Consumer-focused strategies: Segmentation
Education, Income & Gender 2005
**Look at Slide About 86% of americans have a high school degree and 28% have completed college. Since individuals tend to have spouses with similar education levels, these differences are magnified when spousal income is considered. When we think about household income then, we're talking about the collective purchasing power, which is also determined by credit and savings. That being said though, income enables purchases, but as an isolated variable doesn't generally cause or explain them. General income can give us an idea of the money a customer may have, although a better gauge is is something called the Subjective Discretionary Income (SDI): which is an estimate by the consumer of how much money s/he has available to spend on non-essentials. Some research suggests that SDI adds considerable predictive power to Total family income (TFI) measures. Interestingly too the recent recession has given way to something called "CLASS TO MASS" as a way to satisfy cobnsumers' desire for luxury at bargain prices. Bag Borrow or Steal - 9.95 monthly fee can rent high end purse (rental varies per purse). Note about gender: sometimes used as a artificial segmentation - to suggest to men and women that they need different "special" versions of the same product.
Underlying differences across VALS motivation groups
**Slide Ideals: Thinkers (high resources) and Belivers (low resources) Acheivment: Acheivers (high resources) and Strivers (low resources) Self-expression: Experiencers (H) & makers (L)
PRIZM groupings
**Slides PRIZM organizes its 66 individual segments into social and lifestage groups. Four social groupings are based on "urbaniticity. The lifestage groups are based on age and the presence of children. The three major lifestage groups are
Technology
*Slide Technology consumption is critical to segmentation & positioning. Many different Internet lifestyle profiles exist, e.g. Pew Internet User Types, TDS shopper clusters: Online Group Forrester Research has created Technograpics, technology segmentation scheme that examines lifestyle segments via multiple channels E.g. online access, PC ownership, instant messaging, online shopping Survey of over 60 000 North American respondents gave rise to 10 separate segments
Price
*Slide Textbook does it in terms of "perceived pain" and "perceived value" but I think it makes more sense to discuss it in terms of Price resistance & Quality emphasis. Trade offs. CONVENIENCE SEGMENT: Motivated to save time. they're all the same, but not sensitive to price. More motivated by reducing the time/energy spent shopping and will pay a higher price for ease of brand selection. Tend to favor online/catalogue shopping for ease. PRICE SEGMENT: Bargain shoppers. Reducing cost is the most important aspect. Most brands are alike, don't want to pay a high premium for a particular brand. Bottom line shoppers - willing to sacrifice benefits or buy discounted items. Not surprisingly generic brands/store brands appeal to this segment. VALUE SEGMENT: "Want it all - best brands, lowest prices. High price resistence and high perceived value - view brands as highly differentiated but don't want to pay for that differentiation,. Outlets/coupons/flash sales sites popular with this group. LOYAL SEGMENT: "Brands are the best"Invested in brands. people who perceive value attached to brands and aren't afraid to pay for them. Loyal - if coke isn't available, won't buy soda. Self-extension, perceived value, brand lo
Global lifestyle Segments: Roper Starch Worldwide
*Slide VALS and PRIZM are oriented to the US. Since marketing is an increasingly global activity, several attempts have been made to organize an international lifestyle system. Roper-Starch wordlwide is a global marketing and consulting company that surveyed roughly 35 000 consumers across 35 countries in Asia, North & South America, and Europe. Their statement was "we're looking for the bedrock values, the fundamental stable things in peoples' lives that determine who they are, to understand the underlying motivations that drive their attitudes as well as their behavior". Importantly, although they uncovered 6 global lifestyle segments, however the percentage of the population that fell into each group varied per country. Benefit? Streamlining international advertising. --- By geographics. McDonald's customizes its burger classics and other menu items regionally and seasonally to meet varying geographic tastes and customs. For example, McDonald's serves lobster rolls in Maine during the summer, sells durian milkshakes in Singapore, excludes beef from its menu in India, and keeps pork out of its restaurants in Israel and some Muslim countries.
