Dwyer MKTG 300 - CH 6: Using Segmentation, Targeting, and Positioning to Distinguish a Brand within a Market

Segments

groups of customers who share common characteristics within a market

4 market segmentation variables

(1) geographic (2) demographic (3) psychographic (4) behavioral ***These categories provide a valuable starting point for understanding segmentation, but in practice, categories often overlap and marketers have to choose a combination of variables to be effective. Segmentation can be messy.

The segmentation process

(1) defining the broad market (2) narrowing the market (3) selecting the bases for segmentation (4) selecting the variables within each base (5) identifying categories within each variable (6) defining a profile for each segment

Companies often get the info for the positioning strategy from market research...

and customers get perceptions of competitive product can be used to develop opportunities for the company's positioning strategy

Perceptual map

graphical representation of customer perceptions of competitive products, is often created to identify positions that are open in consumer's minds

INTRODUCTION

"People don't hate advertising. They hate bad advertising." -When he made this statement, Pat Pellegrini was not just trying for a memorable quote. -The point he makes is critical to marketing success and has been echoed by most every successful marketer over the last 50 years. People are busy. -They are bombarded with marketing messages each day, and they only want to see and hear what is important to them. -Given that there are relatively few truly new products, and given increasing competition, marketers have to differentiate their offerings by accurately understanding and appealing to a more specific group of customers.

Consumer vs Business Segmentation Variables

-Table 6.2 compares the consumer variables for segmenting markets to segmenting businesses as customers.

Effective application of a segment approach also requires segments to be...

-internally consistent (homogeneous), but -externally different (heterogeneous) -in other words, the customers within a segment have to be similar, but the segments should be different from one another

Mini Case 6 Taxi, Uber, or Do You Need a Lyft?

Before 2009, if you wanted to get somewhere within the city and didn't have a car, you had to either use public transportation, walk, or hail a taxi. If you had to go any distance, had anything to carry, or the weather was too hot, too cold, or rainy, then walking wasn't much of any option. Public transportation is great in some cities, but in many others you can't go when and exactly where you want. So for those wanting convenient, point-to-point transportation, ready when you want to go, that left taxis. And taxis have been around for decades, driving customers from their hotel to the airport, or from business meeting to the hotel, or to dinner from the hotel, and even for simple errands for those without a car. But that all changed in 2009 with the advent of ridesharing companies. Ridesharing companies offer app-based rides that can be hailed at any time and are shared to reduce costs. Riders download the app on a smartphone, put in their credit card information, and then can summon drivers to their locations to take them somewhere else. Using these services is simple, quick, and typically less expensive than using a taxi. Because the service uses smartphone location capabilities, a rider can summon a driver to places taxis would not typically frequent. In addition, the mapping feature means the rider does not have to worry about giving directions. The rider simply types in or pinpoints the destination on the app map, and the driver knows where to go automatically. The other convenience feature is that payment is handled with the card on file, so there is no need for the rider or driver to worry about cash, running a credit card while in the car, or tipping. It is all handled electronically. For many customers this combination of benefits proved to be very attractive, and rideshare services are fundamentally transforming personal transportation in many markets. Several taxi companies in major cities have filed for bankruptcy. In San Francisco there were roughly 1,800 taxis as of 2016, but that same year, there were about 40,000 rideshare drivers in the city, and the number is still increasing. This trend is being repeated in most metropolitan areas and even in smaller towns and doesn't show signs of stopping soon. The two biggest players in the growing industry are Uber and Lyft. Uber was first to market in 2009. The company began as an app-based service for requesting premium black cars in a few metropolitan markets. Though it began as a service primarily aimed at business travelers, and still offers UberBLACK—with luxury cars driven by experienced drivers who dress the part, Uber has expanded to include a range of service options. UberX, UberXL, and UberSELECT are considered their economy options, while UberBLACK, UberSUV, and UberLUX offer more premium services. Given their origin with premium service options for business people, Uber is considered the "private driver" for riders. Riders sit in the back, and can check email, read, or message while they get from point A to point B. The main choice when selecting Uber is which level vehicle you want to get you to your destination. Uber is most closely associated with its UberBlack service, since this is where the company began and is still favored by business people. Rapid expansion and growth have not been without controversy, as taxi associations, local governments, and other organizations have taken issue with Uber and how it does business. In spite of the negative publicity and some internal management issues, Uber has continued to grow, and now has drivers in over 630 cities. The growth has drawn competitors into the market, and the primary competitor for Uber is Lyft. Lyft joined the rideshare market in 2012, initially in San Francisco, but quickly spread to other cities. Like Uber, Lyft is an app-based ride-hailing service where customers summon a car to pick them up at their location. It too, offers online payment convenience and GPS routing for directions. However, Lyft was founded with a different rider experience in mind. Lyft was founded on the idea that their service provided "Your Friend with a Car." Unlike Uber, which began with professional drivers in premium cars, Lyft recruited everyday folks to drive their personal cars. Lyft closely screened drivers and trained them to interact with their riders, encouraging riders to sit in the front seat and talk with the driver. The cars were decorated with a large pink mustache and the driver met the rider with a friendly fist bump when entering the car (see Figure 6.8). Drivers were encouraged to create a unique experience for their riders, similar to a boutique hotel: The feel is friendly, but each room is unique and might have a different theme. Lyft was successful in its first few years recruiting drivers and riders, recently passing the million unique riders per week mark, according to one of its cofounders, Mark Zimmer. The growth of Lyft has increased the competition in the rideshare market as both Lyft and Uber try to gain more of the increasing market. Both companies have intensified their efforts to recruit both drivers and riders, and in fact, many drivers actually drive for both services. Riders too, use both services, often choosing one over the other based on how close a driver is to the pick-up location or how much the ride might cost, as the two have different fees in different locations. In this growing market, it remains to be seen how the competition between the two will eventually play out, but both services have suggested they are working hard to incorporate driverless technology into their service soon, which could change this market yet again. How will you get somewhere in 2020 or 2030?

