Market Segmentation in Business Development
- 1. Segmentation, Segmentation, Targeting, Targeting, and Positioning and Positioning Chapter 3 Segmentation, Targeting, and Positioning
- 2. Mass-marketing A strategy that presumes there is one undifferentiated market and that one product will appeal to all consumers in that market.
- 3. Advantages Lower cost One advertising campaign is needed One marketing strategy is developed Usually only one standardized product is developed
- 4. Disadvantage It only works if all consumers have the same needs, wants, desires, and the same background, education and experience
- 5. Market matching strategy Today, mass marketing has largely been replaced by a three-step market matching strategy
- 6. Positioning Segmentation Market Matching Strategy Market Matching Targeting
- 7. Market Matching Strategy Segmentation Act of dissecting the marketplace into submarkets that require different marketing mixes Targeting Process of reviewing market segments and deciding which one(s) to pursue Positioning Establishing a differentiating image for a product or service in relation to its competition
- 8. Market segmentation The process of dividing a market into distinct subsets (segments) of consumers with common needs or characteristics and selecting one or more to target with a distinct marketing mix
- 9. Segmentation Variables Segmentation Variables Geographic Demographic Psychographic Behavioral Geodemographic
- 10. Marketers may use a single variable Marketers may use two or more variables
- 11. Geographic Segmentation Division of the market based on the location of the target market People living in the same area have similar needs and wants that differ from those living in other areas Climate Population density Taste Micromarketing
- 12. Demographic Segmentation Partitioning of the market based on factors such as age gender marital status income occupation education ethnicity
- 13. Age Product needs and interests often vary with consumers’ age
- 14. Age Effects Occurrences due to chronological age
- 15. Cohort Effects Based on the idea that people hold onto the interests they learned to appreciate growing up
- 16. Gender Gender is frequently a distinguishing variable Changes in the family and growth of the dual- income household have blurred some of the lines
- 17. Marital Status Marketers have identified specific marital status groups, such as: 1. Singles 2. Divorced individuals 3. Single parents 4. Dual-income married couples They then market products specifically designed for one or more groups
- 18. Income, Education & Occupation These three variables are often related and therefore often used together as a measure of one’s social class. Income is commonly used because marketers feel it is a strong indicator of ability to pay for a particular product or service Income is often combined with other variables to narrow target markets: With age to identify the important affluent elderly With age and occupation to produce the yuppie segment
- 19. Race and Ethnicity The size and purchasing power of minorities make them an attractive target market The size of the market is growing dramatically relative to the “majority” population Targeting certain products (e.g., alcohol, tobacco) to such groups raises ethical issues
- 20. Tobacco and the African American Community Why is there a concern about targeting African Americans? During the ’90s, youth smoking rates increased sharply 12.6% in 1991 22.7% in 1997 80% increase
- 21. After Native Americans, African Americans have the highest rate of smokers of any ethnic group in the US African American men have the highest rate of death from lung cancer of any ethnic group in the US 81% of African American men who smoke and contract lung cancer die 51% of white men who smoke and contract lung cancer die
- 22. Tobacco companies have clearly targeted African Americans Brown & Williamson’s Kool brand used a cartoon character, the penguin Willie, that was popular with black teens Has sponsored an annual jazz festival that attracts large black audiences In 1998 cigarette advertisements represented 60% of ad space in black newspapers Following the success of the movie “Malcolm X”, Star Tobacco Co. introduced a new brand called “X,” packaged in the black, red and green colors of the black nationalist movement Marketed in 20 states before pressure from the community forced discontinuance of the brand
- 23. Geodemographic Segmentation A hybrid segmentation scheme Based on notion that people who live close to one another are likely to have similar financial means, tastes, preferences, lifestyles and consumption habits
- 24. Market research firms specialize in producing computer-generated geodemographic market “clusters” of consumers They have clustered the nation’s >250,000 neighborhoods into lifestyle groupings based on postal zip codes Marketers use the cluster data for mail campaigns, to select retail sites and merchandise mixes, to locate banks and restaurants, etc. “You Are Where You Live”.
