MAR3023, Chapter 9

Benefits of multiple products and multiple market segments

Effective if it meets customers' needs better, doesn't reduce quality or increase price, and adds to Ford's sales revenues and profits

Vertical columns of market product grid

Product offerings

Secondary persona

Profile of other, less important groups who should not be overlooked

Key to successful product differentiation and market segmentation:

Finding ideal balance between satisfying a customer's individual wants and achieving organizational synergy

CLV=

$ Margin x (Retention rate %)/(1 + Discount rate % - Retention rate %)

Personas bring data alive by assigning the following to character narratives

Personalities Values Attitudes Beliefs Demographics Expected interactions

CLV considers...

-A customer's product or service usage rate -Loyalty to company -Company's cost to serve that customer over time

Benefits of one product and multiple market segments

-Avoids extra costs of developing and producing additional versions of the product- Incremental costs of taking the product into new market segments are typcically those of a separate promotional campaign or new channel of distribution

Geographic segmentation

-Based on where prospective customers live or work -Examples: region, city size

Potential for increased profit

-Best approach is one that maximizes opportunity for future profit and ROI -If this potential is maximized without segmentation, don't segment

Elements of segments

-Common needs -Common responses to marketing action

Example of grouping products (step 2 in STP)

-Department stores/grocery stores group products and manufacturers organize products into groupings in catalogs

4 ways to segment consumer markets

-Geographic segmentation -Demographic segmentation -Psychgraphic segmentation -Behavioral segmentation

Difference of needs of buyers among segments

-If the needs of various segments are not different, combine them -Different segment usually requires a different marketing action that means greater costs (if increased sales do not offset extra costs, combine segments and reduce number of marketing actions)

Results of Ford changing their business model from 2 brands to 7 brands

-Lower prices because producing higher volume is more efficient -Higher quality because of ability to debug fewer basic designs

Increased customer value can take many forms

-More products -Improved quality -Lower prices -Easy access through improved distribution

Simplicity and cost effectiveness of assigning potential buyers to segments

-Must be able to put a market segmentation plan into effect by identifying characteristics of potential buyers and then assigning them to a segment cost-effectively

Demographic segmentation- organizational markets

-Number of employees (size of firm is related to volume of digital documents produced) -NAICS code (firms categorized by NAICS as manufactures that deal with customers throughout the world may have different document printing needs than retailers or lawyers)

Behavioral segmentation

-Observable actions or attitudes -Example: when/where they buy, what benefits they seek, how frequently they buy, why they buy -Understanding different customers is a useful way to segment markets because it can lead to specific marketing actions

Demographic segmentation

-Physical, measurable, or other classification -Example: gender, race, age, income, birth era, occupation

Similarity of needs of potential buyers within a segment

-Potential buyers within a segment should be similar in terms of common needs that lead to common marketing actions

Huge downside to multiple products and multiple market segments

-Proliferation of different brands, models, and options can raise prices and reduce quality -Huge number of combinations leads to limited production volume, which increases prices **Especially in the automobile industry because it is more expensive than producing only one vehicle

Benefits of BTO

-Reduce work-in-progress inventories (limit models that can be assembled quickly) -Shorten delivery times -Customization through online options

Geographic segmentation- organizational markets

-Statistical areas (firms located in metropolitan statistical area might receive personal sales call where those in a micropolitan area may be contacted by telephone)

Psychographic segmentation

-Subjective mental or emotional attributes, aspirations, or needs -Lifestyle segmentation is based on the belief that "birds of a feather flock together," meaning similar lifestyles tend to live near each other, have similar interests, buy similar offerings

Customer patronage has long-term financial consquences

-Today, companies look beyond an individual purchase from a customer -Instead, companies pursue continuing and mutually beneficial relationships with customers

Behavioral segmentation- organizational markets

-Usage rate (similar to consumer markets, often of major importance in organizational markets)

2 Kinds of criteria in the market segmentation process

1. Divide the market into segments 2. Actually pick the target segments

Steps in segmentation

1. Identify market needs 2. Link needs to actions 3. Execute marketing program actions

5 criteria can be used to select the target segments

1. Market size 2. Expected growth 3. Competitive position 4. Cost of reaching each segment 5. Compatibility with the organization's objectives and resources