Positioning

Once the target market has been chosen, the next step is to develop a positioning strategy Positioning: creating a specific perception in the customer's mind relative to other options.

This is one example of why marketers often use a combination of variables to segment a market.

Other variables such as income, healthy lifestyle, social class, and others will likely also be important in this case, so geographic segmentation by itself might not be sufficient for effective segmentation.

Using segmentation as a foundation to create marketing strategy

The purpose of segmenting a market is to highlight the potential differences between groups of customers so that the company can choose where to focus its marketing efforts.

Criteria for effective marketing segmentation

To be effective, the customer groups must be useful from a marketing perspective. -That is, if your segmentation approach is effective, the different groups you split the market into should react differently to different marketing mixes.

Behavioral segmentation intro

While psychographic segmentation is based in large part on how consumers think, another more sophisticated approach to segmentation categorizes customers based on what they do. -You have probably heard the phrase, "actions speak louder than words."

For all practical purposes, marketers use the same basic process for segmenting business markets as they use for consumer markets, with the exception of _________________

psychographic segmentation

Geographic segmentation

refers to separating customer groups based on location

Positioning is the execution that creates a... -ex

unique selling proposition -For example, Marriott has five different hotel brands (see Figure 6.6) with five different target markets and five different marketing mixes (in this case, hotel chains). -Each has a different positioning that offers a unique selling proposition for different hotel guest segments. Table 6.4 below is a list of the brands and the description from their website.

Micromarketing approach

company considers every customer a segment of one

Target market

The group of customers the company decides to focus its marketing efforts on

One key question that students always ask

"How many segments should be targeted?" -This is a difficult question to answer because each company's market situation will be different. -However, as a general rule, we recommend companies focus initially on a single target market for two reasons. (1) First, this approach forces the company to become an expert on this one group of customers, which should give the company the advantage and the best chance of being successful with that group. (2) Second, focusing on one segment makes it more likely the company uses its marketing resources effectively and efficiently. -Companies that target multiple segments sometimes try to combine marketing activities to appeal to the multiple segments at the same time with compromises. -If one group wants one set of product features and another wants something slightly different, the manufacturer might put all the features on a single product assuming it will appeal to both. -Price compromises are also common. If one group wants to spend $25 on an item and another $30, then the company might set a price of $27.50. -Both of these examples demonstrate potential marketing problems as neither customer group will be happy with either the product or price choice when compared to an option that was at exactly the right feature and price combination. -Market history suggests the more appropriate approach is to focus on a single target market, learn how to effectively target that group well, and then expand to other segments over time.

Taken together, Pellegrini's points can be summarized as follows

(1) Companies must understand what different customers really want and why. (2) Companies must choose a specific group(s) of customers on which to focus marketing efforts. (3) Companies must differentiate their offerings from competitors' offerings in ways meaningful to the specific group of customers on which the company is focused.

While most marketers would agree that identifying meaningful groups of customers and differentiating your offering is critical to success, how to do this effectively is not obvious -Pellegrini provides some clues to this process

(1) First, he explained that the key to getting important messages to the right person is actually knowing what the person wants, not just at the surface level, but from a deep understanding of what interests, motivates, and influences customers' behavior. -Companies need to research their customers and make sure the research is relevant and thorough. -He highlighted the increasing use of technology for research purposes, but warned against the potential for technology to overwhelm the research process. (2) Second, he also stressed the importance of crafting your marketing strategy for a specific group of customers—a meaningful group of customers. -A meaningful group is one in which customers in the group share common attitudes, perceptions, or behaviors relative to a specific product category and is one that fits with the company's marketing goals. -Pick the wrong group, and you have little chance of success. Pick the right group, and you have opportunity. -But choosing a meaningful group is not enough. Companies have to differentiate themselves in ways that matter to that specific group.

3 step process to help decide on a target market

(1) First, the segments will be ranked in order of attractiveness (e.g., size, growth, etc.). (2) Second, the company will identify any segments that should be excluded for ethical, moral, or competitive reasons. -For example, if a company wants to create a luxury image, it might eliminate segments that are not consistent with the luxury image the company wants to pursue. (3) Once the segments have been ranked and any eliminated that don't fit the company goals or resources, the third step in targeting is to prioritize remaining segments based on potential return on marketing investment. -At this stage, the company has to decide which segments make sense to target given the investment in resources required relative to the attractiveness.

3 step process to help companies decide on a target market

(1) First, the segments will be ranked in order of attractiveness. (2) Then, the company will identify any segments that should be excluded for ethical, moral, or competitive reasons (3) At this stage, the company has to decide which segments make sense to target given the investment in resources required relative to the attractiveness.

4 categories of variables to segment markets

(1) geographic segmentation (2) demographic segmentation (3) psychographic segmentation (4) behavioral segmentation ***these segmentation variables are customer characteristics that marketers use to differentiate groups in the market

5 criteria customer groups created must meet for a market segmentation approach to be effective

(1) identifiable/differentiable (2) measurable (3) substantial (4) accessible (5) responsive

Two good examples of these more sophisticated segmentation tools include PRIZM and Tapestry.

