Marketing Ch 10 Customer heterogeneity. Segmentation techniques in the reference market. Individualized demand analysis: Customer panels and Relationship Management

Positioning

-After objective segments are selected the firm must establish the POSITION OF EACH PRODUCT TARGETING EACH SEGMENT -defining the PRODUCT ATTRIBUTES THAT BETTER FIT THE CONSUMERS' PREFERENCES IN EACH SEGMENT -after the definition process, the positioning must be COMMUNICATED

Targeting Segments

-Assess expected return and associated risk with marketing products/services in each segment -Rank the segments top-down based on attractiveness -Top ones in terms of interest are selected. The final number of those is determined based on the investment capacity of the firm -High level of risk should be a sign to diversify

B2C Segmentation fundamentals

-Geographical segmentation (easy to use) -Socio-demographic segmentation (most popular) -Behavioral segmentation (better reflects preferences)

more positioning

-How the consumers perceive the product in comparison w/ those of the competitors -The study of the customers' perception is based on the attributes that the consumer considers more important -Companies study the VALUE POSITION: why the target segment should buy the product

after deciding to go for the heterogeneous market segments, three main potential strategies

-Mass marketing -Segmented Marketing -Niche Marketing

How to position our products/ services?

-Objective is to differentiate our product w/ a competitive advantage in the considered segement -Thus, we need to identify the potential competitive advantages in the segment (attributes, price, brand image, distribution channels, etc) Select the most promising competitive advantage (how many attributes to use? Which ones?)

Individual demand and CRM

-Often convenient to study the specific behavior of each customer individually, storing a large data panel with the commercial operations. This data can be analyzed using different statistical and econometric models in order to forecast individual responses to marketing policies -To improve long term benefits drawn from commercial relationship, some marketing mix variables are increasingly customized to the existing customers. The results of the data analysis can be used to optimize the portfolio of investments on each customer

If the right positioning is not selected:

-Our product will be badly targeted and will not find the right match in the consumers of the target segment -Competitors will react quickly and they will take the advantage in the selected segment -If our position is blurry, it will become less attractive for most of the segments

Positioning communication

-Positioning is shaped by the marketing mix strategy. But we must communicate the positioning, emphasizing some key features -These statements summarize the positioning of a given firm of brand -Statement must emphasize just ONE OR TWO ELEMENTS so that the consumer doesn't get confused -statement is spread through communication strategies

Elements to communicate examples

-Product attributes -The competitors -Inherent characteristic -Advantage, benefit or given solution -Specific usage -User category -Product Class

Counter-segmentation

-Regrouping different segments in a common bigger one -Typical strategy in crisis periods, where the consumer's demand is having their needs satisfied to a lesser extent with the condition of smaller prices Advantage: cost cutting and thus cheaper prices (car manufacturing)

Relationships Marketing

-Small and medium business may have a competitive advantage in relationship marketing, when compared to bigger companies -Requires customer service to take a central role, leading to integration, in the business culture -Quality-control oriented

Positioning mistakes

-Under positioning (not clearly stating the reason or benefit to buy a given brand) -Over positioning (over killing the brand perception and thus skipping it) -Blurry positioning (too many benefits or too many changes) -Insignificant positioning (benefit not interesting to consumers) -Doubtful positioning (lack of credibility of the brand offer)

Behavioral Variables

-Volume Segmentation -User Status -Attitude towards the product -Frequency of Use -Loyalty -Marketing-mix sensibility -Psychological factors

Segment Analysis

-after determination, a summary of statistical data on their behavior is required: average buy preferences, consumption patterns -demand within each segment must be forecast, ensuring that the performed segmentation has unique characterisitics

Segmentation Optimization

-firms do not always use segmentation techniques, eventually they consider a standard product/positioning -in some cases companies take the opposite standpoint and go for an extreme segmentation, so each customer is considered a segment -Deciding the right level of segmentation is a KEY question for each company

B2B buy decisions

-purchasing organization -power structure -existing relation supplier/buyer -general purchasing policies

Customer Relationship Management (CRM)

-the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction -5 to 10x more expensive to engage a new customer than to keep an existing one -Marketing management must pay special attention to the LIFETIME CUSTOMER VALUE

Steps of segmentation

1. Collection of qualitative and quantitative data on a representative sample of consumers 2. Determination of relevant variables in the description of consumer behavior (segmentation fundamentals). The segments are based on differences in consumer attitudes when these variables change. 3. Determination of a statistical technique to study the differences between consumers of these variables. 4. After defining the segments, we study whether they are accessible and commercially relevant. Some selected as target

Establish and develop long-term relationships with the customers and the customer equity

