example, Ford has many lines of cars, trucks, and SUVs to serve its various segments.

Simplicity and cost-effectiveness of assigning potential buyers to segments

If segmentation will be costly and difficult, it should not be done.

Potential for increased profit

If you can get this without segmenting, there is no need to segment

CLV can be calculated as

Margin x (retention rate/ (1 + Discount rate - Retention rate)

5 Criteria to select a target market

Market size Expected growth Competitive position Cost of reaching the segment Compatibility with organization's objectives and resources

The Four Basic Strategies for targeting a market (class notes)

Mass marketing Market concentration Multi-segment Mass customization

The following are the criteria that marketers use when they segment a market: (Class notes)

Measurability (ease of assignment) Reachability Profitability Differential response

Step 5: Take marketing actions to reach target markets

Need to take marketing actions to increase sales and profits

Potential of a marketing action to reach a segment

No segmentation should occur if you cannot use it to implement marketing action

Step 4: Selecting Target Markets

Once the segments have been identified, the organization needs to pick which segments it wants to target.

Promotion

People respond differently to different kinds of promotions. Modifying promotions to reach different segments

Against product categories

Ranch competing with Ketchup by saving "Ranch is the new Ketchup"

Reachability

Reachability is a marketer's ability to' communicate with and reach the segments once they are identified.

Specific variables

Relate expressly to the product category. For example, past purchases are a specific measure - what kind of ketchup you bought in the past will be useful in predicting your likelihood in purchasing a certain ketchup brand

STP Marketing

Segmentation, Targeting, Positioning. Is the process of identifying and serving different groups in the marketplace

Marketers reach segments in two reasonable ways

Selective targeting Self-selection

Expected growth

The higher the expected growth, the more attractive.

Market Size

The larger the market size, the more attractive the segment is

Step 3: develop a market-product grid and estimate size of markets

The markets go on horizontal rows, and the products go on the vertical columns. The size of each market must be estimated.

Objective vs. Subjective

This dimension describes the degree to which the dimension is easily, quantifiably measured

Mass customization

This refers to custom-tailoring goods to customers' needs and wants on a high-volume scale. Mass customization has been made possible through the internet and information technology. It is the step above build-to-order (BTO) manufacturing, such as the Nike By You service, which configures shoes to the customer's specifications about colors, soles, logos, etc.

Points of difference

Unique (desirable) brand features or benefits that differentiate it from other competitors in the product category

Similarity of needs of potential buyers within the segment

Your marketing action must affect the people in the segment in the same way.

Profitability

a marketer must believe that targeting the segment is profitable

objective

age, sex, and weight can be objectively measured

Market segmentation

allows marketers to more effectively respond to the wants and needs of groups of potential buyers, which ultimately leads to the attainment oft he organization's goals.

Subjective

are internal psychological states (such as attitudes, beliefs, perceptions) that cannot be overtly observed. Measured using questionnaires and surveys.

Marketers can use four different types of measures to

assign customers to segments.

Selective targeting

firms can identify mechanisms whereby they can communicate with a specific target segment

Against other brands

firms can make direct comparison between their products and products of other competitors

Market concentration (niche marketing)

focusing on a single, specific segment of the market. There are multiple markets out there, but we only choose one.

Market segmentation involves forming meaningful

groupings of customers and developing elements of the marketing mix to best serve the selected groupings. Market segmentation should be done on the basis of common needs or desired benefits.

Product class (heavy half)

heavy half is the group of people who heavily use products in the product class. 23% of music buyers account for 63% of album sales one year.

Behavior segmentation based on usage/patronage

heavy user, light user, nonuser, including the usage rate

Market segments are relatively

homogeneous groups of prospective buyers that result from the market segmentation process. These market segments share common needs and respond similarly to marketing actions.

Demographic segmentation

household size, gender, age, race, life stage, birth era, marital status, income, education, or occupation

Cost of reaching the segment

if a segment is no accessible, it should not be pursued. The lower the cost of reaching it, the more attractive

Compatibility with the organization's objectives and resources

if the organization cannot fullfill the segment's needs, there is no need to target that particular segment.

Product repositioning

involves changing the place an offering occupies in a customer's mind relative to competitive products.

Head-to-head positioning

involves direct positioning on similar product attributes in the same target markets

Mass marketing

involves using one particular approach to sell a single product to whoever wants it. Henry Ford example

80/20 rule

is a concept that suggests 80 percent of a firm's sales are obtained from 20 percent of its customers.

market-product grid

is a framework that relates a firm's product or potential marketing actions to specific market segments. These grids are a vital part of market research and help firms match specific segments to products.

