Marketing Chapter 6

Segmenting Business Markets

* Business markets = small number of buyers (close relationship with seller) * As business markets are often characterised by a small number of buyers who might display a very close relationship with the seller, 'customised' or 'one-to-one' marketing is a good approach to use. * However * Many business markets fro have a large number of buyers and market segmentation is necessary to dealing with buyer diversity * eg. Telstra & IBM deals with businesses nationwide = needs to segment these businesses in a meaningful way to enable it to concentrate its marketing resources and maximise its marketing effectiveness * Large businesses need to categorise their buyers in such a way that they have common product needs and are likely to respond in a common way to marketing programs * eg. Telstra could segment its business market customers based on whether they are a small, medium or large business or MNC * Business marketers isolate business customers by using commercial industrial directories that contain detailed information on companies. * ORGANISATION SIZE = Affects purchase volumes, purchasing procedures * Very large business customers = typically purchase directly from the seller and will expect advantegeous volume, delivery arrangements * Small business buyers = may purchase through intermediaries and be indistinguishable from private buyers * ie. Officeworks does not distinguish between small business and retail consumer buyers * Demographic Approach in Business Markets = INDUSTRY * ANZSIC: Aus & NZ Standard Industrial Classification System - divides business organisations into 19 standard industry groups (eg. transport, manufacturing construction, storage) * Method of Segmentation in Business Markets = GEOGRAPHY * eg. farmers differ purchases according to location & climate ORGANISATION SIZE 1. INDUSTRY 2. GEOGRAPHY

Gender

* Clothing, beverages, pharmaceuticals & magazines etc... * eg. Men: heavy consumer or beer * eg. Women: heavy consumers of alcopops

Determining the Marketing Mix for Each Segment

* Final Step The Marketing Mix For Each Segment Should * Be consistent with desired positioning * Be internally consistent - each element of the marketing mix should be coordinated and supportive of the other elements * Be sustainable in the long term

Profile Marketing Segments

* Next step after identifying the range of ways in which market segments can be describes is to develop a market segment profile Market Segment Profile: A description of the typical potential customer in the market segment; ie. a description of the common variables shared by members of market segments and how the variables differ between market segments * A number of segmentation variables are considered (ie. age, occupation, lifestyle) * Market segments must be sufficiently different from each other for a distinctive offer to be created for each segment, without risk of overlapping segments or sending confusing images and messages. * eg. segment on demographics (7-65 years), lifestyle (casual, sport), benefits (comfortable, fashionable) * Also important to determine how closely the organisation's current or potential product offerings might match the needs of these market segments

Income

* Strong Indicator of what people can afford to buy and also what their prefer to buy * Note that some people buy products that express their preferred lifestyle (chap 4)

Ethnicity

* Useful segmentation variable for some products * eg. food & travel during Chinese Year New Festival * Aus have ethnically diverse populations = opportunity for marketers to identify direct links between ethnicity & the purchase of a particular product (eg. food) * Marketers can target ethnic groups or people who are looking for a multicultural experience (eg. restaurants)

The Target Marketing Process

1) Market Segmentation = Identifying Segmentation Variables 2) Develop a market segment Profile 3) Market Targeting

For Specialisation To Be Successful

1) Market needs to have a wide range of needs & product preferences 2) Clear market segments, or product categories are identifiable, each with its own distinctive preferences / characteristics 3) The market is clearly dividable into segments so that each can be evaluated & compared 4) Individual market segments, or product categories are sufficiently large to represent profitable sales volume 5) The organisation is able to reach individual market segments with a particular marketing offer & mix

Effective Segmentation Criteria

1) Measurability 2) Accessibility 3) Substantiality 4) Practicability

Evaluate Potential Segments

1) Sales Potential 2) Competitive Situation 3) Cost Structure

Positioning Stepes

1. Company's desired position 2. Developing a marketing mix to reflect the expectations of the target market segment and which reflects that positioning

Variables For Segmenting Consumer Markets

1. Demographic 2. Geographic 3. Psychological 4. Behavioural

Analysing Current Positioning

1. Identify those product attributes that consumers use to distinguish between competing products / brands (focus groups are generally used) 2. Access how its own product/brand and competitors' products or brands are positioned in relation to those attributes (generally through quantitative survey research) 3. Devise some concept of the ideal position of the organisation's product/brand 4. Develop a plan to move to the desired position

Considerations when Choosing Target Markets

1. Its Own Resources (ie. Does the organisation have the required financial, marketing & other resources required to cover the entire market) 2. Market Demand (ie. Do all customers look for the same attributes & benefits in the product?) 3. Competition (ie. have competitors already segmented the market / are they selling to all buyers as a group?