3 specific segmentation strategies

1. Segments of 1 2. Multiple products multiple market segments 3. One product multiple market segments

Criteria in forming segments

1. Simplicity and cost effectiveness of assigning potential buyers to segments 2. Potential for increased profit 3. Similarity of needs of potential buyers within a segment 4. Difference of needs of buyers among segments 5. Potential of a marketing action to reach a segment

Steps in segmenting and targeting markets

1. group potential buyers into segments 2. group products to be sold into categories 3. develop a market-product grid and estimate size of markets 4. take marketing actions to reach target markets

80/20 rule

80% of a firm's sales are obtained from 20% of its customers **Not fixed at exact percentages

Patronage of fast-food restaurants

80/20 rule- high percentile illustrates the situation where one group of customers is responsible for a disproportionately high percentage of sales

Compatibility with the organization's objectives and resources

A particular segment may appear attractive according to some criteria and very unattractive according to others

Cost of reaching the segment

A segment that is inaccessible to a firm's marketing actions should not be pursued

_________ simplifies target market research and adds fictional details so that the characters are more memorable for marketers

Personas

Expected growth

Although the side of the market in the segment may be small now, perhaps it will grow significantly or is expected to grow in the future

$ margin

Average customer revenue per year- average cost to serve this customer

Retention rate %

Average percentage of customers who continue to patronize

Why must a firm choose its target market segments carefully?

Because if they are too narrow, it may fail to reach the volume of sales and profits it needs. If it is too broad, it may spread its marketing too thin that the extra expense > increased sales and profits

Identify market needs

Benefits in terms of... -Product features -Expense -Quality -Savings in time and convenience

BTO

Build to order Involves manufacturing a product only when there is an order from a customer

Depending on how your advertising actions work, what can happen in post-purchase behavior?

Can repeat, modify, or drop them and design new campaigns or other segments you deem are more worth the effort

Multiple products and multiple market segments examples

Car companies like Ford (SUVs, cars, trucks, crossovers, hybrids)

Personas

Character descriptions of a brand's typical customers Fictional character narratives, complete with images in one-page descriptions or snapshot

Financial relevance of customer Patronage

Consumer lifetime value

CLT

Consumer lifetime value -Represents the financial worth of a customer to a company over the course of their relationship

Ultimate criterion for organizaiton's marketing success

Customers should be better off as a result of increased synergies

Horizontal rows of market product grid

Different market segmentations

Developing a market-product grid

First must identify and label the markets and product grouping Then, the size of the market in each cell of the grid must be estimated (varies from a large marker 3" to no market at all 0")

Market product grid

Framework to relate the market segments of potential buyers to products offered or potential marketing actions

Market-product grid

Framework to relate the market segments of potential buyers to products offered or potential marketing actions by an organization

Well defined personas include...

Gender Age Interests Hobbies Education Goals Jobs Influencers Media usage Technology preferences Fears Concerns Drivers Delights Interaction with a brand Day in the life

In a segment of one, each customer...

Has a unique set of needs/wants and desires exceptional consumer service

What is important to take into consideration when segmenting?

Importance of grouping people/organizations in a market according to the similarity of needs or benefits they are looking for Needs/benefits must be related to specific marketing actions that the organization can take

Market size

Important in deciding whether it's worth going after- if there is no market, the grid should receive a 0

Organizational synergy

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

Economies of scale in manufacturing and marketing during the past century made mass-produced products so affordable that most consumers were willing to compromise their individual tastes and settle for standardized products. How is it different today?

Internet ordering and flexible manufacturing/marketing processes have made mass customization possible

Product differentiation

Involves a firm using different marketing mix actions, such as product features and advertising, to help consumers perceive the product as being different and better than competing products

Grouping products to be sold into categories

Irrelevant if the firm only have one product/service But, when there are many products, they must be grouped in some way so buyers can relate to them

Competitive position

Is ther a lot of competition in the segment now or is there likely to be in the future? The less the competition, the more attractive the segment is

Perceived differences in product differentiation may involve...