-Both of these tools combine elements of all four broad segmentation variable categories. PRIZM, developed by Claritas and later acquired by Nielsen, categorizes customers into 66 different customer segments tied to zip codes. -The PRIZM approach (see Figure 6.2) is based on the idea that "birds of a feather flock together," suggesting that people live near others similar to them. -People who live in the same neighborhood (geographic) often have similar demographic characteristics (income, age, family life cycle), have similar lifestyles and opinions (psychographics), and behave similarly (behavioral). Folks in the "Gray Power" cluster differ significantly from those in the "Connected Bohemians" or "Money & Brains" clusters. Tapestry, developed by ESRI, divides US residential neighborhoods into 67 distinct segments based on socioeconomic and demographic differences (see Figure 6.3). -Similar to PRIZM, Tapestry asserts that people who live in the same neighborhood have similar values. -Their 67 segments have labels such as "Soccer Moms," "Heartland Communities," "College Towns," and "Dorms to Diplomas." Tapestry profiles summarize the common lifestyle traits for the neighborhood, and also include several key marketing factors about the group such as spending trends and shopping preferences.

Given the difficulty in changing customer perceptions, some companies have opted to create a new brand rather than try to reposition an established brand

-DeWalt was created by Black & Decker (now Stanley Black & Decker) to differentiate power tools for its construction and trades segment from those targeted to homeowners that were intended for occasional, light use rather than heavy, daily use. -Japanese auto makers faced a similar situation. Honda, Toyota, and Nissan entered the US market with small economy cars at a time when American cars were larger and less economical. Over time, the quality of the small cars improved. Their efficiency and their lower price created a reputation of being reliable, practical cars. When these automakers decided to pursue luxury buyers (a new segment), their reputation did not match the brand perceptions of luxury buyers. Rather than try to reposition their brands with significant difficulty and expense, they opted to create a new brand specifically targeting more upscale buyers, creating Acura, Lexus, and Infiniti. Hyundai, a Korean brand, has been struggling with the same decision over the last few years, initially trying to move directly into more upscale vehicles under the existing brand, but recently reconsidering, adding its new Genesis brand after sales of the new upscale models under the Hyundai brand failed to meet goals.

Most widely used category of segmentation variables and typically the first approach companies use -why?

-Demographic segmentation is the most widely used category of segmentation variables and is typically the first approach companies use -Primarily because it is easy to apply, and demographic information is often readily available. -In many cases, it is also quite relevant, since in many markets demographic differences are closely tied to differences in customer behavior.

The more segmentation variables you use, the more specific the group, but the more complicated the segmentation approach becomes

-If you choose three segmentation variables with five categories each, you have 5 × 5 × 5 = 125 possible segments. -At this stage, it becomes impractical, and indeed unnecessary, to describe all of the segments, as many of these segments would not be profitable to pursue. -In cases such as this, most marketers will identify and focus attention only on the segments they deem to be significant enough to consider. -For example, those highlighted in the grid might be the primary segments to consider. (table 6.3) -Segmentation is a tradeoff. More narrow groups are more specific, but also smaller so you have fewer people to market to in the group.

Business markets can be segmented similarly to consumer markets using geographic (location, etc.), demographic (industry, size, etc.), and behavioral (usage rate, loyalty, etc.).

-The one base missing from our discussion of the four consumer market segmentation bases—psychographic segmentation, is less applicable for businesses. -Generally, we don't think of companies having a lifestyle per se, though in some cases you might suggest they do. -Rather, it makes sense to think about the lifestyle, personality, and values of those in the business that will make the purchasing decisions. -So, for all practical purposes, marketers use the same basic process for segmenting business markets as they use for consumer markets, with the exception of psychographic segmentation.

6 steps of the segmentation process

1. Define the broad market 2. Narrow the market 3. Select general variable category(ies) for segmentation 4. Choose specific segmentation variables within a selected category 5. Identify categories within each selected segmentation variable 6. Develop a profile for each segment

To highlight the criteria needed for an effective segmentation approach, think about the following question. Would left-handedness be an effective segmentation approach? Let's apply the five criteria to see if left-handed meets all five.

1. Identifiable: Left-handedness is identifiable because it is relatively easy to tell who is left-handed and who is not. 2. Measurable: Because people can be placed in relatively straightforward categories (left-handed, right-handed, or ambidextrous), this segment is measurable. 3. Substantial: Roughly 10% of the world's population is left-handed. Men are slightly more likely to be left-handed than women (13% men and 11% women). However, there are fewer left-handers in certain cultures. For example, Korea (2%), Japan (3%), and Taiwan (5%) have the lowest levels of left-handedness. In North America, the number of left-handers is 12%; however, this was not always the case. A century ago, only 2-3% of North Americans admitted to being left-handed. Now, left-handedness is more common, and three of the last five presidents have been lefties (Obama, Clinton, and Bush, Sr.). So left-handedness is substantial in certain markets. 4. Accessible: If you were a marketer, how would you reach left-handers exactly? Is there a left-handed website? Is there a "Lefty" magazine? Do left-handers shop at different stores than others? In other words, marketers would have a difficult time accessing left-handed customers differently from other customers. There is not a special outlet or opportunity to get to them easily. 5. Responsive: In most markets, it is not clear how or why left-handers would be expected to respond any differently to a specific marketing mix than other customers. However, in some cases left-handers will certainly respond differently to different product options. For example, left-handers stand on the opposite side and need different equipment when playing golf. Baseball and softball gloves are made for either the right or left hand. So, clearly in these and other markets where they require different products, left-handers would require a separate marketing mix. So in some cases left-handedness would meet the responsiveness criteria, but not in other contexts. ***Given our discussion, it appears left-handedness meets most of the criteria for effective segmentation, but it doesn't generally meet all five. Accessibility is the most problematic, as reaching this group is not any different from reaching other customers. Hence, left-handedness is perhaps not an effective segmentation approach except in specialized circumstances. A golf equipment manufacturer will not create a separate marketing mix per se for left-handers but will make sure to have a representative proportion of equipment available for left-handers to meet the needs of this group (see Figure 6.4). Left-handers would see the same ads in the golf magazines, and the equipment would be available in the same stores right-handers shop in, but about 12% of the available inventory in a golf store would be made for left-handers.