Which segmentation variable (s) to use?
*Slide Given this long list of segmentation variables, which variable should be used? Segmentation is more of an art than science, so it is hard to give a precise answer to this question. However, it is helpful to group these segmentation variables into three categories of who buys, what they buy, and why they buy it (Exhibit 6).
"Fit" of company with chosen segment
*Slide characteristics of various segments, such as how large they are, how fast they are growing, and how profitable they are likely to be. Second, the firm should consider its own competencies and resources that are available to address the needs of the different segments. Finally, a firm should consider current and potential competition in each segment. A large and growing segment is likely to draw attention from many competitors, which may eventually lead to a price war and low margins. Sometimes it may be better to pursue a small niche segment that does not attract the attention of large and powerful competitors. These criteria may lead a firm to choose one or more segments. Small firms or firms with a unique product (e.g., Ferrari) may choose to focus on a single segment and pursue a niche strategy. This strategy allows a firm to have a dominant share in its segment, and even if this segment is small in size, it can have high profit margins. Some companies target multiple segments simultaneously, often by designing different products to meet the needs of different segments. Automobile companies target multiple segments with sports cars, minivans, hybrid cars, sports utility vehicles, and so on. Sometimes companies design a strategy with a sequential entry into multiple segments. In such a case, a firm may start by building a strong position in one segment of the market and slowly expand its reach in adjacent segments. For example, Porsche started with an exclusive focus on the sports car segment and later expanded its product line with the launch of Porsche Cayenne, a midsize luxury crossover (station wagon), and Porsche Panamera, a four-door luxury sedan.
Yamaha ad targeting "pools & patios"
*slide
Subtypes of segmentation
1) Aggregation 2) Market segmentation 3) Niche segmentation 4) Ultimate segmentation: Individualized marketing
Bases of Segmentation
A) Geographic- country, region, city, urban/rural, climate B) Demographic - age income, gender, generation, marital status, family size, occupation, education, ethnicity, region C) Geo-demographic D) Psychographic - lifestyle, personality, activities, interests, opinions E) Behavioral - usage rate, loyalty, product knowledge, involvement, purchase occasion, buying stage Benefits sought - convenience, value, status, safety
Olay Age
Age is just a number. Many women 50 and over have told us that as they age, they feel more confident, wiser, and freer than ever before. These women are redefining beauty. Our research shows that when it comes to skin, dryness and vitality are their key concerns, not just a few wrinkles. Age groups can be important in understanding the "culture" of that particular age range. Useful too for understanding generaltional differences, but will get to that in Ch 15. When P & G launched Oil of Olay pro-vital, they were targeting women over 50 yrs old. One of the first spokeswomen for the product was 51 yr old actress Ann Roberts, Importantly the product line hasn't just been positioned as an anti-wrinkle solution Comments suggest how important a distinction there is between chronological age (how old you are) and cognitive age (how old you feel). Cognitive age is defined as one's perceived age, a part of your self-concept. Its measured by asking people what age they would associated with how they look, feel & behave. For older consumers, cognitive age is often 10-15 years less than chronological age. Better health, higher education, income & social support lead to reductions in cognitive age.
Age
Age positioning is critical for many products Carries with it a defined behavioral & attitude norms that affect self-concepts and lifestyles Shapes consumption from a direct (type of products) to indirect (media use, where we shop, how we think and feel about marketing activities.
Geographic
Based on physical location of consumers Assumes that proximal consumers will exhibit similar preferences for products & services Can use zip code districts, towns, cities, states, countries, continents Total population Population density Regional differences Climate
More Benefits to Segmentation?