- 25. Psychographic Segmentation Partitioning of the market based on lifestyle and personality characteristics Marketers use it to further refine a target market Its appeal lies in the vivid and practical profiles of consumer segments that it can produce Accomplished by using AIO inventories
- 26. AIO Inventories AIO research seeks consumers’ responses to a large number of statements that measure Activities Interests Opinions
- 27. Examples of the use of psychographic segmentation reflected in marketing messages Kellogg’s targets health-conscious consumers with brands such as Special K and Product 19 Old Spice is targeting the active sports lifestyle with High Endurance deodorant
- 28. Behavioral Segmentation Partitioning of the market based on attitudes toward or reactions to a product and to its promotional appeals
- 29. Behavioral segmentation can be done on the basis of: 1. Usage rate 2. Benefits sought from a product 3. Loyalty to a brand or a store
- 30. 1. Usage Rate Differentiates between heavy users medium users light users nonusers In general, a relatively small number of heavy users account for a disproportionately large percentage of product usage Targeting those heavy users is a common marketing strategy
- 31. 2. Benefit Segmentation Marketers constantly attempt to identify the single most important benefit of their product that will be the most meaningful to consumers Changing lifestyles play a major role in determining the product benefits that are important to consumers and also provide marketers with opportunities for new products and services
- 32. 3. Brand and Store Loyalty The tendency of some consumers to repeatedly select the same brand within a given product category A parallel tendency of some consumers to repeatedly patronize a particular retail establishment
- 33. Marketers often try to identify the characteristics of their brand-loyal customers so they can target consumers with similar characteristics in the larger population Marketers also target consumers who show no brand loyalty as a means of penetrating a larger market Marketers reward brand loyalty by offering special benefits to frequent customers
- 34. Choosing Market Segments to Target Once an organization has identified its most promising market segments, it must decide whether to target one segment or several segments Each targeted segment will then receive a specially designed marketing mix — i.e., a specially tailored product, price, distribution network and/or promotional campaign
- 35. Market Targeting Strategies There are three basic types of strategies: 1. Undifferentiated 2. Multisegment (Differentiated) 3. Concentration (Niche)
- 36. 1. Undifferentiated Strategy A strategy that ignores differences between groups within a market and offers a single marketing mix to the entire market It works when a product is new to the market and there is minimal or no competition
- 37. Advantages and Disadvantages Economies in production and marketing Vulnerability to competitors offering more differentiated products and services to market subsegments
- 38. 2. Multisegment/Differentiated Strategy Targeting two or more segments with different marketing mixes for each
- 39. Advantages and disadvantages Minimizes risks, as losses in one segment can be made up for in others Unique product features allow for higher prices Increased costs for differentiated products and marketing
- 40. 3. Concentration/Niche Marketing Strategy Focus on one sub-market
- 41. Greater knowledge of customers’ needs Economies of scale Entry of a strong competitor Change in size or tastes of the segment
- 42. Positioning Deciding how the firm wants the company and its brands to be perceived and evaluated by target markets Differentiating the product from other products of the firm or its competition
- 43. Positioning complements and is an integral part of the company’s segmentation strategy and selection of target markets The same product can be positioned differently to different market segments The result of successful positioning is a distinctive brand image on which consumers rely in making product choices