4 components of a positioning statement

1. We: The company, brand, unit that is providing the offer. 2. Target customer: The target customer is clearly identified in terms of the important segmentation characteristics. 3. Key benefit: Target customer wants and the company will provide (sometimes referred to as a unique selling proposition). 4. Competitive reference: Who does the company want the customer to use as a comparison?

Identifying categories within each selected segmentation variable (step 5)

After you have selected specific segmentation, you have to make rules for categorizing customers. Specifically, for each of your segmentation variables you now need to provide a categorization scheme that sets parameters for classifying a customer (Step 5). -How will you divide the market using environment? -A simple option might be to use two categories: Inside versus outside. -For benefits sought, you might differentiate comfort, safety, style, durability, quality, and low cost. -Note here you will in effect be capturing customer tradeoffs that will reflect your own product offerings. -For example, durability and high quality are generally costly to produce. Style and comfort or low cost also often conflict. -Your segmentation approach should effectively capture the most common tradeoffs so you can identify tradeoffs customers make when purchasing.

Finally, one company's segmentation approach might not be appropriate for another company. -While two companies might share a similar broad market, it is typical for companies to have different strengths and weaknesses.

As a result, when the company narrows the market in Step 2 of the process, it is likely that company differences manifest in different segmentation strategies. Two local sandwich shops can have significantly different segmentation approaches. Perhaps one of the shops has an owner who also knows a lot of local business owners and was in catering before. The other has experience as a deli manager in a busy urban environment. In this case, it would be likely that one shop included catering in creating a segmentation approach, while the other included business lunch customers who want to get in and out in a hurry. Note that in this case it might still be likely that the two local sandwich shops competed for the same customers since both segmentation approaches include business folks who want lunch. Do you think McDonald's and Burger King segment the market using the same variables? Which variables are different and what suggested the differences to you?

Demographic segmentation ex

As an example, consider age. -People of the same age share many of the same experiences. World events, music, television, movies, and sports are all shared experiences that are tied to generations. -Consider your age group and how your experiences might be different from people a generation or two older. -Do you remember a time before texting? The internet? Your parents do. -They even remember a time before computers, cell phones, and hybrid cars. -Your grandparents remember a time before ATM machines when customers had to go into a bank to make a deposit, withdraw cash, or get a loan. -They probably read the newspaper and might even have gone to the drive-in movie theater as children.

Effective positioning statement ex

As an example, if you owned a local dry cleaning service, you might develop a positioning statement such as: Fast Service Cleaners offers local business people who need fast service the quickest return service for their laundry compared to any drop off or delivery dry cleaning service within the Chattanooga, Tennessee, downtown area. -As this is an internal statement about specific competitors, the actual demographics (if used), and detailed benefit(s) should be included where possible (figure 6.5)

Brand loyalty

Brand loyalty will also influence behavior. -Brand loyal customers will typically pay a higher price, search for less information, and be more likely to recommend the brand to others. -Other customers switch brands often and require sales or other promotions to lure them to purchase. -Such customers are more likely to comparison shop and be influenced by price, and are more likely to switch again in the future.

Segmentation

Companies will not survive if their marketing strategy is dependent upon targeting an entire mass market. -The importance of market segmentation is that it allows a business to precisely reach a consumer with specific needs and wants. -As a marketing professional segmentation will be crucial to your success.

Table 6.4

Description of Several Brands within the Marriott Hotel Chain Can you guess at the positioning statements for each Marriott hotel option? Who does each one target? What is the difference each offers, and what competitors would customers consider using instead? Do you think these options are distinct? Explain. It may help to use the positioning "diamond" as a tool (see Figure 6.5).

Market segmentation defined and purpose

Different customers want different things and companies have to identify groups of customers to market to them effectively. This process is called market segmentation.

Responsible

Different marketing mixes should produce different marketing responses from different segments. -In commodity markets, where all products are the same, customers buy based on price, which means there is no need for marketing; the cheapest price will always win the orders. -In most markets, however, different customers do respond differently to different marketing mixes, so it is incumbent upon the marketing manager to find the segmentation approach that maximizes the responsiveness of different customer groups.

6.3 USING SEGMENTATION AS A FOUNDATION FOR MARKETING STRATEGY

Every marketing plan should include a clear explanation of the market segmentation, target market focus, and a market forecast. -Without considering these aspects your marketing plans may fall short of your goals or become inefficient.

Consideration when applying a segmentation approach

First, most companies generally try to use the largest segments possible that will still provide guidance for marketing mix decisions. -At the extreme, companies could consider each customer as a segment of one, effectively customizing the marketing mix for each customer. Referred to as micromarketing, this approach is typically not practical, is very expensive, and is often not necessary, so few companies use micromarketing in practice, save for perhaps those that offer customized products or services to select customers. -Differentiated marketing, also referred to as multisegment marketing, where companies identify large distinct groups that share similar characteristics, is the more common approach, as this approach offers a reasonable tradeoff between focus and cost in most markets. -A more narrowly focused example of segment marketing is niche marketing. In niche marketing the company identifies a subsegment that has special needs that typically is not large enough for the larger competitors in a market to pursue. ----For example, title loan companies pursue high-credit-risk loan customers that traditional banks would not pursue due to the risk. The title loan companies charge higher than normal interest rates to accept the additional risk.