Factors that influence the organisation's ability to achieve sales potential

1. The Market Potential 2. The Organisation's Served Market (ie. those segments of the market for which the organisation chooses to compete) 3. The Level of Industry Marketing Activity, Which Directly Influences The Market Potential 4. Effectiveness of Promotional Spending which Depends on the Organisation's 'Share of Voice' (ie. the organisation's promotional spending relative to total industry promotional spending) * Estimate Sales Potential by looking at: Total market size, current market share, planned marketing activities and environmental factors, population * FOR MARKETING PLAN: Market research, analyse historic trends, map purchasing patterns , match identified potential with organisational capabilities

Market Targeting

2nd Stage = Market Targeting Market Targeting: The selection of target markets resulting from an evaluation of identified market segments * Involves: A systematic examination of the range of possible market segments, their potential sales volume & revenues & the ability of the organisation to satisfy the expectations of members of these market segments * + Also considers competitors & their offerings

Brand Positioning

A Positioning strategy designed to create a market perception of a particular bran, usually based on product attributes Focus on distinguishing product attributes Forms basis of 4 P's

Market

A group of customers with heterogeneous (diverse) needs & wants

Differentiated Targeting Strategy

A marketing approach that involves developing a different marketing mix for each target market segment

Company Positioning

A positioning strategy designed to create a single market perception of the entire organisation in relation to competitors

Product Specialisation

A target marking strategy in which all marketing efforts are concentrated on offering a single product range to a number of market segments * eg. Nikon - camera

Market Specialisation

A target marking strategy in which all marketing efforts are focused on meeting a wide range of needs within a particular market segment * eg. Elders - range of goods & services to farmers

Product-Market Specialisation

A target marking strategy in which marketing efforts are concentrated on offering a single product to a single market segment * Adopted by micro businesses (eg. local trades & professional services businesses) * eg. Restaurants - narrow menu based on a national cuisine, to a local market from a single location

Target Marketing

An approach to marketing based on identifying, understanding and developing an offering for those segments of the total market that the organisation can best serve

Company Sales Potential

An estimate of the maximum sales revenue and market share that an organisation can expect to achieve for a specific product

Gen Z

Born after 2001 Born Digital Technology is second nature

Baby Boomers

Born after WWII (1946-64) Now beginning to retire from the workforce * Relatively wealthy, in positions of power in society, politics & workplace, willing to stay active as prominent members of society in their older years

Gen X

Born between 1965-1980 * Their formative years was during a time of high unemployment & high inflation & interest rates * Strong work ethic, loyalty & frustration with Baby Boomers

Gen Y

Born from 1980-2001 * aka Nintendo Generation * Comfort with Technology, strong, friendships, loyality & high expectations in all spheres of their lives

Mass Marketing

Buyers have common wants, needs & demands (undifferentiated) The marketer can make an undifferentiated offer to the market as a whole * Mass marketer sees: Buyers as having common wants, needs & demands * = Possible to create 1 product to create, communicate and deliver to meet the needs of most people in the market * Can be produced in large volumes & at low cost per unit (due to economies of scale) * Low unit Cost = sell at a low price * Capture large markets at a very low cost per unit = $$$ Profitability * Characteristic of Commodity Products * ie. salt, global mass market products like blank CDs, bandage and pharmaceuticals) * Also for Government Services - Citizens are all entitled to service & benefits (ie. public transport) * Successful & profitable if consumers have homogeneous needs * Common for markets to evolve as consumer preferences become increasingly diverse

One-to-One / Customised Marketing

Buyers have unique wants, needs & demands (differentiated) The marketer can make a differentiated offer to each individual buyer Providing customer with a unique, customised offering that will meet their individual needs * Build relationship with customer (gain customer loyalty & create returning customers + create positive word of mouth) * Common for Small Service Businesses * also Common in Industrial Business Markets * 1 to 1 Results In: Higher unit costs & a more restricted market * Form the basic for a focus / niche strategy

Heterogeneous Buyers

Buyers with diverse needs

Segmentation Variables

Characteristics that buyers have in common and that might be closely related to their purchasing behaviour eg. age, gender, income, occupation etc...

