Marketing Fundamentals Quiz 8

Market Segmentation

Aggregating prospective buyers into groups, or segments, that

1. have common needs

2. will respond similarly to a marketing action

E.g., guys and girls

• Stresses the important of grouping people or organizations in a market according to their needs and benefits they are looking for.

Product Differentiation

A marketing strategy that involves a firm using different marketing mix actions to help consumers perceive the product as being different and better than competing products

• Marketing strategies that companies use

• Using different 4 P’s and steer them towards a group

Segmentation: Linking Needs to Actions

The process of segmenting a market and selecting specific segments as targets is the link between the various buyers’ needs and the organziation’s marketing program

The Zappos segmentation strategy: speed and best price

• Focus on people who like to use mobile technology and who will shop for and buy shoes online.

• Evolved to include consumers of anything in the one-third of all retail transactions that are likely to occur online

• Implemented behavioral segmentation to match relevant products from other categories based on part shoe purchases

• 24-hour customer service with no wait times, free shipping free returns

Market segmentation links market needs to

an organization’s marketing program - its specific marketing mix actions designed to satisfy those needs

Identify market needs

Benefits in terms of:

• Product features

• Expense

• Quality

• Savings in time and convenience

Needs of a certain buying - needs a certain cost factor, benefits, etc

Link needs to actions

Take steps to segment and target markets

• Control only a few things

Execute marketing program actions

A marketing mix of:

• Product

• Price

• Promotion

• Place (distribution)

Market-Product Grid

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

• E.g. Firm/medium/soft pillows

• Frameworks certain buyers into certain groups

Mattress firms

Displays firm pillows - b/c it is most common

• Advantage of the grid determines which target market to go after and how

• Controllable factors when you showcase your products

• What are the needs, who to go after - tie the market to one of our products

Three Segmentation Strategies

1. One product and multiple market segments (e.g. books)

   1. Sports magazines - different covers for the same magazine

   2. When an organization produces only a single product or service and attempts to sell it to two or more market segments

2. Multiple products and multiple market segments (e.g. cars)

   1. Cereal - people with heart issues on the box to promote “health”

   2. Ford Motors - different lines of cars for different types of customers

3. Segments of ones - “mass customization” (e.g. BTO)

   1. Mass customization - edit the way you buy something

   2. Lan Zenon - high volume, customized

   3. Tailoring products or services to the tastes of individual customers on a high-volume scale

Organizational Synergy

Looking at better functioning organization

• The increased customer value achieved through performing organizational functions such as marketing or manufacturing more efficiently

Cannibalization

Stealing sales from yourself

• E.g. Music industry

  • LP to CDs to BlueRays to Digital - buying the same album repeatedly - wasting money

• E.g. Cereal - several iterations on the same cereal

“Tiffany/Walmart” Strategy

Selling to high-end and low-end segments

• e.g. the product you get at Disney is offered at half the price at Walmart

• Nordstrom vs. Target

• Ann Taylor vs. Loft - same organization but Loft is making Ann Taylor go out of buiness

5 steps in segmenting and targeting markets

Used to segment a market and select the target segments on which an organization wants to focus

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. Select target markets

5. Take marketing actions to reach target markets

Step 1: Group potential buyers into segments CRITERIA

• Simplicity and cost-effectiveness

  • Identifying characteristics of potential buyers and the cost-effectiveness of assigning them to a segment

• Potential for increased profit

  • Maximizes the opportunity for future profit and return on investment

• Similarity of needs of buyers within a segment

  • Potential buyers within a segment should be similar in terms of common needs

• Difference of needs of buyers among segments

  • If increased sales don’t offset extra costs, combine segments and reude the number of marketing actions

• Potential of a marketing action to reach a segment

  • A simple but effective marketing action

Step 1: Ways to segment consumer markets

• Geographical - where live or work

  • Region, city size

• Demographical - objective classification, measurable

  • Birth, era, occupation, gender, race, age, income

• Psychographical - subjective mental or emotional attributes

  • Personality, lifestyle

• Behavioral - observable action

  • Where htey buy, what benefits they seek, how frequently they buy and why they buy