Measurable

For a segmentation approach to be useful, the segments must be measurable. -Knowing how many customers are in each segment is critical to enable marketers to determine the marketing potential of each segment. -Measurement of a segment should be linked to the marketing objectives and can be indicated in numbers of customers, amount spent, or other measures important to the marketer

Geographic segmentation ex

For example, groups can be segmented based on region (e.g., continent, country, province, state, etc.), environment (e.g., hot vs. cold or tropical vs. desert, indoor vs. outdoor, office vs. home), size (e.g., 2 blocks vs. 2 square miles or number of people, such as a town with 1,000 people versus a city with 5 million), and density (e.g., rural, urban, suburban).

Behavioral segmentation ex

For example, some customers buy a computer for work, while some use it primarily for play or entertainment. -These customers will require different marketing mixes. -Some customers have never purchased life insurance, while others have bought several policies over their lifetime. -If you have never bought life insurance, you need different information than someone familiar with purchasing in the category. -Similarly, customers in different stages of the buying process (buyer readiness) require different information. -If you are actively trying to rent an apartment for the upcoming school year, you pay more attention to rental advertisements and want to know more details about the different apartments. -Purchasing for a special occasion versus a regular purchase changes what a customer wants and influences what the customer might spend. -Wedding pictures are more important than snapshots with friends at the beach.

Anything that might be a useful differentiating factor could be a possible segmentation factor. -example

For example, some customers use their mobile phones mostly to talk, while others primarily use text messaging. -Still others are heavy data users, using their mobile phone for communication but also for a host of other activities that require large amounts of data -A wireless provider might distinguish between these different segments, or groups of customers who share common characteristics within a market, based on their primary use of the mobile phone. -To meet the needs of these different groups based on how they use their mobile phone differently, the wireless provider might offer different service plans based on type and level of usage. -Doing so should provide a better value proposition for the customers in each group, which increases the likelihood the customers will buy. -What type of wireless plan do you have, and does it reflect how you use your phone accurately? -The purpose of market segmentation is to allow the marketer to develop more focused marketing mixes to meet the needs of one or more segments more effectively.

Accessible

Groups must be accessible to the marketer to effectively use the specialized marketing mixes created for them. -The key question the marketer asks with respect to accessibility is, "How can I best reach this segment?" -Some customers shop online for certain products, while others prefer to visit a local retail store. Some customers read magazines, while others listen to satellite radio or watch television. -Accessibility is a function of reaching out to customers or bringing them to you.

For a market segmentation approach to be effective, the customer groups must meet 5 criteria -they must be:

Identifiable/Differentiable: The marketer must be able to identify the different groups and be able to distinguish between them. Measurable: For a segmentation approach to be useful, the segments must be measurable. Substantial: The groups must be large enough to meet a marketing objective, most often profitability. To be substantial, a group must be large enough to justify a unique marketing mix. Accessible: Groups must be accessible to the marketer to effectively use the specialized marketing mixes for the different segments. Responsive: For segmentation approach to be effective, different marketing mixes should produce different marketing responses from the different segments. In other words, each group should react differently to something about the marketing mix.

Segments should be internally consistent (homogeneous), but externally different (heterogeneous).

In other words, the customers within a segment have to be similar, but the segments should be different from one another. -For example, age might be a useful demographic segmentation variable for social media usage. -However, setting the age categories should be done carefully with respect to the actual social media of interest. -Consider the four age categories we used earlier in the example for game apps. Would these age categories provide internally consistent and externally different segments for Instagram? Probably. -Over 90% of people who use Instagram are under the age of 35, and younger users use the app more heavily than the other age groups. -However, these same categories might not be as effective for segmenting Facebook users, since 71% of US adult internet users (58% of the entire adult population) use Facebook. Fifty-six percent of internet users age 65 years and older now use Facebook. -For this reason, companies often rely on market research to determine appropriate variables to use and how to set the classification boundaries for different groups in each variable.

Choosing target market is a high-risk activity ex

In our sandwich shop example, the shop with catering experience might target local offices and deliver a set menu to local office buildings and allow customers to order online. -The other might focus on a quick-serve power lunch option with a guarantee of service within 15 minutes or less. -Can you see how each shop would invest in different resources and how the marketing would be different for each shop? Could both shops in this case survive in the same market? -Note that in this case it is possible for an individual office worker who works locally in this market to be in two different segments depending on whether the office caters lunch in that day or the group goes out to eat instead. It is not a problem for an individual customer to be in two segments as long as that customer is in only one segment at a time.

Geographic segmentation

In some cases it makes sense to distinguish customer groups based on geographic location, referred to as geographic segmentation. -Any variable that is linked directly to location would be considered geographic segmentation.

Behavior is one of the best segmentation options -ex

Many marketers (including us) feel behavior is one of the best segmentation options because customers will often do what they have done before. -Technology is helping marketers by capturing purchase and other behavioral data. -Online, your behavior is tracked and used to provide offers based on what you looked at or purchased before. T -The same is true offline as scanner data and using your frequent shopper card allows marketers to gather behavior data about your purchases so the retailer and manufacturers know what you buy to better market to you.

Criteria for Effective Market Segmentation

Market segmentation must be carefully done if it is to be effective, since choosing the wrong segmentation approach can derail the company's marketing efforts. -To be effective, the customer groups must be useful from a marketing perspective. -Each group should react differently to marketing efforts and, therefore, require a different marketing mix with at least one major marketing difference between the groups. -For example, some customers will buy cars online, but others won't. -In this case, the place (or distribution) element of the marketing mix would be different, but so would the promotion element since the promotion would largely be done online rather than at the dealership. -Some customers buy the cheapest shampoo, while others buy only a specific brand no matter the price. -This suggests differences in the marketing mix for the two groups based on price and promotion.