Benefits to the Organisation Identification of unfulfilled needs better product design more targeted promotions increased customer satisfaction sustainable profit growth Benefits to the customer Convenience and time savings tailored products and services relevant offers personalised experience -Compelling customer experience Notes: To Firms Efficient use of resources Avoid direct competition To Consumers Specialized needs met Reduced search costs To Society New and better products Increased standard of living Amazon offers "Amazon Mom," a service aimed at the new parent segment. During what could be a sleepless and overwhelming period in parents' lives, Amazon saves them time and money with automatic suggestions about what new parents might buy, based on the purchase history of other parents; discounts and automatic shipping on commonly used items like diapers and baby wipes; free two-day shipping for a set amount of time after signing up; and the convenience of being able to order from the comfort of one's home 24 hours a day. Organizations benefit from segmentation because it helps them identify underserved customers and unfulfilled customer needs. Better products and services result when companies aim to satisfy these segments. Segmentation also allows firms to better target their promotions and customize their products; both strategies increase customer satisfaction. Gaining a growing number of satisfied customers is a good way to achieve sustainable profit growth.
Profitability: Don't steal from yourself
Cannibalization Similar products within the same company compete with each other E.g. Old Navy, Gap, Banana Republic must make sure they appear to different segments, keep people apart
Geo-Demographic
Combination of geography and demographic bases, aka zip-code segmentation The underlying logic: People with similar cultural backgrounds, means and perspectives naturally gravitate toward one another. They choose to live amongst their peers in neighborhoods offering ...compatible lifestyles. They exhibit shared patterns of consumer behavior toward products, services, media and promotions E.g. PRIZM, "You are where you live"
3) Niche segmentation
Concentrated/Niche segmentation: specialized form of segmentation where the focus is ONLY one narrowly defined, small, underserved segment with one product and marketing mix PROS "In niches there are riches" Concentrated strategy = satisfaction loyalty Can results in lower research/marketing costs = more attractive to small firms w limited resources Opportunity to position brand/product as a 'specialist" Segmentation of differentiated segmentation = same thing CONS "All eggs in one basket" Can be risky if small market dries up Growth of the organization is limited by the market size If segment grows, might attract more competition Can acquire focused image that might limit ability to break into other markets Increased technology has facilitated niche marketing = wave of the future?
Grouping customer with similar need sets
Consumers can be grouped into different segments E.g. product features vs. product image This step generally involves consumer research Focus group interviews, surveys & even current consumption patterns Concept Testing how people, without prompting, interpret a sketchy idea for a new product or service. (Smith and Albaum, 2006) Identifies perceptions, wants and needs of a product or service. Notes: Consumers can be grouped into different segments or similar segments. For example young couples without any children and middle age couples whose children have left home may both like fun, moderately-priced, sporty cars. These two different groups may actually want the same product features (V8) and even the same product image (sporty) despite having very different demographics. Concept Testing is how people, without prompting, interpret a sketchy idea for a new product or service. (Smith and Albaum, Fundamentals of Marketing Research, Sage Publications, 2006) Concept testing is most often used in concept development to test the success of a new product idea before it is marketed. Not just used in grouping need sets, but to evaluate prototypes etc. as well. Concept analysis or concepts are often used as one step in the process of providing "proof of concept." Potential consumers are involved to provide their reactions to written statements, images or graphics, or actual implementations of the basic idea for the product. Concept testing is most often a Go/No Go screening that serves to kill those concepts that have very little potential.