Geo-Demographic Segmentation

Combines demographic variables & geographic variables to profile very small geographical areas (such as a suburb) * Enable intense & specific targeting of small groups * Effective for retail businesses who could vary product offerings based on the distinctive demographic characteristics of these areas

Cost Structure

Consider the costs of creating, communicating and delivering an offering to meet the needs of each potential market segment * Costs = affect price of product, price competitiveness & profitability * Fixed (constant regardless of production & sales volume) & Variable Costs

Market Segmentation

Forms the basis of target marketing - for organisations that want to meet the needs of large numbers of customers more closely, but have the lack of resources who to address each customer as an individual

Target Marketing Concept

Identifying smaller, more targetable market segments, then tailoring the marketing mix to best appeal to those segments involves understanding the organisation's micro-environment & market research and existing info will be required

Competitive Situation

Important to evaluate the level of competitive activity & competitor's strengths & weaknesses before estimating the organisation's likely market share * To increase market share, it may be necessary to increase promotional budget * Existing companies will defend their market shares when an organisation enters the market * Could lead to Promotional Warfare: Depress profits through higher costs & lower margins even though sales volumes may be at the expected level

Market Segments

Market containing subgroups Subgroups within the total market that are relatively similar in regards to certain characteristics The marketer can make an undifferentiated offer to groups of buyers with common wants / needs, but differentiate the offerings it makes to different groups

Behavioural Segmentation

Market segmentation based on actual purchase and/or consumption behaviours * Is not based on consumer characteristics, but on the actual purchase and/or consumption behaviours towards particular products * Better indicator of market segments & their purchasing behaviour Behavioural Variables Inc. 1) Benefit Expectations Understand why consumers purchase particular products & brands, and to base market segmentation around this understanding 2) Brand Loyalty 3) Occasion Important segmentation variable in products like entertainment, wine, travel & high fashion products * Assumption: It is the occasion that dictates the decision to purchase and the final choice of product * eg. Chocolates based on occasion (Cadbury for personal consumption & Roses Chocolate for Valentines Day) 4) Price Sensitivity 5) Volume Usage * seeks to identify heavy, medium & light users of a product category, helping an organisation identify & target the 20% of buyers who typically account for up to 8% of purchase volume or value * eg. middle aged men represent the biggest purchases of high end analogue watches * However volume usage is insufficient as a market segment descriptor as it is described in standard demographic terms

Demographic Segmentation

Market segmentation based on demographic variables, which are the vital & social characteristics of populations, such as age, education & income

Psychographic Segmentation

Market segmentation based on the psychographic variables of lifestyle, motives & personality attributes * Psychology + demographics = Psychographic * 'How people live their lives' Psychological Segmentation is based on differenced in: 1. Psychological traits (personality attributes & motives) 2. Key Demographics 3. Lifestyles * Unlike demographics, psychographic is based on not who you are, but how you live your life by identifying mind-sets and how they are expressed in their lifestyle * Reflected in activities such as hobbies or choice of entertainment * Psychographics brings out differences that demographics miss * eg. targeting uni women - some uni women love uni for the work and some love it for the parties * Particular psychological traits (eg. excitement, curiosity, achievement) + key demographics are more powerful predictors of behaviour and lifestyle than demographics alone

Geographic Segmentation

Market segmentation based on variables related to geography Useful Geographic Variables Inc: * Climate * Local Population * Region * Topography (The physical structure,shape, and features (natural and man-made) of an environment, Terrain) * Urban, Suburban & Rural Location Number or Buyers / Potential Buyers in an given Geographical Area = Important Measure of MARKET POTENTIAL

Specialisation Strategy Aim

Organisation to establish a dominant position in their chosen market niche * Successful = achieve strong market reputation and secure position among loyal customers

Positioning

Positioning: The way in which the market perceives an organisation, its products & its brands in relation to competing offerings * Based on customer perceptions * Need to know how potential buyers see the brand (quantitative & qualitative research needed) Organisation can pursue positioning to manage: 1. How the organisation is perceived in relation to competitors from the perspective of stakeholders 2. How brands are seen, focusing on distinguishing product attributes 3. How the market distinguishes its offering from those of closely competitive brands * Promotion & communication can only attract first time buyers to the brand * Once customers have sampled the brand, the brand's positioning will depend largely on the customer's experience of the brand

Market Share

The proportion of the total market held by the organisation * Market Share: Determines the total volume of sales * Eg. Toyota's MS is 20% - Toyota's total volume of sales will be approx 200000 units (20% of 1 million)

Market Potential

The total sales of a product category that all organisations in an industry are expected to sell in a specified period of time assuming a specific level of marketing activity * eg. market potential for new car sales in Aus is approx: 1 million cars a year

Marketing Positioning

The way in which target market segments perceive an organisation's offering in relation to competing offerings

Approximating Sales Revenue

Total Volume of sales x the Average selling price

Household Composition

Umbrella Variable that is influenced by a number of other demographic variables (inc. age, income, marital status & ethnicity) Segmentation of other variables is complicated by changes occurring in household composition * eg. increasing divorce rates, increasing number of single parent households, increased number of people not wanting to have children, increasing share houses) * Profound effects on consumer behaviour * eg. Married couples live different lifestyles to single people * Useful segmentation variable for marketers of financial services products (ie. personal loans & mortgages, credit cards & superannuation & investment products - linked to stages in people's lives )