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Lecture 5 - Segmentation, Targeting, Positioning (STP) Book: C8; p. 91-99 Market segmentation A marketer can almost never satisfy everyone in a large market, since consumers have varying needs and therefore are not equally willing to pay for a product or service. Thus, to apply the marketing concept and successfully meet customer needs, different products and services must be offered to different customers. To get a grip on these differences, market segmentation is used, which refers to the identification of individuals or organisations with similar characteristics that have significant implications for market strategy determination and dividing the market into segments accordingly. Segmentation is a process of dividing consumers from a market with heterogeneous characteristics into smaller homogeneous groups that respond in a similar way. Here, the behaviour, different needs, wants, and preferences of consumers are also important. The product should match customer needs and be distinctive, measurable, and accessible. Benefits of market segmentation are: Improved customer retention; More opportunities for growth; More profitability; -More effective and targeted communication; -Dominance in the segment. Criteria for segmentation of consumers Criteria of consumer segmentation are divided into three groups. These groups are mutually divided into several variables. The characteristics of effective segmentation analysis include flexibility and creativity. A combination of variables (hybrid segmentation) is often used to identify groups of consumers who respond similarly to marketing mix strategies. The different variables are explained below the image. Consumer segmentation Behavioural Psychographic Profile Benefits sought Purchase occasion Purchase behaviour Usage Perceptions and beliefs Lifestyle Personality Demographic Socioeconomic Geographic -Behaviour (behavioural): how do humans react? Benefits sought: creating an understanding of why people buy in the relevant market. This allows companies to see what values people attach to the products and therefore companies can seize opportunities to develop (focusing on these values). Purchase behaviour: this focuses on what the customer focuses on when purchasing (e.g. quantity, where, when and how often); the extent to which brand loyalty is also a basis for buying behaviour. With the bonus card, buying behaviour can be visualised. This data can be used to effectively segment and reach consumers. • Usage: Distribution of consumers based on their use of the product: heavy user, light user or non-user. Heavy users should receive the most marketing attention. Analysing light users or non-users provides insights relevant to competition, which competitors do not think about or find difficult to replicate the applications of the insights. - Psychographic (psychographic): purchasing behaviour is related to consumers' personalities or lifestyles. Here, profile segmentation is a way of identifying these personalities or lifestyles. Lifestyle: Lifestyle segmentation looks at people's activities, interests and opinions (AIO). This segmentation provides benefits in predicting preferences for media platforms. • Personality: the inner psychological characteristics of individuals that lead to consistent responses to their environment, for example: Big 5, Jung archetypes. • Age: age provides a possible market segment. - Descriptive profile (profile): description of the characteristics of distinction between people; includes things you can count e.g.; female, male, age; • Demographic: description of the population. One example is age: different ages have different interests. Bullying power: is the phenomenon where children influence parents to make a purchase. Grey market: the market of over-50s who have a higher life expectancy. Many of the grey consumers are healthy, active, well-educated, financially independent and have plenty of free time, making them an interesting market. • Geographic: consumer buying behaviour, looking at locations. • Geodemographics: the combination between geographical and demographic variables. Data such as home size, online buying behaviour, family size and ethnic background are very important. This can be used to determine the best places for posters and where to put which shops. The power of geodemographics is that it can link buying behaviour and consumer groups. • Socio-economic: a person's social class. Segmentation criteria: easy and predictability How easy to predict and address the segmentation criteria differs (image to the right). Difficult and high Criteria for segmentation of organisations The characteristic of organisational markets is that the number of buyers is relatively small compared to consumer markets. - Organisational size: the size of the the Ease and cost of measurement Behaviour Psychological Geodemographics organisation often determines formality of purchases and the Demographics management process. Easy and low Low Larger organisations have High Predictability of consumer choice behaviour • greater purchasing potential; • more formalised procurement and management processes; • great specialisation; • special needs. - Industry: different industries have their own unique requirements for products. An example of a way to identify industries is SIC codes (Standard Industrial Classification codes). By identifying industries, it becomes clear which needs belong to which industries, allowing a more effective marketing mix to be designed to respond to the needs. - Geographic location: The use of geographic locations can reflect differences in purchasing needs. Organisational structures affect approaches across organisations. For example: The buying behaviour of companies in Western Europe can be very different from companies in Eastern Europe. - Choice criteria: The market is segmented based on the main criteria buyers have when considering different providers. This is about the value placed on, for example, the price of a product, the product performance, or the service that comes with it. Sales sellers are directed to sell based on buyers' main criteria within a segment (highlighting defining advantages). -Purchasing organisation: The difference between central and decentralised purchasing is also important, as it influences the purchasing decision. Centrally made purchases are made by specialists who have a lot of expertise. They know a lot about the cost factors and the different suppliers and can also influence the suppliers better. They also have more power in the DMU. In decentralised purchasing, decisions are made not by a national sales force but by certain representatives of certain areas. Criteria for successful segmentation 1. Effective: identified segments consist of relatively homogeneous consumers but are significantly differentiated from other segments. 2. Measurable: it should be possible to identify consumers within a segment so that their character and behavioural patterns can be understood. Example: Age can be measured, the degree of extraversion much more difficult. 3. Accessible: formulating effective marketing programmes that identify the segment and reach the relevant segment. 4. Actionable: the company has the resources (e.g. raw material or knowledge) with which to reach a particular segment. 