b) Product use
Consumption based on patterns Holidays, time of day, seasons, alternate usages Typically identify in terms of frequency of use (high, med, low) or time since last use (current, potential, lapsed) Target sub-categories differently E.g. loyalty cards, holiday themed commercials
Demographics
Demographics: Describing a population in terms of its size, distribution and structure Influence consumption both directly and indirectly by affecting other attributes of individuals (e.g. values, decisions styles) Based on vital population statistics Age, Gender, Ethnicity Income, Education, Occupation Marital Status, Family Life Cycle e. g. Target - pregnant women - in their first trimester, targeted women before they - stayed away from scented and bought lots of vitamins, got some angry customers
Sample PRIZM segments
Further organizes each social & lifestage by level of affluence (i.e. income & wealth) Example PRIZM segments: Young Digerati (urban/younger years/Seg 04) Blue Blood Estates (suburban/family/Seg 02) Big Fish, Small Pond (Town/mature/Seg 09) Pools and Patios (Suburban/mature/Seg 15) Young & Rustic (Town/younger years/Seg 48) Golden Ponds (Town/mature/55)
Behavioral
Group customers based on their preference for Product attribute or benefit, usage rate, usage occasion, user status, loyalty Usage occasion & product usage, user status, rate of product , loyalty status Useful segmentation tool because they are easy to identify Core benefit: emphasizing a single attribute E.g. Price, product use, product user
Identifying product-related need set
Identifying the various needs that the product might satisfy typically involves consumer research, especially focus groups/in-depth interviews. Needs are often associated with other variables (e.g. household, gender, social class, ethnic group) and can start from groups as well. Top-down (specific to general) & bottom up strategies both used. Notes: Also - some logic or intuition SO - you can adopt a top down or bottom up strategy - both are used. Bottom up - micro to macro - ID the specific needs & then consumer characteristics associated with those needs. This one is typically used because the better-defined segements will generally be discovered by first focusing on needs but is not uncommon to start with one ethnic group and go macro to micro.
Why Segment ?
In 2011, Orbitz made a discovery while searching past transaction data: The average Mac user would pay between $20 and $30 more per night on hotel rooms than the average PC user. Similarly, Mac users had a 40% higher chance of selecting a four- or five-star hotel. Even when choosing to stay in the same hotel, a Mac user would often pick a more expensive class of room than a PC user. Results? Orbitz always offered the same prices for the identical rooms to each user, BUT it would show a Mac user a more upscale selection of hotels (e.g. Miami Beach, Florida, and Baton Rouge, LA), with rooms that cost 10% to 13% more than those shown to a PC user. Notes: When booking through the online travel website Orbitz.com, identical searches for hotels, cars, and flights performed by a Mac user and a PC user often produce different lists of results. SO - this is an interesting base of segmentation - the computer that a person uses - but as we can see, understanding the valuable key indices of what your consumer base is like can yeild some important results for your revenue Today's discussion is going to be about that process - of how you slice the entire demographic of people that use your product in the most efficient way. This is important, as we'll see, because if you can identify these meaningful differences you can select the subset that would be the most beneficial for you to target, and then focus your marketing efforts on them.
Attractive segment to serve
In selecting a useful segment, need 3 qualities: 1) Identifiable: easily identify customers in each segment and measure their key characteristics (I,e, demographics, motivations, usage behaviors) 2) Substantial: a segment that is large enough to serve profitably 3) Accessible: to be able to reach segment through communication and distribution channels, independent of other segments 4) Stable: A segment should be stable over a long enough period of time that any marketing effort would be successful and profitable 5) Differentiable: consumers in a segment should have similar needs, and these needs should differ from the needs of consumers in other segments 6) Actionable: should be able to create products and marketing programs for attracting and serving customers in the segments identified. Notes: Once there is an understanding of each segment, need to select a Target Market: the segment(s) to which a firm's marketing efforts are directed. Maximum profitability = best fit between customer needs & firm's offering Identifiable. An organization should be able to identify customers in each segment and to measure their characteristics, such as demographics or usage behavior. In Africa, for example, Procter & Gamble and Unilever target low-income consumers by selling small packets of products, such as detergent or salt, at