Physical features and nonphysical features

One product and multiple markets segments examples

Magazines, books, movies, many services

Why segment markets?

Makes it so it can respond more effectively to the wants of groups of potential buyers and thus increase its sales and profits

To solve cannibalization...

Many marketers emphasize a two-tier "Tiffany/Walmart" or "Walmart/Dollar General" strategy- firms now offer different variations of the same basic offering to high-end to low-end segments

Execute marketing program actions

Marketing mix: Price Product Promotion Production Place (distribution)

__________ is the next step beyond build-to-order (BTO)

Mass customizaiton

Average CLV

Mixture of customers who treat the company as their sole, primary, and secondary source (customers who are heavy, medium, and light users)

Is it always a good idea to segment?

No, grouping potential buyers into meaningful segments involves meeting specific criteria that answers the question: Is segmentation worth it/possible?

Is there always only one persona for a brand?

No, not always There can be primary and secondary personas

In most segment situations, does a single product usually fit into an exclusive market niche?

No, product lines and market segments overlap

What market segmentation means

People have different needs and wants, so market segmentation involves aggregating prospective buyers into groups or segments

Usage rate

Quantity consumed or patronage (store visits) during a specific time period -Varies among different consumer groups -Example: airlines who develop frequent flyer programs

Market segments

Relatively homogeneous groups of prospective buyers that result from the market segmentation process (consists of people who are relatively similar to each other in terms of their consumption behavior)

Potential of a marketing action to reach a segment

Requires effective but simple marketing action, and if it doesn't exist, don't segment

Recognizing opportunities for key synergies is vital to what?

Selecting target market segments and making marketing decisions

When should a firm segment? When shouldn't it?

Should: when it expects that this extra effort will increase sales, profit, and a ROI Shouldn't: When expenses> potential increase in sales/ROI

Do not-for-profit organizations segment?

Yes, so they can serve and satisfy client needs more effectively while achieving the organization's goals

Changing customer tastes and competition mean you must alter what?

Strategies when necessary This involves: looking at what the headquarters are doing, what competitors are doing, and what might be changing in the area/environment

Kink needs to actions

Take steps to segment and target market

Size of the grids (even if estimated) are important because...

They help determine which target market segments to select and which product groupings to offer

Discount rate %

Time value of money adjusted for the risk associated with the company's competitive status, competitive environment, and general economic conditions

The purpose of developing a market-product grid is to...

Trigger marketing actions to increase sales and profits- this means that someone must develop and execute an action plan in the form of a marketing program

Primary persona

Typical main consumer

Existence of market segments has caused firms to...

Use a marketing strategy called product differentiation

Cannibalization

When increased customer value involves adding new products or new chain of stores and the product differentiation market segmentation trade off raises an issue: are the new products or new chain supply stealing customers and sales from the older/existing ones? **Lines between customer segments can blur and lead to problems

It is hard to reach different segments without...

a marketing program or action- need to think about whether the needs of these segments are different and how various advertising media can be used to reach these groups effectively

How is financial relevance of customer patronage is captured by the...

concept of consumer lifetime value

CLV puts a $ value on ____________

consumer consumption behavior and brand preference (can be compared to that of major competitors as well as using publicly available information)

In a complete market-product grid analysis, each cell in each grid can show....

estimated market size of a given product sold to a specific market segment

CLV is useful in comparing...

financial worth of heavy vs. light users and loyal vs. fickle customers

Frequency marketing

focuses on usage rate

Finding a means of ______________ is as important as grouping customers into segments

grouping the products a firm sells into meaningful categories

Segments of one involves...

mass customization

Organization should also achieve increased _________ from product differentiation and market segmentation strategies

revenues/profits

Mass customization

tailoring products/services to the tastes of individual customers on a high-volume scale

Market segmentation is only a means to an end... it leads to...

tangible marketing actions that can increase sales and profitability

Segmenting in a market and selecting specific segments as targets is the link between _______ and _______

various buyers' needs and the organization's marketing program