Customers, Segmentation, and Target Marketing

Reciprocity:

business marketing is often a two-way street, with each firm marketing products that the other firm buys. For example, a company may buy office supplies from another company that in turn buys copiers from the first firm. In fact, such arrangements can be an upfront condition of purchase in purely transaction-based marketing.

•Commercial markets:

buying raw materials for use in producing finished goods, and buying facilitating goods and services used in the production of finished goods

•Institutional markets:

consisting of a diverse group of non-commercial organizations such as churches, charities, schools, hospitals, or professional organizations.

•Reseller markets:

consisting of channel intermediaries such as wholesalers, retailers, or brokers that buy finished goods from the commercial market and resell them at a profit

Social influences:

culture, subculture, social class, reference groups, and family have a profound impact on what, why, and how consumers buy. Reference groups and opinion leaders have an important impact on consumers' buying processes. Reference groups act as a point of comparison and source of product information. A consumer's purchase decisions tend to fall in line with the advice, beliefs, and actions of one or more reference groups. Opinion leaders can be part of a reference group or may be specific individuals that exist outside of a reference group. When consumers feel like they lack personal expertise, they seek the advice of opinion leaders, who they view as being well informed in a particular field of knowledge.

3. Psychographic segmentation:

dealing with state-of-mind issues such as motives, attitudes, opinions, values, lifestyles, interests, and personality. Psychographic profiles are usually combined with demographic, geographic, or behavioral segmentation to create fully developed consumer profiles. It is useful because it transcends purely descriptive characteristics to help explain personal motives, attitudes, emotions, and lifestyles.

•Passive information search

(consumer becomes more attentive and receptive to information)e.g., noticing and paying attention to automobile advertisements "if the customer has a want for a specific car brand"

•Active information search

(consumer purposely seeks additional information) e.g., browsing the Internet, asking friends, or visiting dealer showrooms.

Common Segmentation Variables Used in Consumer Markets

1. Behavioral segmentation •Variables: benefits sought, product usage, occasions or situations 2. Demographic segmentation •Variables: gender, occupation, education 3. Psychographic segmentation •Variables: personality, lifestyle, motives 4. Geographic segmentation •Variables: city/country size, population density

•Issues in the buying process

1. Consumers do not always follow stages in the sequence and can be swayed by brand loyalty 2. Involves making parallel decisions •What to buy •Where to buy 3. Bias towards a merchant limits purchasing powers. 1.The buying process describes the possible range of activities that may occur in consumers' making purchase decisions. However, consumers do not always follow these processes in sequence and may even skip stages en route to making a purchase (e.g., impulse purchases or loyalty toward a product or brand). 2. The buying process often involves a parallel sequence of activities associated with finding the most suitable merchant of the product in question. In other words, consumers consider what product to buy and where they might buy it at the same time. In the case of name brand products, for example, this selection process may focus on the product's price and availability at different stores or online merchants. 3. The choice of a suitable merchant may actually take precedence over the choice of a specific product. In some cases, consumers are so loyal to a particular merchant that they will not consider looking elsewhere. For example, if some consumers are fiercely loyal to American car manufacturers, they may limit their product selection to a single brand or dealership, greatly limitng their range of potential product choices.

In the postpurchase stage, consumers will experience one of these four outcomes:

1. Delight—the product's performance "greatly exceeds" the buyer's expectations 2. Satisfaction—the product's performance "matches" the buyer's expectations 3. Dissatisfaction—the product's performance "falls" short of the buyer's expectations 4. Cognitive Dissonance (Postpurchase Doubt)—the buyer is "unsure" of the product's performance relative to his or her "expectations"

Criteria for Successful Segmentation

1. Identifiable and measurable: the characteristics of the segment's members must be easily identifiable. 2. Substantial: the segment must be large and profitable enough to make it worthwhile for the firm. 3. Accessible: the segment must be accessible in terms of communication and distribution. 4. Responsive: the segment must respond to the firm's marketing efforts, including changes to the marketing program over time. 5. Viable and sustainable: the segment must meet the basic criteria for exchange, including being ready, willing, and able to conduct business with the firm.