small kiosks.4 ●Substantial. Although the increasing availability of data makes it possible to create microsegments, it's usually not cost-effective to target small segments. To be useful, a segment therefore needs to be substantial—large enough for a firm to serve profitably. Consider Coca-Cola's 2004 launch of Coke C2, a beverage aimed at 20- to 40-year-old males who liked the taste of regular Coke but not the calories and who disliked the taste and female association of Diet Coke. Coke C2 tasted like regular Coke but had half the calories and carbohydrates. The drink was not a success, ●Accessible. There is not much value in creating a segmentation scheme if an organization cannot reach the segments. To be accessible, a segment needs to be reachable through communication and distribution channels independent of other segments. For example, young consumers, who increasingly use social media, have become more accessible to firms that are eager to engage them via Facebook, Twitter, and blogs. Stable. A segment should be stable over a long enough period of time that any marketing effort would be successful and profitable. For example, lifestyle is often used as a segmentation variable but the stability of lifestyle segments in the international context appears to be low. Many experts believe in the global convergence of consumer needs and wants, which also suggests that international segments may be very dynamic and constantly evolving.6 ●Differentiable. Consumers in a segment should have similar needs, and these needs should differ from the needs of consumers in other segments. In Japan, for example, there is a new market segment for alcohol-free drinks, from nonalcoholic beer to wine to gin and tonic mixes. Sales in this segment doubled between 2009 and 2012 to 12 million cases of beverages and are expected to grow another 10% to 20% in 2013. Sapporo released a premium, beer-flavored beverage to meet the demand, and Suntory and Kirin are also releasing nonalcoholic beers.7 ●Actionable. An organization should be able to create products and marketing programs for attracting and serving customers in the segments identified. For example, a leading U.S. insurance company spent a lot of time and money on segmentation, only to realize later that it could neither identify customers in those segments nor design any specific actions to target them. Not surprisingly, it abandoned its segmentation effort.
Ultimate segmentation: Individualized marketing
Individualized/one-to-one marketing: each customer has a tailor-made marketing program E.g. Fitness trainers, financial advisors, bespoke suits/shoes Mass customization: mass production of goods with differing individual specifications. A number of different components that can be assembled in a number of different configurations Low-cost manufacturing Aided by technology and direct marketing (e.g. scanner data, CVS coupons) Entails co-creation customers participate in creating their products
Segmentation by Porshe
Key demographics (e.g. high income & education) were the same across buyers, but lifestyle & motivations weren't Top guns (27%): Ambitious & driven, values power & control, expects to be noticed. Elitists (24%): Old family blue-bloods don't see car as an extension of their personality; car is a car Proud Patrons (23%): Purchases a car to satisfy the self, not to impress others. The car is a reward for hard work. Bon Vivants (17%): Thrill seekers & jet-setters who see cars as enhancing their already exciting lives Fantasists (9%): This group uses their cars as escapes, not as a means to impress others. They feel a bit of guilt for owning a Porshe. Notes: Mixture of demographics and needs - can see here that although many of the demographics are the same, the needs are clearly very different and different marketing strategies would be variously effective.
PRIZM application for marketing strategy
Las Vegas casino used PRIZM to identify core consumers and opportunities for future growth. Core customers: were all highly educated, affluent young professionals E.g. Young Degerati, Big Fish Small Pond, Pools & Patios Least attractive segment: sedentary, lower education, less income E.g. Young & Rustics, Golden Ponds Highly desirable but untapped segment? Blue Blood Estates which fits with casino's core customers in terms of education, income & travel Able to remain true to their brand & core customers while targeting new segment specifically via marketing
Market Segmentation
Market segmentation: Portion of a larger market that differs somewhat from the larger market Dividing mass market into subsets of consumers who share common needs, characteristics or behaviors in order to construct and effect marketing strategy to target them. Tailoring specific messages/goods a segment that the company can satisfy in order to maximize efficiency & profits Notes: Aggregation: First car came out Henry Ford was quoted as saying "can be in any color the consumer wants, as long as its black". These days there are products that are very basic and fucntional, for example, that don't really need my segmentation (e.g. toilet paper, garbage cans).