Demographic segmentation

Marketers can differentiate customer groups in a market based on their personal characteristics such as: -age -income -gender -race -education -marital status -religion -nationality, and so on, which is referred to as demographic segmentation.

Combining different categories of segmentation variables

Marketers often find they can be more effective when combining different categories of segmentation variables to more accurately highlight and focus on important customer differences. -As data about customers has become more available and the ability to analyze larger amounts of data has increased, more sophisticated segmentation tools have become more popular. -While there are many proprietary segmentation tools used by individual companies, there are also several common tools available for general use.

Segmentation variables

Marketers use differences to categorize customers into manageable groups, and we can classify these variables in four broad categories: geographic, demographic, psychographic, and behavioral.

Segmentation is a tradeoff

More narrow groups are more specific, but also smaller so you have fewer people to market to in the group.

Select general variable category (or categories) for segmentation (step 3)

Next the marketer selects the category or categories of segmentation variables that will be used to group customers (Step 3). -For clothing, any of the four categories could be used. Clothing has to match the environment (especially for comfort), so geographic segmentation could be appropriate. -Demographic variables such as age, family life cycle, income, and gender would also be potentially related to clothing purchases. -Customers with more active lifestyles buy different clothing, and some consumers buy clothes as an expression of their personality, so psychographic segmentation would also be appropriate. -Finally, behavioral segmentation would also be possible since what the customer uses the clothing for will influence buying behavior. -The marketer has to use experience and knowledge of the market to make tough decisions about which type of segmentation to use, again emphasizing the planning and research done prior to this step. -From research, your company might have learned that the location and type of work makes a big difference in the clothing needed for the job. -If someone works inside versus outside the clothing requirements are significantly different. -Environment represents geographic segmentation. -Someone who works at a desk all day will choose different clothing than someone who has a more physical job. -Customers with different jobs might also want different benefits such as comfort, style, durability, or low cost. This suggests you would also be justified using behavioral segmentation.

Choose specific segmentation variables within a selected category (step 4)

Once the general segmentation variable category or categories has been decided, the marketer must choose which specific variables to use (Step 4). -In our example, your clothing company selected a combination of geographic and behavioral segmentation. -Which specific geographic and behavioral variables will you use to differentiate customers? -Given the discussion, your company might select work environment (a climate-controlled environment such as an office vs. outdoors) as the most significant geographic variable. -For behavioral segmentation, benefits sought is the most critical variable. -Will the customer primarily want comfort, safety, style, durability, quality, low cost, or other benefits? -Using fewer segmentation variables makes the process less complicated and is generally preferred to more variables so long as the variables chosen allow for accurate and meaningful categorization and distinction between different customer groups. -Your research and market analysis should guide this step as well. You might choose weather and benefits sought as your specific segmentation variables.

Narrow the market (step 2)

Once you have decided on the broad market, your second step is to narrow the market both in terms of the product category and the benefits offered (Step 2). -Casual clothing that offers comfort is too broad for marketing purposes, so what type of clothing and comfort combination will you offer? Will your company focus on work clothing or leisure? -This is where the SWOT analysis we described in Chapter 2 and the market research we described in Chapter 5 become critical. -To decide if leisure or work clothes are more viable options, you need to know customer trends, what competitors are doing, and your own strengths and weaknesses relative to the clothing market. -Based on your research and marketing strategy you might decide to offer work clothing that someone could wear comfortably all day.

Develop a profile for each segment (step 6)

Once you have developed the categorization scheme, your final segmentation task is to provide profiles that accurately describe each customer group and how each differs from other customer groups (Step 6). -The profile should include the key identifiers for each group and indicate what makes that group unique. -The uniqueness for a segment provides the focus for developing an appropriate marketing mix. -Each combination should be considered, though some will be more attractive segments than others. -In our example, one segment would be inside workers who want safety clothing and another would be outside workers who want safety clothing. -Other segments would include specific combinations of inside or outside workers and benefits desired.

We also want to make a final note to consider when judging the attractiveness of specific market segments to target

One critical issue in determining attractiveness is the potential competitive pressure for a potential target segment. -Given your strengths and weaknesses and the competitive set, will this segment offer you the opportunity to establish a strong, defensible position relative to other potential target segments? -Most marketers will tell you that "it is better to be a big fish in a small pond than to be a small fish in a big pond" mainly because the bigger the pond, the bigger the other fish competing for food. -So, we would suggest where possible that you identify a segment that competitors either aren't interested in or where you have such a significant advantage that you will have the edge. -Sometimes this means a segment that from an objective view might appear less attractive can be a more effective target market.

Marketing tries to tap into these shared experiences of different age groups to engage customers.

One way marketers have used this approach successfully is through using specific music to appeal to different age groups. -Nielson published a study linking music in advertising to effectiveness. -Age is also closely tied to other important customer characteristics, such as marital status and family life cycle, though these variables are not solely age based. -According to foryourmarriage.org, young people today are waiting later to get married and begin families. How do you think these trends have affected marketing?

Psychographic segmentation ex

Psychographic segmentation has been used in markets as diverse as outdoor recreation, computers, and even soup. -However, because psychographics involves lifestyles and has a psychological component, it is often difficult for marketers to measure and accurately assign customers to one segment or another. -Rather than create new categories for each specific marketing situation, many marketers use commercially available tools developed specifically to measure lifestyles and psychographic segments. -Two of the more popular psychographic segmentation tools include the VALS framework (http://www.strategicbusinessinsights.com/vals/ustypes.shtml) and the Myers & Briggs (http://www.myersbriggs.org) types.