- 44. Perceptual Mapping A spatial picture of how consumers view products or brands within a market Allows marketers to determine how their product appears in relation to competitive brands Enables them to see gaps in in positioning of all brands in the product class to identify areas in which consumer needs are not being met
- 45. A visual profile of how consumers perceive a number of pain relievers on the two dimensions of effectiveness vs. gentleness. Effectiveness Tylenol Extra-Strength Tylenol Bufferin Nuprin Motrin Advil Anacin Bayer Excedrin Private Label Aspirin Aleve Orudis Actron Gentleness to Stomach More Less More
- 46. Repositioning Marketers may be forced to reposition products due to competition or a changing environment
- 47. Modifying an existing brand Targeting it to a new market segment Emphasizing new product uses and benefits Stressing different features with the intention of boosting sales
- 48. Selected Psychographic/Demographic Characteristics of the PC Magazine Subscriber Source: 1997 Lifestyles Study, PC Magazine Subscriber Study, Ziff-Davis, Inc., June 1997. DEMOGRAPHICS DEMOGRAPHICS Percent Percent SEX (BASE 990) Men 86 Women 13 PSYCHOGRAPHICS PSYCHOGRAPHICS Percent Percent USE A COMPUTER 100 At home 96 At work 89 On vacation/traveling 46 AGE Under 25 5 25 - 34 18 35 - 44 29 45 - 54 31 55 - 64 12 65 or older 5 Mean age 44.1 SELECTED USE OF COMPUTER Word Processing 96 Connect to Internet 86 E-mail 84 For work 80 Accounting/record keeping 75 Reference 68 Recreation/games 66
- 49. DEMOGRAPHICS DEMOGRAPHICS Percent Percent PSYCHOGRAPHICS PSYCHOGRAPHICS Percent Percent EDUCATION Some college or less 27 Graduate college 27 Education beyond college graduate 46 EMPLOYMENT STATUS Employed by someone else68 Self-employed 21 Other 11 PORTABLE DEVICES USED WHEN TRAVELING ON BUSINESS Laptop/notebook computer 57 Cellular phone 47 Beeper or pager 30 Personal Digital Assistant/ electronic organizer 14
- 50. DEMOGRAPHICS DEMOGRAPHICS Percent Percent PSYCHOGRAPHICS PSYCHOGRAPHICS Percent Percent OCCUPATION/BUSINESS DEPT. Computer related- professional 22 Senior or corporate management 16 Engineering-related professional 13 Administrative/ manufacturing, accounting, finance, purchasing, advertising, marketing, sales 26 Others 23 TRAVEL FOR BUSINESS/PLEASURE Business Travel 5 or more days per month 31 5 or more nights away from home per month 17 Pleasure/Vacation Travel 15 or more days per year 37 Mean number of days per year 15.5 MEMBER OF FREQUENT FLYER PROGRAMS 90
- 51. DEMOGRAPHICS Percent PSYCHOGRAPHICS Percent INCOME Under $30,000 7 $30,000 - $49,999 15 $50,000 - $74,999 24 $75,000 - $99,999 19 $100,000 or more 24 Mean income $87,700 PRIMARY RESIDENCE Own 74 Rent 18 Other 3 No answer 5 FINANCIAL SERVICES Currently own Mutual funds 48 Stocks 44 Bonds 24 Life insurance/annuities 44 Currently use Brokerage services 36 On-line investment services 16 Retirement/financial planning 41
- 52. RESPONSE OF SELECTED CONSUMER PSYCHOGRAPHIC STATEMENTS Percent Research before choose brand of new product to buy 41 Other people ask my opinion about which computer products to buy 41 Usually buy products based on quality, not price 26 Prefer products that are latest in new technology 26 Among group I am one of first to try new product 19 Walking/running/jogging 63 Exercise/fitness/weight training 44 Bicycling 7 Swimming 37 Golf 27 Fishing 23 Boating/sailing 19 Skiing 19 Tennis 14 SELECTED SPORTS/ACTIVITES PLAYED/PARTICIPATED IN PAST YEAR Percent
- 53. Listen to music 77 Reading 61 Going to movies 60 Surfing the Internet 50 Games-videos on computer 48 Gardening 32 Going to the theater 32 Cooking 30 Photography 30 Collecting stamps/coins 11 Sewing needlecraft 6 HOBBIES/OTHER ACTIVITIES PARTICIPATED IN Percent
Editor's Notes
- #2: What is “mass marketing?” Examples of mass-marketed products? The Model-T Ford, which was offered “in any color they wanted, as long as it was black.” Coca-Cola (before the classic coke fiasco, and now “cherry coke” etc.)
- #3: What huge advantage does it have over other types of marketing?
- #4: What’s the drawback of mass marketing?
- #5: What are those three steps?
- #7: Let’s look briefly at all three before going into detail on each; What is segmentation? What is targeting? What is positioning? Let’s look at each of these in more detail…
- #8: What is Market Segmentation? What do we mean by “segment”?