Personalized Segmentation
Mass customization targets a large segment but marketing one-to-one with a customer. Appropriate for: Technology products and services where the cost of a new product version is virtually zero (e.g., a personalized ad) Industries where flexible manufacturing technologies exist to make customized products in a cost-effective manner Products where customers are willing to pay a premium for items and services tailored to their needs Notes: First step Segmentation Groups customers with similar needs into customer segments and then determines the characteristics of customers in those segments. For example, a company that sells packaged tea leaves might uncover two customer segments—price-insensitive customers and relatively price-sensitive customers. These price-sensitive customers may have lower incomes but perhaps buy tea frequently and know a lot about the product category. Thus companies are able to offer customers the ability to design or personalize their own products on a mass scale, effectively turning customers into a "segment of one." It is appropriate either for technology products and services where the cost of a new product version is virtually zero (e.g., a personalized ad) : Google's Gmail offers ads based on the content of an individual's emails, industries where flexible manufacturing technologies exist to make customized products in a cost-effective manner,: Lowe's can match a paint color to a fabric swatch, and Shutterfly.com allows customers to design their own holidays cards customers are willing to pay a premium for products and services tailored to their needs: Levi's now offers customizable jeans, Paying more for customized jeans that look good and fit well is more appealing to many customers than paying more for customized toilet paper or laundry detergent. For most products, the reality falls somewhere in between these two extremes of mass customization and mass production, and that is why segmentation remains a very important and powerful concept in marketing.
Key Demographics - Occupation
Most widely used cue to evaluate and define others Occupation is strongly associated with education and income, as well as status The type of work one chooses to do can overtime directly influence one's values, lifestyles and all other types of consumer process. Differences in consumption between occupational classes have been found for beer, detergents, dog food, shampoo, paper towels, media preferences, hobbies, and shopping patterns (Lifestyle Analyst, 2008 ed. Published by SRDS with data from Equifax Marketing Services) For example, take a lawyer who works for a non-profit and one who practices contract law for a big corporation.
Identifying Product-Related Need Sets
Need set: Most products in developed economies satisfy more than one need Not restricted to product features: Can include types & sources of information about the product, services associated with the product, images of the product/firm, and how/when the product is produced Notes: types & sources of information about the product: lay referral network (family, friends, co-workers) services associated with the product (roadside assistance, warranty) images of the product/firm How & when product is produced: In 1990 Nike lost sales as a result of publicity about child labor and abusive working conditions at some of the factories in devleoping countries where many of its products are made. In response, Nike changed practices & engaged a variety of public relation activities. As a results it seems to have turned is image around in the area of corporate social responsibility.
Description of each group
Once consumers with similar need sets are identified: Describing these consumers in terms of demographics, lifestyle and media usage (do they use FB, Newspapers etc) Need to understand the context in which the product is bought & consumed, how is is thought about by consumers, and language used to describe it. (Dr. Shules Ad in nightclubs, do you really need to use the WC or are you giving your feet a rest) Notes: E.g. many people may want a specific feature when it comes to a car - say safety - but the way you'll describe that will differ when it comes to young, single individuals, couples with children, and middle age couples whose children have left home. E.g. couples with children = emphasize side/rear airbags, young single people = drivers airbags Would likely use different media (e.g. facebook banners for the young singles) print ads for older people.