The most basic method of segmenting business markets involves the four types of markets: commercial markets, reseller markets, government markets, and institutional markets. Business buyers can also be segmented on:

1. Type of Organization: different types of organizations may require different and specific marketing programs, such as product modifications, different distribution and delivery structures, or selling strategies. 2. Organizational characteristics: the needs of business buyers often vary based on their size, geographic location, or product usage. 3. Benefits sought or buying processes: organizations differ with respect to the benefits they seek and the buying processes they use. 4. Personal and psychological characteristics: the personal characteristics of the buyers themselves often play a role in segmentation decisions. 5. Relationship intensity: business markets can also be segmented based on the strength and longevity of the relationship with the firm.

Mass marketing can be one type of traditional segmentation:

1. involves no segmentation whatsoever, occurs when companies aim marketing campaigns at the total (whole) market for a particular product. 2. Companies that adopt mass marketing take an undifferentiated approach that assumes that all customers in the market have similar needs and wants that can be reasonably satisfied with a single marketing program. 3. Mass marketing works best when the needs of an entire market are relatively homogeneous. 4. Mass marketing is advantageous in terms of production efficiency and lower marketing costs; however, it is inherently risky. 5. By offering a standard product to all customers, the organization becomes vulnerable to competitors that offer specialized products that better match customers' needs.

•Progresses through five stages

Need recognition; Information search; Evaluation of alternatives; Purchase decision; Postpurchase evaluation.

The Consumer Buying Process: Purchase Decision

After a consumer has evaluated each alternative in the evoked set, he or she forms an intention to purchase a particular product or brand. However, a purchase intention and the actual act of buying are distinct concepts. For example, a consumer may have every intention of purchasing a new car, but several factors may prevent the actual purchase from taking place, such as an illness or job loss. Or the consumer may simply change his or her mind. To overcome these factors, marketers need to reduce or eliminate these problems by reducing the risk of purchase through warranties or guarantees, making the purchase stage as easy as possible, or finding creative solutions to unexpected problems.

The Consumer Buying Process: Evaluation of Alternatives

At this stage, the consumer essentially translates his or her need into a want for a specific product or brand. Consumers evaluate products as bundles of attributes that have varying abilities to satisfy their needs. Important marketing considerations during the evaluation stage: 1. The marketer's products must be in the evoked set of potential alternatives. For this reason, marketers must constantly remind consumers of their company and its product offerings. 2. Marketers must take steps to understand consumers' choice criteria and the importance they place on specific product attributes. Understanding the connection between customers' needs and product attributes is an important consideration in market segmentation and target marketing decisions. 3. Marketers must often design marketing programs that change the priority of choice criteria or change consumers' opinions about a product's image. For example, Microsoft has moved to combat the rapid growth of Apple's iPad and MacBook by aggressively promoting its own Surface Pro 3. With the success of the Surface Pro 3, Microsoft will continue to push forward with a flurry of advertisements touting its highly rated tablet.

•Four types of business markets

Commercial markets, Reseller markets, Government markets, Institutional markets

•Degree of risk involved in the purchase

Consumers are naturally risk averse; they use their search for information to reduce risk and increase the odds of making the right choice. Risks comes in many forms, such as financial risk (paying a reasonable price for a house), social risk (buying socially acceptable products), emotional risk (lead to negative emotions if the product is different from what you expected), and personal risk (choosing a right drug or surgeon).

•Need

Consumers can "recognize needs" in a variety of settings and situations based on internal and external stimuli. Interestingly, external stimuli can also arouse internal responses, such as the hunger you might feel when watching an advertisement for Burger King. •Occurs when the consumer's existing level of satisfaction and desired level of satisfaction are not the same •Based on internal (e.g., hunger, thirst, and fatigue) or external (e.g., advertising, window shopping, interacting with salespeople) stimuli

•Often irrational and unpredictable

Consumers often say one thing but do another.