- #9: They are the many possible “variables” into which you can divide a market. Your text identifies five: We’ll look at each of these in a moment
- #10: Example? Age, in marketing a toy Example? Age, income and geography in marketing a convertible automobile What groups in these market segments (age, income, geography) would you target in marketing a BMW convertible? OK, let’s look at the various segmentation variables:
- #11: What is it? What is the theory behind it? Examples? Climate: snowblowers/Subaru Outbacks vs. sunscreen/convertibles Population Density: lawn mowers/gas grills vs. small appliances/convertible sofas Taste: mild salsa sells best in the northeast while hot salsa is preferred in the west A concept related to this issue is Micromarketing: What is it? Campbell Soup segments its domestic market into 20 different segments; each regional sales office has its own budget and authority to develop specific advertising and promotional campaigns geared to local market needs and conditions
- #12: What is it? Let’s look at some of these demographic variables…
- #13: Why is age a logical segmentation variable? Examples? Children are going to be interested in toys and games Teens are going to be interested in clothing People in their 50’s are more likely to be concerned with issues like health care and retirement, etc., than those in their 20’s Demographers have identified two different underlying forces related to chronological age…
- #14: The first is… For example: Men in their 50’s seem to have a heightened interest in learning to play golf Men and women in their 50’s have an increased interest in staying healthy The second is…
- #15: We’ll see this again later For example: Many people in their 50’s are rock and roll fans Why? Not because they suddenly altered their tastes at age 50, but because they grew up with it “When baby boomers are 70, they’ll still eat pizza and listen to the Stones.”
- #16: Another distinguishing variable is… Examples? Hair products, cosmetics, clothing However… Examples of how things are different now? Women are buying more household repair tools Men have become significant purchasers of skin care and hair products
- #17: What kinds of products might appeal to the first three groups? Single-serving prepared foods, two-cup coffee makers, etc. for singles and divorced individuals How about the fourth? More expensive convenience foods
- #18: Why do you suppose these three variables are combined? Cuz they go together! As we’ll see in a later chapter…
- #19: The final component of demographics is… This is an important component because… In fact, in California, today, whites have become a minority population! As we’ll see in later classes…
- #23: Now we look at another segmentation variable… What is it? A hybrid of what? Geography and Demography What theory is it based on? Is it true? Market researchers seem to think so because…
- #24: One of the best-known of these clusters is the PRIZM “You Are Where You Live” program:
- #25: What is it?
- #26: What are AIO inventories? How the family spends time, e.g., working, vacationing, hiking The family’s preferences and priorities, e.g., home, fashion, food How the consumer feels about a variety of events and political issues, social issues, the future, etc.
- #27: Other examples? Nissan Xterra clearly appeals to the same “active” consumer
- #28: Another segmentation variable is… What is it?
- #29: What do these things mean?
- #30: Why is this important? Because… (heavy users) For example, 25-35% of beer drinkers account for 70% of consumption
- #31: For example, microwave ovens for the dual-income family (speed and convenience) Financial Security (Met Life) Comfort (Bausch & Lomb disposable contact lenses) Good health (egg beaters egg substitute) Backache relief (Advil, etc.)
- #32: What is brand loyalty? What is store loyalty?
- #33: How do marketers utilize these characteristics? Examples of rewards to brand loyal customers? Frequent-flyer programs, frequent-stay programs at hotels, etc. Recently (Jan. 2002) I read that United, which is in bankruptcy, will let just about anything else go before it unloads its frequent flyer miles, because frequent flyers are the backbone of the company’s business
- #34: OK, now we know what market segments are out there, the next step is to decide which to “target”
- #36: What is it? Examples? Model-T Ford Hershey’s chocolate bar Agricultural commodities Others?
- #37: Main advantage? Main disadvantage? Today, the Model T simply wouldn’t make it!
- #38: What is it? Examples? General Motors Nike
- #39: Advantages? Disadvantages?
- #40: What is it? Examples? Harley-Davidson Orvis
- #41: Advantages? Disadvantages? Club Med—singles giving way to families
- #42: Once marketers have segmented the market and selected the target, the product or service needs to be properly “positioned.” What does that mean? Examples: Deer Valley ski area in Utah decided to target skiers who wanted a hassle-free experience. They created a “valet ski service” and other amenities that make skiing more convenient Carnival Cruise Lines, with its less expensive “fun ships,” targets a younger crowd than Royal Caribbean, which emphasizes superior service; Disney targets families
- #44: A tool used by researchers to address positioning is… What is a perceptual map?
- #45: Here’s an example from your book…
- #46: Related to positioning is the notion of “repositioning” Examples? Fast food chains offering salad/salad bars in response to health concerns Kentucky Fried Chicken to KFC
- #47: Can be accomplished by… We’ve all heard phrases like “new” and “improved” and “not just for kids anymore” or “not your father’s…”