Picture of two ads for watches
One a dior watch one a time watch - surfer E.g. A watch: can tell time, meet status needs, meet style needs, meet technology needs
Segmentation, targeting & positioning (STP)
Organizations are recognizing differences in customer preferences and needs when designing their product offerings. The marketing process of segmentation, targeting, and positioning (or STP) identifies a firm's potential customers, selects which customers a firm should pursue, and formulates its value proposition for its target customers (Exhibit 1). The first step of the process, segmentation, groups customers with similar needs into customer segments and then determines the characteristics of customers in those segments. For example, a company that sells packaged tea leaves might uncover two customer segments—price-insensitive customers and relatively price-sensitive customers. These price-sensitive customers may have lower incomes but perhaps buy tea frequently and know a lot about the product category. The next step is targeting, or selecting segments that the firm wants to focus on for its products or services. This is done based on the attractiveness of segments (such as size and potential profitability), intensity of competition, and a firm's capability to serve customers in each segment. The tea company might decide to focus only on the price-insensitive customers by offering a premium product. For these customers, the company might offer an attractive tin containing loose tea mixed with bits of fruits and flowers, or a tin filled with individual, pyramid-shaped linen sachets. Or it might aim for both segments by offering two different tea products, perhaps targeting the price-sensitive segment with tea packaged in a box containing simple, flow-through paper teabags. The final step is positioning, or formulating the firm's value proposition for the target segments, and developing an action plan for them. In our example, the tea company may position its high-priced product as a premium/luxury product designed for the consumer with good taste, while its low-priced tea could be positioned as a good value for the smart consumer. This positioning is communicated to consumers through the ways in which the product is designed, packaged, distributed, and advertised. FOCUS MAINLY ON SEGMENTATION & TARGETING IN THIS LECTURE, POSITIONING (Brand positioning) will follow in a later lecture
Aggregated Marketing
PROS: Economical CONS Ineffective Inefficient Low customer satisfaction Notes: Economical: no costs are incurred in research different groups and designing and administering separate marketing programs to each Ineffective: by appealing to everyone, the marketer ends up appealing to no-one. Wasting time, effort, expense in trying to reach everyone, including those not interested in the product. Low satisfaction: diverse wants/needs are not being fulfilled SO for that reason, its very unpopular.
Key demographics - Population size & distribution
Population of US is ~ 309 million & is expected to surpass 320 million by 2015 Population growth has been steady & starting in 2003 the overall birth rate began to increase again E.g. 2006 ~ 4.37 births, the single largest birth year since 1961 Growth in birthrates for those in 20, but largest over time is for people in their 30s. Not evenly distributed: 2005-2015 have a 15% predicted growth rate for Arizona, Nevada, Texas, & Florida, less than 2% predicted for New York, Ohio, Iowa & North Dakota Notes: Population grew steadily from 1960-2003 despite declining birth rates b/c of the large baby boom generation moving through child bearing years & significant immigration Growth in these states is in part fueled by the migration and retirement of older consumers. Clearly these growth rates and age groups can affect a multitude of segments. Also each state has its own subculture which can be useful to consider.
Preferences vary
Questions: When booking accommodations, would you prefer to stay in a five-star or a three-star hotel? Would you prefer a room at the hotel's luxury level, with breakfast and snacks included, or a basic room with no view? Do you think those preferences have anything to do with the kind of computer you use when searching for hotels online?
Profitability: Specialization & segment size
Sales /Cost Trade-Off Costs tend to increase as segments get smaller. Additional sales must offset these costs. Behavioral targeting & online media Notes: Historically, the smaller the segment, the more it costs to serve the segment. The higher (or pricier) you need sales to be. By tailoring a product or service to a segment's needs, firms can make the offer so appealing that segment members are willing to pay a price that offsets the higher associated costs. Behavioral targeting, in which consumer's online activity is tracked and specific banner ads are delivered based on that activity is an example of how technological advances is making targeting specific groups with more personalized communication cost effective.
Profitability: Bigger isn't always better
Segments that are sizable & growing appear attractive but not always in line with profitability Majority Fallacy (look at slide*) Notes: Target market To be viable, a segment must be large enough to serve viably (see segment attractivness worksheet on next page) Majority Fallacy Focusing on the larger, average segments. Neglecting the smaller, less typical segments.
Segmentation Option
Slide* The dog food market can be segmented in many ways. Many companies use the dog's size or weight, while others look at the type of nutrition a dog may need, such as food that is higher in calories for active, growing puppies or one that contains easily digested ingredients for ill or elderly dogs. But pause for a moment and consider: Why do people have dogs in the first place? And what do those reasons imply about dog food segments? One company researched this question and came up with the four segments shown in the table below. Note the third segment, which consists of people who have dogs as substitutes for babies. You can imagine owners or renters of small apartments in a metropolitan area like New York City who fall in this category. Are these dog owners likely to be price-sensitive? Absolutely not—these "pet parents" want the best food for their canine companions! You can even imagine the kind of dog they are likely to have—a small, cuddly, furry dog— compared to a large dog that a rural farmer might have for practical uses. Asking why gives more insights into potential demographic and/or sociographic measures for segmenting consumers, such as feeding behavior and price sensitivity, than simply segmenting the market by the size or the type of dog.