•Avoid for Successful Segmentation

Ethically sensitive (e.g., gaming or gambling), yet legal segments (e.g., illicit drugs or pornography) •Segments that do not match firm's expertise

(2) Market concentration:

Firms often find it most efficient to seek a maximum share in one segment of the market. Armor All, for example, markets a well-known line of automotive cleaners, protectants, and polishes targeted primarily to young, driving-age males. Its main advantage is specialization, as it allows the firm to focus all of its resources toward understanding and serving a single segment. However, its disadvantage is that the firm can be vulnerable to changes in its market segment, such as demographic shifts and economic downturns by "putting all of its eggs in one basket."

•Amount of expertise with the product category

If you are a first-time buyer, you are more likely to engage in an extensive information search to reduce risk and narrow the potential set of product choices.

•Actual cost of the search (time and money)

In some situations, such as time dealines or emergencies, consumers have little time to consult all sources of information at their disposal.

Internal sources

Internal sources are typically the first type of information that consumers search. Information can also come from word-of-mouth advice from friends, family, or coworkers (i.e., getting the advice can be a personal experience, it can be stored as your memory).

(1) Multi-segment approach:

Medium- to large-sized firms use this approach. In particular, it is common in packaged goods and grocery products. For example, Kellogg's offers seemingly hundreds of brands of breakfast cereals targeted at specific segments, such as children (e.g., Apple Jacks), health-conscious adults (e.g., Shredded Wheat), parents looking for healthier foods for their children (e.g., Life, Kix), and so on. Also, Kraft Foods offers 69 different flavor and package varieties under the Maxwell House brand alone.

Target Marketing Strategies

Once the firm has completed segmenting a market, it must then evaluate each segment to determine its attractiveness and whether it offers opportunities that match the firm's capabilities and resources. There are five basic strategies for target market selection. 1. Single segment targeting 2. Selective targeting 3. Mass market targeting 4. Product specialization 5. Market specialization

External sources

Please take a look at the external sources. Although external sources are the most numerous, consumers typically trust these sources less than internal and personal sources of information (i.e., this may be because consumers perceive that the external sources are initially designed to sell and promote a product instead to provide information about the product).

•Key issues in the purchase decision stage:

Product availability: Closely related to the distribution component of the marketing program; convenience. Its goal is to put the product within the consumer's reach wherever that consumer happens to be. Possession utility: Being very easy for customers to find a product; the ease of taking possession of the product. To increase possession utility, marketers may have to offer financing or layaway for large dollar purchases, delivery and installation of products, such as home delivery of convenience items like newspapers or pizza, or the proper packaging and prompt shipment of items through the mail.

The Consumer Buying Process: Need Recognition

The buying process begins when consumers recognize that they have an "unmet" need. The relationship between need and want: If some people would argue that they need a car when their "real need" is for transportation. Their need for a car is really a "want" for a car. Please take a look at the above descriptions of need and want again. Hence, people need transportation, but they choose to fulfill that need with a car, rather than with alternative products like motorcycles, bicycles, public transportation, a taxi, or Uber. The difference between want and demand: Many customers "want" a luxury car, but only a few are able and willing to buy one (i.e., demand).

Traditional Segmentation Approaches: Differentiated Marketing

This approach may be necessary when customer needs are similar within a single group, but their needs differ across groups. Through well-designed and carefully conducted research, firms can identify the particular needs of each market segment to create marketing programs that best match those needs and expectations. This approach has two options: (1) multi-segment approach; and (2) market concentration.

•Consumers evaluate products as bundles of attributes

This stage of the consumer buying process is that consumers base their evaluation on a number of different criteria, which usually equate with a number of product attributes. •Each attribute has a different level of importance - For example, in buying a car, each potential choice represents a bundle of attributes, such as brand attributes (e.g., image, reliability), product features (e.g., automatic transmission, fuel economy), aesthetic attributes (e.g., styling, color), and price. Some put safety first, while others consider price the dominant attribute. •Priority of choice criteria can change during the process - For example, consumers may visit a dealership with price as their dominant criterion, only to leave the dealership with price dropping to third on their list of important attributes.