5. Profitable: gaining profit from a segment. Size is very important here. Segments that are too small are often not attractive and therefore not profitable. Profitability is always the determining factor. Data-driven segmentation Data collection provides a strong indicator. It provides operationalisation of segmentation. Data gives past results but does not tell whole stories. So it is always retrospective a-posteriori. The following explanation is about the picture on the right - On the top there are natural segments. Clearly distinguishable, defined groups can be seen. This is most desirable, but unfortunately not very common. -Middle are constructive segments: you see if different segments emerge. There is a relationship and you have to extract target groups from this. But where is the boundary? Somewhere in the middle, you can draw the line, but you know that everything behind the boundary still looks a lot like your target group. This is much more common. - The bottom presents a reproducible segment. Here there is a cohesion of below 60%. No clear segments can be distinguished. It covers the whole market, but you cannot serve the whole market. 4 rice 10 foaturos / performance / quality alchaoulay Data mining More and more data is being added, and this data is also increasingly released on the internet. With more data, you can be more specifi, gaining insight into consumer usage and behaviour. Define target group In segmentation, it is very important to know what your company's target audience is. A target group can be defined as a set of (potential) customers that the company targets and undertakes specific marketing activities for. Targeting Visual overview of target marketing is on the next page. Once the market segments have been identified, it is a matter of choosing (a) particular segments) to serve. This is called target marketing. The purpose of evaluating market segments is to arrive at a choice of which segments) to target. Target market selection is the choice of which and how many market segments to target. There are different strategies here: -Undifferentiated marketing: there are hardly any distinguishing features between consumers. The marketing strategy here is to develop one marketing mix targeting the entire market. The advantage for managers is that they need to focus on one marketing strategy; - Differentiated marketing: there are different offerings for different groups. The marketing strategy is to design a specific marketing mix for each segment. With this strategy, companies can get economies of scale and spread costs across different potential customers; Niche (focused/concentrated) marketing: strategy is complete dedication to a market. This is suitable for companies with limited resources. Marketing strategy is for a company to design one marketing mix for one target market (segment), focusing on meeting the needs of these customers; - Customized marketing: offerings are tailored to a customer's specific needs. Face-to-face consultations are held with the consumer about requirements and the service and product are adapted accordingly. Technology contributes to the developments of individualised marketing. This marketing contributes to increased benefits for customers, making them willing to pay more and have a positive attitude towards the product compared to standard products. Example: having a suit customised. Personalisation: an approach where a brand offers messages, products, experiences or services on a one-to-one basis using data and technology to meet or anticipate customer needs. This is a variant of customized marketing. The differences from customized marketing are: • Customised marketing focuses on working with customers to create products. Personalisation focuses on creating products for new customers and determining, usually through data analysis, that they have a profile similar to that of an existing customer. Personalisation focuses on more elements than just creating a product; personalised ads and experiences are also part of personalisation. Undifferentiated marketing Marketing mix Differentiated marketing Marketing mix 1 Marketing mix 2 Marketing mix 3 Customized marketing Marketing mix 1 Marketing mix 2 Marketing mix 3 Whole market Focused marketing Segment 1 Segment 2 Segment 3 Marketing mix Customer 1 Customer 2 Customer 3 Personality - Marketing persona: putting a face to your target audience, this means giving your consumers a profile. These customers are hypothetical users who have personal goals. It is a description of ideal/average customer who is in that group. - Buyer persona encompasses the characteristics of the stereotypical consumer, covering the interests, goals, motivations and frustrations, norms and values, and demographic and behavioural traits of the entire target group. You create a persona from the data you have starting from the profile (usually demographic) criterium, then psychographic and then behavioural data. This makes it easier to look at your target audience. After all, images say more than words, which is power of marketing personas. - Selffulfilling prophecy when you believe something is going to happen, causing that thing to happen. For example, if Heineken believes that more women will drink their product, so they target women in their marketing and as a result more women will drink Heineken. Positioning An important and challenging part of marketing is positioning. This is designing a company's offering and image in such a way that it occupies a meaningful, valued, and distinctive position in the minds of its target audience. It involves linking a brand's product or service to the solutions consumers are looking for when they think of their needs. When deciding which position to acquire in the market, 3 variables must be taken into account: 1. Customers: the properties that matter to consumers; 2. Competitors: distinguishing competitors; 3. Company itself: creating a long-term advantageous position based on unique characteristics. Once the positioning strategy is determined, then the positioning statement must be determined. Positioning statement is the memorable, image enhancing, written text about the coveted prestige of a product. There are four criteria for effective and successful positioning: 1. Clarity: the idea must be clear, both the target market and the differentiation advantage. Otherwise, they will not be well remembered. 2. Consistency: as people are overwhelmed with messages on a daily basis, a consistent message is necessary. 3. Credibility: the selected differential benefit should be credible in the minds of the target audience. 4. Competitiveness: the differential advantage chosen must provide a competitive advantage. Preeat AthenaSummary A perception map is a tool for High price determining a brand's position in the market. It is a visual representation of consumers' perceptions of a brand and its competitors by using dimensions (characteristics of the product or Wide product range Narrow product range service) that are important to consumers. This involves four steps: 1. Identify a set of competitive brands; 2. Identify the key Low price dimensions by which customers choose between different brands; 3. Conduct quantitative marketing research on how customers rate brands on the dimensions; 4. Plotting brands on a two-dimensional view. Repositioning Repositioning is changing the target market, the differentiation advantage or both. This may be due to poor sales performance or changing customer needs. There are four possible options of repositioning: 1. Keep the product and target Product market the same, but change Same Different the image of the product. So how the product is portrayed in the market; Same Image repositioning Product repositioning 2. Keep the same target market, but change the product; Target market 3. Keep the product the same, but change the target market; Different Intangible repositioning Tangible repositioning 4. The product and target market are changing.