Segmenting business markets

Segmenting businesses is similar to segmenting consumers. (1) If you were a restaurant that offered catering, you could consider how close the businesses were to your restaurant (geographic: location). -Those farther away would require refrigerated trucks and special handling for the food. Those closer would be more convenient. (2) You could also consider size of local businesses (demographic: size). A business with 100 employees to feed would differ from one that only had 10 employees. (3) Third, you might consider how often different businesses would have meals catered (behavioral: usage rate). Some might have weekly lunches, while others might only have one or two events catered in a year.

Place decisions can also drive the use of geographic segmentation. -ex

Snow skiing requires snow, of course, and is much more popular in colder climates in the Northern and Western states in the United States and in Europe than in other areas with warmer weather. (1) K2 manufactures snow ski equipment and therefore chooses retailers (e.g., The Ski Bum, Back Country) and distribution partners that allow it to sell its equipment in popular snow ski destinations such as Jackson Hole, Wyoming; Lake Tahoe, Nevada; Salt Lake City, Utah; and Aspen, Colorado. (2) In contrast, Connelly Skis manufactures water ski equipment. -Its marketing mix focuses on warmer climates. -It sells through retailers such as Overton's and Water Ski World and has distribution networks intended to cover the lower half of the United States more completely. -Though different markets, these two manufacturers both use geographic segmentation because it matters in their respective markets.

Psychographic segmentation intro

Sometimes geographic or demographic variables are insufficient to distinguish different groups within a market and marketers need something more sophisticated to really separate customer groups. -For example, can you easily describe campers or hikers using demographic traits? -Not easily, because campers can be young or old, and high or lower income, families or individuals, and so on. -However, if your company makes camping equipment, you still need to market to this demographically diverse group of potential customers. -A solution is to use psychographic segmentation

Table 6.3

Steps in Segmentation Process

Some common marketing segmentation variables

Table 6.1

Myers & Briggs type indicator

The Myers & Briggs type indicator is a personality inventory that uses 4 dichotomies (e.g., extraverted or introverted) to describe 16 personality types. The original instrument has been adapted and modified a number of times, but is still popular.

VALS approach

The VALS approach is based on a combination of behavioral, demographic, and attitudes and describes eight categories with labels such as innovators, thinkers, strivers, and experiencers.

Substantial

The groups must be large enough to meet a marketing objective, most often profitability. -The question a marketer would ask to determine if this criterion is met is: "If I create a specific marketing mix for this customer group, will I make enough money to cover the expense of designing a mix especially for this group?" ***Note that this does not mean that a segment has to have a lot of customers to be substantial. -For a small upholstery company, it might be enough to have only a few customers who want customized seat covers. -A large manufacturer with lots of equipment and employees, however, might not find the same group substantial enough to warrant consideration.

Identifiable/Differentiable -ex

The marketer must be able to identify the different groups and be able to distinguish between them. The more specific the differences, the easier it is to tell one segment from another. -To be effective, it is necessary for the marketer to have a clear understanding and specific boundaries to identify a customer as belonging to either one segment or another. -For example, it is easy to differentiate customer groups based on demographic characteristics such as age or income: A customer is 30 to 40 and makes $50,000 to $70,000. Other characteristics, such as social beliefs, are more difficult to identify in customers. -For example, several companies market to customers who care about giving back to society in general. These customers are considered to be socially responsible. -If you decided to use social responsibility as a segmentation approach, how would you tell who was socially responsible and who wasn't? Do you think your definition of a socially responsible person is the same as someone else's?

6.2 APPLIED SEGMENTATION

We have covered the different sets of variables for segmenting a market and discussed some of the key considerations for using some variables over others. -But how, exactly, is it done? -Segmentation is a six-step process. -Once you segment the market, you will also need to determine whether your segmentation approach is viable and makes sense for your market.

Sometimes a company decides to change its positioning when it isn't working -ex

When this happens, company can try repositioning the brand by creating a different perception of the brand in the customer's mind relative to competitor's offering. -This is extremely risky, and may not be possible if the company has a long history with a specific positioning strategy. -Some successful examples include Apple's repositioning focused on innovative products and ideas in the late 1990s, -Burberry's shift from being associated with gang wear to luxury brand, and -Old Spice's repositioning in 2010 from a brand for older men to a younger, fun brand. -Other brands are currently in the process of trying to reposition themselves. Harley Davidson customers have for the last 20 years been white males between 40 and 60 years of age. However, this demographic group is shrinking, and Harley Davidson finds itself at a point where it will need to reposition the brand to appeal to new customer segments. The company has begun advertising to women in an attempt to reposition the brand. Will it work? Can it even be done? -McDonald's too, is trying to reposition itself. With healthier eating trends and other fast food options going more upscale, McDonald's has over the last 10 years been trying to reinvent itself by renovating its locations, offering healthier menu items, and offering a more upscale environment in many of its locations. Will it work? It remains to be seen.

Figure 6.6

With this many choices, you can find a marriot brand hotel to meet your needs

Mass market approach

assumes the market is really just one big segment

Key variables used for behavioral segmentation

benefits sought, usage rate, usage status, buyer readiness, occasion, and brand loyalty

Psychographic segmentation

categorizing customers based on lifestyle, personality, or values. Key segmentation variables used in psychographic segmentation include activities, interests, opinions, social class, and personality.

Behavioral segmentation

categorizing customers into groups based on what they do relative to the category

Choosing target market is a high-risk activity because

choosing the wrong target market can have serious financial consequences for the company -If your company and a competitor who has significantly more resources find the same segment attractive, it is possible you will end up competing for the same customers. -If this happens, you might find yourself under constant pressure as the competitor spends more resources to lure customers away. -Hence, it helps to target customers who are attractive, but also ones who find your offer attractive.