1. Levels and tools in CRM: -Target market usually mandates the like of relationship: Basic relations and Complex relations 2. Loyalty and customer retention programs add: -Financial benefits -Social benefits -Structural ties 3. Customer equity -Total value of the future income from the customers along the full customer-life cycle -It's a way to measure the company returns in the long run

Three fundamental questions of segmentation

1. What business are we in? 2. What business should we be in? 3. What business should we not be in?

Attract, retain and increase customer base

1.Satisfaction/ Value from customers -Perception is key -Meeting or exceeding expectations leads to satisfaction 2. Customer loyalty and retention -Loyalty increases as customer satisfaction does -Positively surprising customers is the goal 3. Increase Market share

Relationship Marketing

Approach focused on establishing and developing long term relations with the customers, so that they are prone to continuous buying -As a discipline the marketing has customer awareness, leaning towards knowing, understanding and satisfying him/her

Basic concepts of CRM

Attract, retain and increase customer base -Establish and develop long-term relationships with the customers and the customer equity

B2B operative variables

Compatible technology Experience (user vs non user) importance for customer

B2B segmentation fundamentals

Demographic segmentation Operative Variables Buy Decisions Status factors Personal characteristics

International market segmentation variables

Geographic segmentation Economic Factors Political and Legal factors Cultural factors

Reference Market

Group of similar products in the sense that (i) meet the demand for the same basic need (ii) of a specific group of customers/consumers and (iii) using specific technologies

Macro segmentation overview

Identify the reference market/s for the firm Criteria: Functionalities or needs Technologies or products Buyers groups impossible to satisfy all customers w/ single product or service

Segmentation stages

Macro-segmentation Micro-segmentation

classification of identified clusters

Main statistical tools used are DISCRIMINANT ANALYSIS (supervised classification/learning) or -Logistic regression to consider the classification group decision as a dependent categorical-variable (the group)

Segment potential estimation

Market segment assessment -size and growth -attractiveness competition level substitute products buyers power suppliers power -Objectives/means of the company

What is needed for a successful segmentation?

Measurable: The segment profile can be measured Accessible: level in which the segment can effectively be provided Profitable: segments size must be big enough to be worthy Differentiable: differences between segments are big, but small within each segment

Micro segmentation overview

Particular identification of the specific customer groups in the identified target market/s Criteria: Demographic Socioeconomic Lifestyle Pursued goals/benefits: behavior market segment is integrated by an identifiable group with similar preference on products or services

Solution Market

Performance of given function in given customers groups, but including all substitute technologies to perform those functions

Criteria for reference market de-elimination

Product Market, Solution Market, Industry

Hyper segmentation

Progressive segmentation of the sub-markets, driving thus a bigger split of the market in smaller and smaller segments Advantage: extremely efficient on driving the actions to such a reduced segment as we know perfectly needs, likes, answers, maximizing our ability to make good profit Disadvantage: extremely high cost to develop and operate such a differentiated strategy

Statistical techniques used to find heterogeneity in key variables

STRUCTURAL CHANGE TESTS IN DEMAND: whether the change of some variable in the segmentation fundamentals causes a structural change in the demand curve, usually studied using dummy variables regression or ANOVA models ANALYSIS OF THE JOINT DISTRIBUTION OF THE VARIABLES used as fundamentals for segmentation. Cluster analysis (unsupervised learning) is normally used

B2B Demographics

Sector Company Size Location Culture

Industry

Single technology that covers several businesses (several functions) and several consumer groups

Product Market

Specific customer group, seeking a specific function or assortment of functions on a single technology

Development of an advantageous positioning

Tasks: -Analysis of possible positioning -Select, develop, and communicate the positioning

Market segmentation

Tasks: -Definition and usage of segmentation variables -Drafting of preference profiles in each segment

Selection of the objective segments (targeting)

Tasks: -Evaluate segment's attractiveness -Select the target segment

Abdell (1980) stated that a reference market can be defined in three dimensions

Who, What, How

solution sought by the customer

business definition in generic term, not in technical terms

Segmentation

defines what business the firm is in, guides strategy development and determines the capabilities needed in the business unit

Key to define the reference market

in terms of a generic need, rather than in terms of a product

Target market

next you must pick your market and assess product/brand that is meant to specifically address your markets

B2B personal factors

similarities buyer/ seller attitude towards risk loyalty

Geographical variables

state, country, city etc sex, age, income, education etc

Narrowing the reference market

the initial step before drafting the market strategy

Segmentation

the second step, done to split market in subgroups that are similar

B2B tactic factors

urgency specific usage of the product size/frequency of orders