PBL 5: Marketing Segments

Process of Effective Targeting:

1. Identify distinct groups of buyers who differ in needs and wants (segmentation)

2. Select one or more market segments to enter (target)

3. for each segment, communicate and deliver the right benefits for the companies offering (positioning)

What are the Two Types of Market Segmentation: (Subcategories)

1. Descriptive Characteristics (Geographic, Demographic and Psychographic)

2. Behavioral Considerations

Geographic Segmentation: (Three Types)

Dividing the market into geographical units from nations to neighborhoods

• Company can enter one or multiple but must watch local variations

Grassroots marketing, Customer Cloning and Geo Clustering

Grass Roots Marketing

Marketers concentrate on making it’s activities personally relevant to individual consumers (eg. sponsoring local sports teams)

Consumer Cloning

the strategy of analyzing your best-performing customer profiles and finding new, lookalike geographic areas that share those traits

Geo Clustering

classifies residential neighborhoods into distinct lifestyle clusters based on

1. education and affluence, 2. family life cycle, 3. urbanization, 4. race and ethnicity 5. mobility

Demographic Segmentation:

divides a target market into smaller groups based on measurable population

• there needs and wants are easy to measure

variables: age and life cycles status, life stage, income, gender and generation

What are the Differences in Generations? (Gen X, Y, BB and Silent)

• Gen Y: don’t like normal branding practices (like ads) they are influenced by student ambassadors, street teams and cool events

• Gen X: Self sufficient and individualistic (wary of products with hype)

• Baby Boomers: want products to make them younger and change brands because of midlife crisis

• Silent Generation: need different products to help them with older age or buy for grandchildren

Multicultural Marketing

An approach that recognizes that different cultural segments have sufficiently different needs and wants, so mass marketing is not refined enough fo the diversity of the market place

What are the 3 Largest Markets in America

1. Hispanic Americans, 2. African Americans 3. Asian Americans (another large upcoming is LGBTQ

Psychographic Segmentation:

Individuals are split into groups based on their psychological/personality traits, lifestyle or values

Psychographics

The science of using psychology and demographics to better understand consumers (same demographic groups can show very different psychographic profiles)

VALS Segmentation

psychographic framework that classifies consumers based on their primary motivations and available resources to predict buying behavior

• Motivated by Ideals, Achievement or Self-Expression

The VALS Consumer Segments (8):

• High-Resource Groups: Innovators possess abundant resources and openness to new ideas; Thinkers are ideals-driven; Achievers focus on demonstrating success to peers; and Experiencers are driven by self-expression

• Lower-Resource Groups: Believers are ideals-motivated; Strivers focus on demonstrating success to peers; Makers are self-expression-driven; and Survivors focus cautiously on safety, security, and basic necessities

Behavioral Segmentation:

Marketers divide groups based on their knowledge of/attitudes towards/use of or response to products

What are the Three Groups of Behavioural Segmentation?

Needs and Benefits, Decision Roles, User and usage-related variables

Needs and Benefits Based

Not everyone who buys a product has the same needs or wants the same benefits from it. Needs-based or benefit-based segmentation identifies distinct market segments with clear marketing implications

Decision Roles

People play five roles in decision making

• Initiator, Influencer, Decider, Buyer and User

User and Usage Related Variables

Segmented based on User Status (nonusers, ex-users, potential users, first-time users, and regular users), Loyalty, Occasion, Usage Rates (heavy, medium, light), Attitude and Multiple Bases

Loyalty Status

Four groups are envisioned based on band loyalty status

• Hard Core Loyals, Split Loyals (loyal to two or three brands) , Shifting Loyals (shift loyalty from one brand to another) and Switchers

Attitudes

Grouped based on one of five attitudes (Enthusiastic, Positive, Indifferent, Negative and Hostile)

Multiple Bases

Combining multiple behavioural bases can provide a more cohesive view of market and its segments

How Should Buisness Markets be Segmented?

Through flexible market offering

1. a naked solution containing the product and service elements that all segment members value and 2. discretionary options that some segment customer value

Market Targeting:

Once a company has identified its segments, it should decide which to choose and how many, which is done through the needs-based marketing approach

Needs-Based Marketing Approach Steps

Needs-Based Segmentation, Segmentation Identification, S Attractiveness, S Profitability, S Positioning, S ‘Acid Test’, Marketing-Mix Strategy

Needs-Based Segmentation and Segmentation Identification

Needs-Based: group customers into segments with similiar needs and benefits sought by consumers in solving a particular consumption problem

Identification: From the Needs-Based group, determine which demographics, lifestyles and usage behaviours make the segment identifiable (actionable)

Segment Attractiveness

Using predetermined segment attractiveness criteria (such as

market growth, competitive intensity, and market access), determine the overall attractiveness of each segment.

Segment Positioning

Make a value proposition and product-price positioning strategy based on that segments unique customer needs and characteristics

Segment ‘Acid Test’ and Marketing-Mix Strategy

Create a ‘segment storyboard’ to test the attractiveness of all segment positioning strategies

Marketing-Mix Strategy: Expand segment positioning

What is the Effective Segmentation Criteria

Market Segments must rate favorably on 5 criteria to be useful

• Measurable, Substantial, Accessible, Differentiable and Actionable

Explanation of the 5 criteria:

Measurable: features such as size, purchasing power and characteristics of the segments can be measured

Substantial: large and profitable enough to serve

Accessible: Must be able to reach and serve them

Differentiable: Segments are distinguishable and respond differently to different marketing mix strategies (eg. married and single women respond differently)