Positioning statement

clearly spells out the differences between what your company offers customers and what other companies offer and should guide all marketing efforts for a specific target market

Positioning statement

clearly spells out the differences between what your company offers customers and what other companies offer and should guide all marketing efforts for a specific target market.

Positioning

creating a specific perception in the customer's mind relative to other options. -While a mission statement or slogan might be used externally to give customers a sense of the brand, the positioning strategy is developed for internal use within the company.

Perceptual maps represent... -however --ex

customer perceptions -However, perceptions in one market do not necessarily match perceptions in another market, and it is possible for a company to position itself differently while targeting different segments in different markets. -For example, in the United States, Buick is still trying to overcome the "your grandfather's Buick" stereotype with commercials showing surprise that the good-looking car is a Buick. However, 2015 was still the best year in Buick history due to sales in China. China is the dominant market for Buicks, with 80% sold in China compared to the 18% in the United States. In China, Buick is perceived as a luxury brand. The company has different positions for different target segments.

Demographic segmentation

customers can be classified based on their personal characteristics such as age, income, gender, race, education, marital status, religion, nationality, and so on

Positioning statements are created for...

each target market and should guide the marketing mix for that specific market

The purpose of segmenting a market (market segmentation)

highlight the potential differences between groups of customers so that the company can choose on which group(s) to focus its marketing efforts.

Targeting

highlighting the potential differences between groups of customers so that the company can choose on which group(s) to focus its marketing efforts.

Geographic segmentation is most useful in... -ex

markets where location requires different products or forces significantly different place decisions. (EX1) For example, The North Face has over 100 different jackets for women, and definitely understands the different product needs of customers in different geographic locations (see Figure 6.1). -It is pretty clear there are different customer groups in mind for the "Women's Better than Naked™ Jacket" versus the "Women's Far Northern Waterproof Parka." (EX2) Companies marketing food (e.g., restaurants, grocery products, and specialty products), clothing, vehicles, sports equipment, leisure and outdoor products, real estate, and even services also consider geographic segmentation since customer product preferences and usage differ by location.

Segment marketing

more common approach with companies identifying distinct groups that share similar characteristics, as this approach offers a reasonable tradeoff between focus and cost in most markets

There are several considerations when applying a segmentation approach. -First consideration

most companies generally try to use the largest segments possible that will still provide guidance for marketing mix decisions.

An effective positioning statement

must have all 4 components and might take the format: W (we—company/brand) provide... Y (the target customer) with... X (the key benefit customers want) better than or compared to... Z (competitors).

Perceptual map

or graphical representation of customer perceptions of competitive products, is often created to identify positions that are open in consumer's minds. -Perceptual mapping can suggest product features important to customers, and graphically represents similarities and differences customers perceive for brands. -For a positioning strategy to be effective, the key benefit used for differentiating the company's offer needs to be something customers want and value. -A key benefit can be an advantage from any area, such as service from the dry cleaning example. Let's see what you have learned. What are your marketing conclusions from the perceptual map in Figure 6.7? -Perceptual maps help distinguish the features offered by companies in the fast food industry

Often geographic segmentation is a function of... -ex

product and place decisions combined -For example, many consumers like fresh fruit, but fruit is seasonal, and its availability is largely dependent on the time of year. -If you live in Ohio and buy oranges from the grocery store in February, they most likely were grown in Florida because that is when most oranges in Florida are harvested and Florida is the main supplier of oranges to the US market. -However, if you want fresh oranges in Ohio for your July 4th cookout, you will likely have oranges imported from Brazil, which has a different growing season (Southern Hemisphere) and supplies most of the oranges eaten in Europe. -As you should expect, it costs more to get fruit from Brazil to Ohio, which drives the price up at the store, and not all customers will pay the higher price. -Some will, but you need to know how many and which ones.

Behavioral segmentation

refers to splitting customers into groups based on what they do -key variables used for behavior segmentation include benefits sought, usage rate, usage status, buyer readiness, occasion, and brand loyalty

Psychographic segmentation

splitting groups based on lifestyle -psychographic segmentation, as the name implies, takes into consideration the psychology of how and why people do things -key segmentation variables used in psychographic segmentation include activities, interests, opinions, social class, and personality

A group of customers the company decides to focus its marketing efforts on a

target market -should be attractive in terms of potential growth, size, potential for sales and profits, number of customers, and other variables that would suggest the group can provide an effective return on the company's marketing investment.

When evaluating segments, the company will consider two primary factors

the attractiveness of the segment and the company's goals and resources

Niche marketing

the company identifies a subsegment that has special needs that typically not large enough for the larger competitors in a market to pursue ***more narrowly focused example of segment marketing

Defining the broad market (step 1)

the marketer defining the broad market on which the company will focus its marketing efforts (Step 1) -Your general market should include both your product offering and the basic benefit(s) you will offer customers so you have a general idea about which customers might be appropriate for exchanges. -If you make clothing, you might decide broadly to offer casual clothing and focus on comfort rather than specialized athletic clothing that could monitor athletes' vital signs during workouts. -This is a critical step because one of the primary goals is to determine not only what market you will be in, but also which markets you will not participate in (at least initially). -Many companies try to do too much and lose the focus that is critical to success, especially starting out. -Amazon started as an online bookseller before expanding into other retail categories.

Market segmentation

the process of categorizing different groups of customers in a market, based on customer differences

Market segmentation

the process of categorizing groups of customers to divide a market into manageable pieces based on customer differences -Importantly, different customers value different things, which means marketers need some way to distinguish between customers who want one thing and customers who want something else

The purpose of market segmentation

to allow the marketer to develop more focused marketing mixes to meet the needs of one or more segments more effectively.

One of the primary purposes for conducting market research is

to gain a better understanding of what customers want -Companies want to understand what customers value to create more appealing exchanges