    • Usage rate

    • 80/20 rule

Usage Rate

The quantity consumed or patronage (store visits) during a specific period

• Frequency marketing focuses on usage rates

• How frequent somebody visits a store

80/20 Rule 

A concept that suggests 80% of a firm’s sales are obtained from 20% of its customers

Customer Lifetime Value (CLV)

Represents the financial worth of a customer to a company over the course of their relationship

• Considers a customer’s product or service usage rate, loyalty to the company and the company’s cost to serve that customer over time

Variables to use in forming segments for Wendy’s (behavioral and geographical)

Students:

• Dorms, sororities, and fraternities 

• Apartments

• Day commuters

• Note commuters

Nonstudent:

• Faculty and staff

• Residents in area

• Workers in area

Step 3: Forming a market-product grid

• Market segments (horizontal rows)

  • E.g. students and nonstudents

• Products (vertical columns)

  • E.g. Breakfast, lunch, between-meal snack, dinner, after-dinner snack

McDonald’s promotes breakfast because

it’s the most profitable - unreasonable pricing

Step 3: Estimating market sizes

• Sales of each product expected to be sold to market segments

• Can range from no market (0) to large market (3)

Step 4: Criteria to use in selecting target markets

• Market size

  • E.g. Breakfast has no market - 0

• Expected growth

• Competitive position

  • “no meals on weekends” - pushes Wendy to be more attractive on the weekends

• Cost of reaching the segment

  • If ads won’t reach a segment, don’t bother

• Compatibility with the organization’s objectives and resources

Step 5: Take marketing actions to reach target markets - Wendy’s immediate segmentation strategy

Develop and execute an action plan in the form of a marketing program

• Day commuters - run ads in buses; signs here in parking lots

• Between-meal snacks - promote eating during this downtime at the restaurant (10% off purchase)

• Dinners for night commuters - promote a single meal to the segment of night commuter students

Step 5: Apple’s ever-changing market segmentation strategy

“Apple Product Matrix”

• Two types of products (desktops and laptops)

• Two market segments (consumer and professionals)

Market-product synergies: a balancing act

• Market synergies

  • Each column represents an opportunity for efficiency in terms of market segments

• Product synergies

  • E.g. we can’t spend all my time advertising and not tweaking our products

  • Each column represents an opportunity for efficience in R&D

Apple’s Segmentation Strategy

Camp Runamok No Longer

• Nickname for Apple

• Group of college drop-outs and they created many, many new products/services

• Read Marketing Matters section

• The innovative company had no coherent series of product lines directed at identifiable market segments

Product Positioning

The place a product occupies in consumers’ minds based on important attributes relative to competitive products

• E.g. when you think about sports - you think about a team

• Positioning in a customer’s head

Product Repositioning

Involves changing the place a product occupies in a consumer’s mind relative to competitive products

• e.g., grandpa’s cologne becomes something for 30-40-year-olds

• New Balance - were trying to get into the high-end sports-wear and then repositioned themselves to produce shoes

• IKEA

Two approaches to product positioning

1. Head-to-head positioning - compete on similar products

   1. E.g., Adidas vs. Nike

2. Differentiation positioning - seek a less competitive market

   1. E.g. Shoes for flat-footed people

Writing a positioning statement

Derived from company’s customer value proposition

• Written by marketing managers

• Identifies the target market, needs satisfied, product/service class in which the organization’s offering competes, unique benefits and attributes

• Use mainly internally, but can be external working w R&D engineers or advertising agencies

• E.g. “For upscale American families, who desire a carefree driving experience (target market and need), Volvo is a premium-priced automobile (product category) that offers the utmost in safety and dependability (benefits).”

Reposition example

American dairies went from children to adults

Perceptual Map

A means of displaying in two dimensions the location of products or brands in the minds of consumers to enable a manager to see how they perceive competing products or brands, as well as the firm’s own product or brand

• Marketing managers write positioning statements based on their opinion on the perceptual map and position themselves into that new space

  • Want to go from point a to point b

• Two-dimension grid allowing me to figure out where I’m competing

Perceptual Map example: chocolate milk for adults

1. Identify important attributes for adult drinks

2. Discover how adults see competing drinks

3. Discover how customers see chocolate milk

4. Reposition chocolate milk to make it more appealing to adults