Segmentation Targeting and Positioning

Economist’s approach to pricing

was developed as an explanation of market behavior and focuses on demand and supply

Difference between full & direct cost pricing

- Full cost pricing: takes into account both fixed and direct costs.

- Direct cost pricing: takes into account only direct costs such as labor and material can be useful when the corporate objective is survival and there is a desperate need to fill capacity.

Both methods suffer from the problem that they are initially oriented methods.

Advantages of going-rate-pricing and competitive bidding

- Going-rate pricing: is setting price levels at the rate generally applicable in the market, focusing on competitor’s offerings and prices rather than on company costs. (Marketers try to avoid it)

- Competitive bidding: involves the drawing up of detailed specifications for a product

Advantages of marketing-oriented pricing over cost-oriented and competitor-oriented pricing

- Marketing-oriented pricing: takes much wide range of price relevant factors into account, such as customer oriented view of pricing

o Factors that affect price setting: involves the analysis of marketing strategy value to the customer, price-quality relationships, explicability, product line pricing, competition, costs,…

When and how to initiate price increases and cuts

- increase) when value is greater than price, in the face of rising costs, when there is excess demand and where a harvest objective is being followed

- Tactics are: a price jump, staged price increases, escalator clauses, price unbundling and lower discounts

- cuts) when value is less then price, when there is a desire to pre-empt competitive build objective is being followed, where a price war is unlikely and when there is a desire to pre-empt competitive entry.

- Tactics are: price fall, staged price reductions, the use of fighter brands, price bundling and higher discounts

When to/ or not to follow competitor-initiated price increases and cuts; when to follow quickly / slowly

- Follow price increases; when there are rising costs, excess demand, price-insensitive consumers

- Not following price increases: when costs are stable or falling, excess supply, price-sensitive customers

- Follow price cuts: when there are falling costs, excess supply, price sensitive customers

- Not follow price cuts: when there are rising costs, excess demand, price-insensitive consumer

o Price increases / cuts should follow quickly when needed

Yield management

is a variable pricing strategy, based on understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource (such as airline seats or hotel room reservations or advertising inventory)

The advantages of market segmentation

- Target market selection: provides basis for the selection of target markets. A target market is a chosen segment of market that a company has decided to serve.

- Tailored marketing mix: allows the grouping of customers based upon similarities that are important when designing marketing strategies

- Differentiation: Market segmentation allows the development of differential marketing strategies by breaking a market into its constituent sub-segments a company may differentiate its offerings between segments and within each segment it can differentiate its offering from the competition. By creating a differential advantage over the competition, a company is giving the customer reason to buy from it.

- Opportunities and threats: Market segmentation is useful when attempting to spot opportunities and threats. Markets are rarely static. As customers become more affluent, seek new experiences and develop new values, new segments emerge. The company that first spots a new and under-served market segment and meets its needs better that the competition can benefit from increasing sales and profit growth.

→ The point is that market segments need to be protected from competitors. Otherwise there is a threat that new entrants might establish a foothold and grow market share in the poorly served segment of a market

Process of market segmentation and target marketing

1) understanding the requirements and characteristics of the individuals and/or organizations that comprise the market. Marketing research can be used here.

2) grouping according to these requirements and characteristics into segments that have implications for developing marketing strategies.

3) choosing market segment; with the aim to design a mix that is distinctive from competitors offerings.

Segmenting Consumer Markets

1) behavioral

o benefits sought: when people seek different benefits from a product (eg: convenience)

o purchase occasion: for ex, product is bought as a routine or emergency- (where price sensitivity is much lower) (eg: self-buy, gift, special occasion,…)

o purchase behavior: can be baesd on time of purchase (right after launch of new product) (eg:

brand switchers)

o usage: heavy users – most marketing

attention, inceasing brand loyalty /

light users – analyses can provide

insights of advantages over the

competition

o Perceptions, attitudes, beliefs and

values

2) psychographic

o Lifestyle: way of living, as reflected

in activities, interests and opinions.

o Personality

3) profile

o demographic: age, gender, life-cycle

o socio-economic: variables include

social class, terminal education age and income. eg: social class

o geographic variables

What is market segmentation

is the identification of individuals or organizations with similar characteristics that have significant implications for the determination of marketing strategy.

- Its use aids target market selection, the ability to design a tailored marketing mix, the development of differential marketing strategies and the identification of opportunities and threats

Target marketing

the choice of specific segments to serve. It concerns the decision where to compete

- Its use is focusing company resources on those segments it is best able to serve in terms of company resources and segment attractiveness. One chosen, a tailored mix that creates a differential advantage can be designed based on an in-depth understanding of target customers.

Methods of segmenting consumer and organizational markets

- Consumer markets can be segmented by behavioral (purchase behavior, usage,…) psychographic (lifestyle, personality,…) and profile (demographic, socioeconomic,…) methods

- Online markets are growing and consideration of how demographic, behavioral and psychographic variables are affected by the online environment is required

- Organizational markets can be segmented by macrosegmentation (organizational size, industry and geographic location) and microsegmentation (choice criteria, decision-making unit structure,…) methods.

2 Factors to evaluate market segments

- market attractiveness: can be assessed by examining market factors (segment size, segment growth rate, price sensitivity, bargaining power of customers, bargaining power of suppliers, barriers to market segment entry and barriers to market segment exit), competitive factor (nature of competition, the likelihood of new entrants, and competitive differentiation) and political , social and environmental factors (political issues, social trends and environmental issues)

- capability to compete: can be assessed by analyzing exploitable marketing assets, cost advantages, technological edge and managerial capabilities and commitments

4 target market strategies

1)undifferentiated marketing occurs where a company does not segment but applies a single marketing mix

2) differentiated marketing occurs where a company segments the market and applies separate marketing mixes

3) focused marketing occurs where a company segments the market and develops one specific marketing mix to one segment

4) customized marketing occurs where a company designs a separate marketing mix for each segments

Concept of positioning and the keys to successful positioning - 2 aspects of positioning

- the choice of target market (where to compete) & the creation of a differential advantage (how to compete)

- the objective is to create and maintain a distinctive place in the market for a company and/or its products.

4 keys to successful positioning are

- clarity, consistence, credibility & competitiveness

Positioning and repositioning strategies

- useful tool to determine the position of a brand in the marketplace is the perceptual map

- repositioning strategies can be based on changes to the product and/or target market.

Repositioning: occasionally a product or service will need to be repositioned because of changing customer tastes or poor sales performance. It involves changing the target markets, the differential advantage or both.

4 strategies are:

1) image repositioning:

- keep product and target market, but change image of

the product

2) product repositioning:

- product change, target market stays the same

3) intangible repositioning:

- targeting different market segment with the same product

4) tangible repositioning:

- both changed, eg: new range of products for new customer group