Evoked set:

Throughout the information search, consumers learn about different products or brands and begin to remove some from further consideration. •Narrowing down potential product choices to a few products that can meet consumer needs •Represents the outcome of information search and the beginning of the next stage of the buying process

Hard and soft costs:

both consumers and organizations consider hard costs (monetary price, shipping, installation). Organizations must also consider soft costs (downtime, opportunity costs, and human resource costs associated with the compatibility of systems in the buying decision). For example, the purchase and implementation of a new payroll system will decrease productivity and increase training costs in the payroll department until the new system has been fully integrated.

Organizational factors:

a shift in a firm's resources can change buying decisions, such as a temporary delay in purchasing until favorable credit terms can be arranged. Likewise, if a supplier suddenly cannot provide needed quantities of products or cannot meet a needed delivery schedule, the buying firm will be forced to identify and qualify new suppliers.

2. Demographic segmentation:

dividing markets into segments using demographic factors such as gender, age, income, and education. It tends to be the most widely used basis for segmenting consumer markets because demographic information is widely available and relatively easy to measure. It becomes less useful when the firm has a strong interest in understanding the motives or values that drive buying behavior.

5. Market specialization:

firms engage in market specialization when their intimate knowledge and expertise in one market allows them to offer customized marketing programs that not only deliver needed products, but also provide needed solutions to customers' problems.

4. Product specialization:

firms engage in product specialization when their expertise in a product category can be leveraged across many different market segments.

2. Selective targeting:

firms that have multiple capabilities in many different product categories use selective targeting successfully. This strategy has several advantages, including diversification of the firm's risk and the ability to cherry pick only the most attractive market segments.

1. Single segment targeting:

firms use single segment targeting when their capabilities are intrinsically tied to the needs of a specific market segment.

Environmental conditions:

in situations of rapid "environmental change", business buyers may alter their buying plans, postpone purchases, or even cancel purchases until things settle down. Environmental conditions affect the purchase of products as well as decisions regarding the recruitment and hiring of employees.

•Government markets:

including federal, state, county, city, and local governments (buying goods for citizens, such as education, fire and police protection, maintenance and repair of roads, and water and sewage treatment)

Individual factors:

it occurs when members of the buying center are at odds over purchase decisions. Power struggles are not common in business buying, and they can bring the entire process to a halt if not handled properly. Also, a manager's personal preferences or prejudices can influence business buying decision as individual factors.

4. Geographic segmentation:

it often play a large part in developing market segments, especially when retailers use geography to develop trade areas. It is often most useful when combined with other segmentation variables. One of the best examples is geodemographic segmentation, or geoclustering that looks at neighborhood profiles based on demographic, geographic, and lifestyle segmentation variables. One of the best-known geoclustering tools is Nielsen's PRIZM segmentation system, which classifies every neighborhood in the United States into one of 66 different demographic and behavioral clusters.

Individual influences:

many individual influences (age, life cycle, occupation, and socioeconomic status) are fairly easy to understand and incorporate into the marketing strategy. Other factors (perceptions, motives, interests, attitudes, opinions, or lifestyles) are much harder to understand because they do not clearly coincide with demographic characteristics.

Segmentation allows marketers to

more precisely define and understand customer needs, and gives them the ability to tailor products to better suit those needs. This is because marketers are unable to fully understand all customers' needs and wants and much less make fine distinctions among smaller segments of the total market.

One-to-One Marketing:

occurring when a company creates an entirely unique product or marketing program for each customer in the target segment. Historically, it has been used less often in consumer markets. However, it is common in luxury and custom-made products, as well as in services. It has grown rapidly in electronic commerce where customers can be targeted very precisely.

Permission Marketing:

occurring when customers choose to become part of a firm's market segment by giving companies permission to specifically target them in their marketing efforts. The most common tool used in permission marketing is the opt-in e-mail list, where customers permit a firm—or a third-party partner of the firm—to send periodic e-mail about goods and services. Its major advantage is that customers who opt-in have already shown interest in the products offered by the firm.

3. Mass market targeting:

only the largest firms have the capability to execute mass market targeting, which involves the development of multiple marketing programs to serve all customer segments simultaneously.