Actionable: effective programs can be made to attract the segments

Michael Porter Five Forces that Determine Intrinsic Long Run Attractiveness of a Market or Market Segment

Threat of intense segment rivalry, threat of new entrants, substitute products, buyers growing bargaining power, suppliers growing bargaining power

Two Factors of Evaluating Market Segments

consumer segment overall attractiveness and the companies objectives and resources

• There are four levels to this

Four Levels of Segmentation:

Full Market Coverage, Multiple Segment Specialisation, Single Segment Specialisation and Individual Marketing

Full Market Coverage:

Only large firms do this and they attempt to serve all customer groups with all the products they will need through either undifferentiated or differentiated marketing (one offer vs sells different products to different segments)

Pros For Both Differentiated and Undifferentiated Marketing

Undifferentiated: Largest Potential Market = Lower costs = Lower Prices = Higher Margins

Differentiated: Overall creates more total sales but increases costs of doing business

Multiple Segment Specialisation:

Is based on selective specialisation vs super segment and product specialisation vs market specialisation (achieves some synergy)

Selective Specialisation vs Super Segment

Selective Specialisation a firm selects a subset of all the possible segments, each objectively attractive and appropriate.

Super Segment groups distinct segments that share a single, exploitable similarity to achieve synergy and efficiency

Product Specialisation vs Market Specialisation

Product specialization focuses on selling a single product or product line to many different market segments

Market specialization focuses on serving one specific customer segment with an array of different products

Single-Segment Concentration

Markets to only one segment, however they have a distinct set of needs and benefits within a segment (niche)

Why can Niches Be Profitable

• Niche customers have a distinct set of needs; they will pay a premium to the firm that best satisfies them

• the niche is fairly small but has size, profit, and growth potential and is unlikely to attract many competitors

• it gains certain economies through specialisation. As marketing efficiency increases, niches that seemed too small may become more profitable.

Long Tail Theory (Niches)

(1) Lower costs of distribution make it economically easier to sell products without predictions of demand;

(2) The more products available for sale, the greater the likelihood of tapping into latent demand for niche tastes unreachable through traditional retail channels

(3) If enough niche tastes are aggregated, a big new market can result

Individualised Marketing:

Leads to mass customisation: the ability for a company to meet the needs of each customers requirements

One-to-One Marketing Framework

1. Identify your consumers

2. Differentiate your consumers in terms of their needs and their value to your company

3. Interact with consumers to improve your knowledge of their individual needs (makes stronger relationships)

4. Customise products, services and messages to each consumer

Positioning:

The act of designing a company’s offering and image to occupy a place in the minds of target market.

Result of Brand Positioning:

Successful creation of a customer-focused value proposition (reason on why target market should buy your product by showing benefits)

Deciding on Positioning Requires:

1. Choosing a frame of reference by identifying and analysing competitors

2. Identifying Points-of-Parity and Points-of-Difference given the frame of reference

3. Creating a brand mantra that encapsulates the brands essence

Competitive Frame of Reference:

defines which other brands a brand competes with (identify) and should therefore be the subject of a competitive analysis (analyse)

Identifying Competitors is Done through Category Membership

Category Membership: Products with which a brand competes with and that function as close substitutes

IC has two Approaches: Industry and Market

Industry and Market Approach of Identifying Competitors

Industry: looking at firms that sell products that are similiar substitutes to yours

Market: competitors are companies that satisfy the same customer needs

Analysing Competitors:

Competitive Analysis is done through SWOT analysis, which evaluates strategy positions of organisations to identify factors that are favourable and unfavourable to achieve goals

Straddle Positioning

A company straddling two frames of reference, with one PoP and one PoD.

In these cases the PoD for one category becomes the PoP in another and vice versa (BMW example)

• Allow companies to expand market coverage and customer base

Points of Difference and Points of Parity

After a CFoR, they can define PoP and PoD

Points of Difference: attributes strongly associated with a brand and could not be found to the same extent at competitive brands

Points of Parity: Attributes that are not unique to the brand and are shared with other brands

Three Criteria that Determine whether a Brand Association/Attribute is a PoD:

Desirable: consumers must see the brand association as personally relevant to them

Deliverable: company must have internal resources and commitment to profitably create and maintain the brand association

Differentiable: Consumers must see brand association as distinctive

Three Basic Forms of Points of Parity:

Category: The fundamental, non-negotiable features or attributes that customers naturally expect any product in a specific category to have.

Correlational: negative associations that can naturally a rise in the consumer's mind as the flip side of a brand's positive attributes

Competitive: associations designed to negate or "break even" on a competitor’s unique points of difference

• McCafé options to counter the dominance and appeal of Starbucks

How to Achieve a Point of Parity:

Many consumers must think the attribute or brand association is good enough at that dimension

Choosing Specific PoP and PoDs (Competitive and leverageable advantages)

Competitive: A companies ability to perform one or more ways that competitors cannot match

Leverageable: One that a company uses as a springboard to new advantages

3 Ways of Choosing Specific PoDs and PoPs

Means of Differentiation: Any product benefit that shares the 3 Ds can serve as PoD

Perceptual Maps: You can choose PoD and PoPs by making quantitative pictures of market situations that can represent holes and openings in the market suggesting unmet consumer needs

Emotional Branding: brand positioning should have both rational and emotional positioning, meaning PoD and PoPs should appeal to both head and heart

Brand Mantras:

three to five word articulation of the soul of the brand that is closely related to the core brands promise (PoD)

How to Create a Good Brand Mantra:

Communicate: clarify what is unique about the brand

Simplify: should be memorable, and that occurs by making it short crisp and vivid

Inspire: Stake out ground that is personally meaningful and relevasnt to many employees