Product differentiation

is a marketing strategy in which a firm uses different marketing mix activities, such as product features and advertising, to help consumers perceive the product as different from and better than competing products

Discount rate

is calculated by finance professionals, and it is used account for the time value of money (to put the CLV in terms of the present dollar value)

Mass Customization

is the latest trend in targeting. involves uniquely serving each individual customer in the market. Customers have input on what the final product looks like. Example: Build a bear, NikeiD

Margin

is the monetary difference between the annual revenue the company receives from the customer and the annual cost the company incurs to serve the customer

Retention rate

is the percentage of customers per year who will visit again next year.

usage rate

is the quantity consumed or the number of store visits during a specific period. Frequency marketing programs - companies awarding frequent companies, frequent flier-program

Written position statement

is used to communicate the marketing manager's positioning ideas, both internally and externally

If the cost of segmentation exceeds the potential beneffit of increased sales or profits,

it does not make any sense to engage in segmentation.

Product differentiation becomes important when different

market segments are identified.

Self-selection

marketers that rely on self-selection communicate to mass audience and count on people in the target segment to respond differently than everyone else.

Customer lifetime value (CLV)

measures a customer's financial worth to a company over the course of their relationship.

Cannibalization

occurs when the introduction of a new differentiated product reduces ales of the firm's existing product

A single customer segment probably requires more than

one product

The bottom line is that marketing segmentation is worthwhile if it creates

organizational synergy

Specific and objective

past purchases (most important). Are product specific and can be objectively measured.

We can describe pas purchases based on

past purchases within the product class and past purchases of the brand loyalty

Differential response

people in different marketing segments should respond differently to the controllable marketing variables. (price, place, promotion, product)

Place

people respond differently based on how the product is distributed. Some consumers want products that are available in just a few high end stores, some don't.

product

people respond differently to different versions of a product. Example: Gatorade zero, Gatorade organic, each targeting its own segment of consumer.

market-product grid example

people who sleep on their sides, backs, and stomachs tend to prefer different kinds of pillows

psychographic segmentation

personality, values, lifestyle. People with similar lifestyles generally have similar interests about buy similar things.

Behavioral segmentation on benefits sought

product features, quality service, warranty)

Product positioning

refers to the place an offering occupies in consumers' minds relative to competitive products

Geographic segmentation

region, city size, statistical area, media-television, density

Step 2: Group products to be sold into categories

second step in segmenting and targeting markets; When a firm as many products, it must be able to group them into categories that correspond to the different marketing segmentations

usage situation (occasion-based segmentation)

segmented based on how consumers use the product

Benefit segmentation

segmenting based on the various benefits that are important to customers. Price over quality, quality over price.

Multi-segment

targeting multiple segments of the market. Does not pursue all of them however. What most large corporations do that have plenty of resources. Tide is an example with their multitude of products

Price

the concept of elasticity is one example of differential response to price

organizational synergy

the increased customer value achieved through performing organizational functions such as marketing or manufacturing more efficiently

Competitive position

the smaller the competition, the more attractive

General vs specific

this dimension describes how the variable relates to the product class or brand

Indexing (general and objective)

to measure the preferences of one region relative to those of other regions

General, subjective variables are generally encompassed by a

typical lifestyle study

By product benefit

what the consumer gets from the product

By user category

what type of person should use this product. Dos Equis, a beer for "the most interesting man in the world"

Differentiation positioning

which involves locating a brand in a smaller, less competitive, market niche

Crude estimates will

work for market sizes if you do not have the time or resources to conduct formal marketing research

General subjective (psychographic data)

Activities, interests, opinions (AIO) = Lifestyle. Not product specific and cannot be objectively measured.

General variables

Apply to the individual consumer, regardless of the product category. For example, age is a general measure

Step 1: Group potential buyers into segments

Based on five different criteria: Simplicity and cost-effectiveness of assigning potential buyers to segments Potential for increased profit Similarity of needs of potential buyers within the segment Difference of needs of buyers among segments Potential of a marketing action to reach a segment

Marketers use subjective, specific variables to segment markets in two ways:

Benefit segmentation usage situation (occasion-based segmentation)

Difference of needs of buyers among segments

Each segment requires a costly, separate marketing action, so if segments are similar, you should group them together.

Specific subjective

benefits, brand ratings, importance, weights. Product specific and cannot be objectively measured.

By product feature

characteristics of the product itself.

If a firm can identify important attributes for a product class, get consumers judgments of existing brands with respect to these attributes, and rate "ideal" brand attributes, it can create a

conceptual map

Brand loyalty

considers heavy use and a physical commitment to the brand

Organizational markets can be segmented similarly to

customer markets using geographic segmentation (segmentation by region, statistical area, or density), demographic segmentation (segmentation by NACIS code or sector, number of employees, or annual sales), and behavioral segmentation (based on number of locations, location use, purchase location, type of buy, or who buys)

General and objective

demographics, socioeconomic status. Not product specific. (age, sex, ethnicity, income, region)

Perceptual map

displays, in two or more dimensions, the position of products or brands in the consumer's mind that enables a manager to see how consumers perceive competing products or brands relative to the company's own.

Process of segmentation includes identifiying

existing and potential customers in a market segment