Buyer Behavior in Consumer Markets

•Often irrational and unpredictable •Progresses through five stages •Issues in the buying process

Mass Customization:

referring to providing unique products and solutions to individual customers on a mass scale. Along with the Internet, advances in supply chain management have allowed companies to customize products in ways that are both cost effective and practical.

Mutual dependence:

the buyer and seller are more likely to be dependent on one another, especially in situations of sole-source or limited-source buying. This characteristic can be applied when consumers are loyal to a brand or merchant. In this case, consumers become dependent on a single brand or merchant, and the firm can become dependent on the sales volume generated by these brand loyal consumers. This is not the case in business markets where sole-source or limited-source buying may leave an organization's operations severely distressed when a supplier shuts down or cannot deliver. The same is true for the loss of a customer. The selling firm has invested significantly in the client relationship, often modifying products and altering information or other systems central to the organization. Each client relationship represents a significant portion of the firm's profit, and the loss of a single customer can take months or even years to replace.

Buying center:

the group of people responsible for making purchase decisions. It can be complex and difficult to identify, in part because it may include three distinct groups of people—economic buyers, technical buyers, and users. Economic buyers are senior managers with the overall responsibility of achieving the buying firm's objectives. In recent years, economic buyers have become increasingly influential as price has become less important in determining a product's true value to the buying firm. Technical buyers are employees with the responsibility of buying products to meet needs on an ongoing basis, including purchasing agents and materials managers. These buyers have the responsibility of narrowing the number of product options and delivering buying recommendations to the economic buyer(s) that are within budget. Users are managers and employees who have the responsibility of using a product purchased by the firm, comprising the last group of people in the buying center. The user is often not the ultimate decision maker, but frequently has a place in the decision process.

1. Behavioral segmentation:

the most powerful approach because it uses actual consumer behavior or product usage to make distinctions among market segments. It, unlike other types of consumer segmentation, is most closely associated with consumer needs. The key to successful behavioral segmentation is to clearly understand the basic needs and benefits sought by different consumer groups.

Decision-making complexity:

the primary reason why the buying process will vary across consumers and with the same consumer in different situations. Level of risk and complexity will often determine whether a consumer spends a long time deciding to purchase a product (e.g., house, car) or only a small amount of time (e.g., groceries). It is important for marketers to manage decision-making complexity. For instance, with complex products entailing much risk, marketers should provide access to high-quality and useful information.

Market Segmentation:

the process of dividing the total market for a particular product or product category into relatively homogeneous segments or groups. Its goal is creating groups where the members within the group have similar likes, tastes, needs, wants, or preferences but where the groups themselves are dissimilar from each other.

In today's economy, segmentation is often mandated by customers due to

their search for unique products and their changing uses of communication media. The end result is that customer segments have become even more fragmented and more difficult to reach. Many firms today take segmentation to the extreme by targeting small niches of a market, or even the smallest of market segments: individuals.

Situational influences:

typically affect the amount of time and effort that consumers devote to the purchase task, or they affect specific product choices.

•Unique characteristics of business markets

•Buying center •Hard and soft costs •Reciprocity •Mutual dependence

•Marketing programs must be designed to:

•Change priority of choice criteria •Change consumers' opinions about product or brand image

The Consumer Buying Process: Postpurchase Evaluation

•Connection between buying process and developing long-term customer relationships

Target Marketing

•Consider markets as individuals, institutions, or a group of people Have similar needs that can be met by a specific offering •Aim to identify specific customer needs and design marketing programs to satisfy those needs •Firms must comprehensively: •Understand current and potential customers •Know customer motivations, behaviors, needs, and wants •Marketers must comprehend and define consumer needs better to help attain success

•Want

•Consumer's desire for a specific product that will satisfy the need

Factors Affecting the Consumer Buying Process

•Decision-making complexity •Individual influences •Social influences •Situational influences

•Amount of time, effort, and expense dedicated to information search depends on:

•Degree of risk involved in the purchase •Amount of expertise with the product category •Actual cost of the search (time and money)

•High likelihood of experiencing dissatisfaction or cognitive dissonance when:

•Dollar value of the purchase increases •Opportunity costs of rejected alternatives are high Purchase decision is emotionally involving Firms can manage these responses by offering liberal return policies, providing extensive post-sale support, or reinforcing the wisdom of the consumer's purchase decision.