Example of the utility of demographics: income, age range and two motivations are tied up in this segment of frequent Starbucks purchasers.
Today's most devoted coffee shop patrons are 18-34 year olds and those with annual incomes over $75 000. 42% of the 18-34 year olds and 46% of those who earn more than $75 000 say that when they drink coffee away from home, they head straight for Starbucks-like shops, compared with just 32% of all away-from-home coffee drinkers. The younger folks are attracted to the coffee-bar atmosphere, music selections and what tends to be a younger customer base, while the wealthy simply want the best.
Divide & Conquer
Two main assumption underlie segmenting: (1) Consumer preferences vary (preference heterogeneity) (2) By tailoring a product or service to a segment's needs, firms can make the offer so appealing that segment members are willing to pay a price that offsets the higher associated costs. Notes: So - consumers preferences vary - the question is by how much and how fine do you want to make the slices. The segmentation is the "divide" part. Understand specific segment to meet their needs, e. g. have three ethnic options a meal with a five dollar premium
Aggregation marketing
Undifferentiated/Aggregation/Mass marketing: a single product is developed for all groups; individual differences are ignored Rarely used except in a few uncommon situations: Less competitive markets where customer satisfaction isn't necessary Small markets where dividing up consumers would results in groups to small to be profitable For commodities that everyone uses (e.g. pencils) For "All-American brands" satisfying universal needs Notes: "One size fits all" Commodities everyone uses: milk, fruit, salt All-American brands - e.g. USA today "the nation's newspaper", Hershey "the great American chocolate bar"
Psychographic
VALS provides a systematic classification of U.S. adults into eight distinct consumer segments. based on enduring psychological characteristics that correlate with purchase patterns 35 attitude, 4 demographic questions Groups consumers into 4 categories along two dimensions: 1) Motivation 2) Resources Notes: VALS - oriented to the US but also has systems for Japan and UK. First release in 1978 for Values and lifestyle" and originally that's what it segmented customres on. Later it was replaced with attitudinal aspects - more enduring and useful. Innovators - top. Successful, sophisticated, take-charge people with high self-esteem and abundant resources. Motivated by a blend of ideals, acheivement, and self-expression. Among the established and emerging leaders in business & gouvernment. Survivors lives are constructed - limited incomes but are relatively satisfied. No evidence of strong primary motivation. Buy familiar, trusted products. Chief concerns are for safety, being with family, and low prices. Cautious consumers. Resources: not just money. Range of physical, emotional and psychological attributes such as self-confidence, energy, vanity and intellectualism. Coupled with education & income (as assessed by the demographics) helps determine each group's ability to act on their primary motivation.
Benefits to Segmentation?
Without segmentation, companies will often overlook opportunities as they continue to provide a single solution for everybody. Segmentation also informs a company about potential new opportunities. Segments with unmet needs are opportunities that can drive business strategy and new product development. NOTE: Firms do not create segments; they only uncover them. segments exist naturally, but firms uncover them Different companies may segment the same market differently, depending on how they view consumers and their needs. e. g. Lululemon Notes: . For example, if half of a tea company's customers liked iced tea and the other half liked hot tea, producing tea that brewed only at a lukewarm temperature would not appeal to either group
Market Segmentation - Gendered Marketing Clip
better for business to divide society up into smaller groups
Market Segmentation Involves Four Steps:
i) Identifying Product-Related Need Sets ii) Grouping Customers with Similar Need Sets iii) Describing Each Group iv) Selecting an Attractive Segment(s) to Serve