Traditional Segmentation Approaches: Niche Marketing

•Efforts are focused on one small, well-defined market segment or niche •Possess unique and specific set of needs •Customers will pay high prices for products that match specialized needs •Firms should understand and meet the needs of target customers completely in order to earn a substantial share of the market segment

Factors Influencing the Buying Process

•Environmental conditions •Increase uncertainty, risk, and complexity associated with purchase •Organizational factors •Include internal and external environmental conditions •Individual factors •Importance depends on specific buying situations and the importance of the firm's goals and objectives

•Sources of information

•Internal sources - Personal experiences and memories •External sources - Advertising, websites, packaging, display, and salespeople

The Consumer Buying Process: Information Search

•Marketing activities can stimulate a desire for information •Passive information search (consumer becomes more attentive and receptive to information) •Active information search (consumer purposely seeks additional information)

•Demand

•Occurs only when a consumer's ability and willingness to purchase a specific product backs up the want for that product

Individualized Segmentation Approaches

•One-to-one marketing •Creating an entirely unique product offering for each customer •Mass customization •Extension of one-to-one marketing •Provides unique solutions to individual customers on a mass scale •Permission marketing •Customers choose to become part of firm's target market •Key advantage - Customers are already interested in the product offering

Common Situational Influences

•Physical and spatial influences •Such as retail atmospherics, retail crowding, or store layout and design •Social and interpersonal influences •Such as shopping in groups, salespeople (e.g., rude salespeople can end the buying process), or other customers (e.g., obnoxious other customers may cause the consumers to leave) •Temporal influences •Such as lack of time, emergencies, or convenience (e.g., ample time may allow consumers to seek information on many different product alternatives) •Purchase task or product usage influences •Such as special occasions, buying for others, or buying a gift (e.g., they may lead consumers to buyer higher quality products) •Consumer dispositional influences •Such as stress, anxiety, fear, fatigue, emotional involvement, or good/bad mood

The Business Buying Process

•Problem Recognition—Business buyers often recognize needs due to special circumstances, such as when equipment or machinery breaks or malfunctions. •Develop Product Specifications—Detailed product specifications often define business purchases because new purchases must be integrated with current technologies and processes. •Vendor Identification and Qualification—Business buyers must ensure that potential vendors can deliver on needed product specifications, within a specified time frame and in the needed quantities. •Solicitation of Proposals or Bids—The buying firm may request that qualified vendors submit proposals or bids. •Vendor Selection—The buying firm will select the vendor or vendors that can best meet its needs. Issues such as reputation, timeliness of delivery, guarantees, or personal relationships with the members of the buying center are often more important than price. •Order Processing—Processing involves the details of processing the order, negotiating credit terms, setting firm delivery dates, and any final technical assistance needed to complete the purchase. •Vendor Performance Review—In this stage, both product and vendor specifications can be evaluated.

•Important considerations when Evaluation of Alternatives

•Products must be in the evoked set •Consumers' choice criteria must be understood

•Unforeseen circumstances can interfere with consumer's decision to buy a product. Marketers overcome these factors by:

•Reducing the risk of purchase •Making purchase easy •Finding creative solutions to unexpected problems.

Identifying Market Segments

•Select most relevant characteristics to identify and define target market or market segment •Most variables (e.g., demographics, lifestyles, product usage, or firm size) are part of the situation analysis of the marketing plan •Reasons for shifts in target market •New or revised marketing strategies to correct problems in the previous marketing strategy •In response to changes in specific marketing program elements (e.g., reducing price to enhance value or adding a new product feature to make the benefits more meaningful) Target market and marketing program are interdependent, changes in one typically require changes in the other.

Targeting Noncustomers

•Understand why customers do not buy the products •Unique customer needs •Better competing alternative •High switching costs •Lack of product awareness •Existence of long-held assumptions •Find ways to remove obstacles •Major strategic issue in developing effective marketing programs