Chapter 7: Segmentation, Targeting, Positioning Market Segmentation ...
Chapter 7: Segmentation, Targeting, Positioning Market Segmentation Segmentation involves dividing the market into smaller groups of buyers with distinct needs, characteristics, or behaviours that might require separate marketing strategies Four important topics: segmenting consumer markets, segmenting business markets, segmenting international markets, and the requirements for effective segmentation Segmenting Consumer Markets The major variables that might be used to segment a market are geographic, demographic, psychographic, and behavioural Geographic Segmentation Dividing a market into different units, such a global regions, countries, provinces, cities... A company may decide to only operate in one area, or multiple ones Many companies are localizing their products, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and even neighbourhoods Demographic Segmentation Dividing the market into segments based on variables such as age, gender, income level, family size, life cycle, occupation, education, ethic or cultural group, generation, etc. Demographic variables are easy to measure which is why they are widely used Needs to know these variables to assess the size of the target market & reach it efficiently Age and Life-Cycle Segmentation Consists of dividing the market into different age and life-cycle groups Consumers needs and wants change with age – 65 year olds don’t eat Lunchables Gender Dividing the market into different segments based on gender One gender may be better suited to your product and/or may be more profitabale It is also important to note that a neglected gender segment by competition could offer a new opportunity for a new market Household Income (HHI) Dividing the market inter different segments based on their level of income Household income means the entire house – income from both husband and wife Some firms with luxury goods do not target people who can’t afford it There are many discount store that market to those less affluent Ethnic or Cultural Group Marketers often segment markets based on easy to define criteria such as race, language... With StatsCan’s census info, it is easy to locate markets with a high number of Chinese speaking Canadians
Psychographic Segmentation Dividing the market into different segments based on social class, lifestyle, personality... Targeting people looking for an adventure, looking to relax, who are outgoing, etc. Behavioural Segmentation Dividing the market into different segments based on consumer knowledge, attitudes, uses, or responses from products – many believe that this is the best starting point Occasions Dividing the market into segments according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item o Can help firms build up product usage – drink OJ any time, not just morning Benefits Sought Dividing the market into segments according to the different benefits that consumers seek from the product Do you want value? Do you seek performance? Durability? User Status Markets can be segmented into non-users, ex-users, potential users, first-time users, and regular users of the product Marketers want to reinforce and retain regular users, attract non-users, and reinvigorate relationships with ex-users Usage Rate Markets can also be into light, medium, and heavy product users Heavy users are often a small percentage of the market but account for a high percentage of consumption Loyalty Status Segmenting based on their degree of customer loyalty to a brand, store, and company Some consumers are completely loyal – they only buy one brand all the time Some are somewhat loyal – loyal to two or three brands of a given product or favour one brand why sometimes buying others Some show no loyalty to a brand – something different each time or buy what’s on sale Studying loyal customers: Can pinpoint the target market and develop marketing appeals By studying less-loyal customers, a company can detect which brands are most competitive with its own and learn about the company’s own marketing weakness Using Multiple Segmentation Bases Marketers often use multiple segmentation bases in an effort to identify smaller, betterdefined groups – ex. 18-24 year old men, adventurous, looking for performance, reg users Allows a company to really focus its marketing effort on a specific group or groups with similar characteristics
Segmenting Business Markets Business buyers can also be segmented like consumers Also some variables like customer operating characteristics, purchasing approaches, situational factors, and personal characteristics are used Companies will create distinct marketing programs for ex. Merchants, corporations, etc. Companies do not have to choose between consumer and business market segments o Could sell a phone to a big corporation and to individual consumers Marketers believe buying behaviour & benefits provide the best base for business markets Segmenting International Markets Different countries, even those in close proximity to one another, can vary greatly Can be segmented by geographic region if countries have similar traits and behaviours Segmented on the basis of economic factors – income lvl or lvl of economic development Can be segmented based by political and legal factors – types and stability of gov’t, receptivity of foreign firms, monetary regulations, and amount of bureaucracy Cultural factors – grouping according to common languages, religions, values and attitudes, customs, and behavioural patterns Intermarket Segmentation: Forming segments of consumers who have similar needs and buying behaviour even though they are located in different countries Requirements for Effective Segmentation Measurable: The size, purchasing power, and profiles of the segments can be measured Accessible: The market segments can be effectively reached and served Substantial: The markets are large or profitable enough to serve – worth pursuing Differentiable: Segments are conceptually distinguishable and respond differently to different marketing mix elements and programs Actionable: Effective programs can be designed for attracting and serving the segments o Don’t go after a large segment if you are a small company Market Targeting Evaluating Market Segments Firms must look at segment size and growth – segment sales, growth rates, profitability o Remember: Sometimes the fastest growing or largest segment is not the best Examine the major structural factors - # of competitors, existence of substitute products that may limit prices, the relative power of buyers and suppliers o Buyers with strong bargaining power will demand low prices and reduce profits o Suppliers can demand high prices or reduce the quality of the p/s – reduce profits Companies must also consider their resources and objectives – don’t mesh with the company’s long run objectives or if they lack the skills & resources to serve the segment
Selecting Target Markets After evaluating the segments, a company must then choose its target market(s) o Target Market: The segment that the company decides to serve Undifferentiated Marketing (Mass-Marketing) A market coverage strategy in which a firm decides to ignore segment differences and go after the whole market with one offer Focus on what is common in the needs of consumers, not what is different Differentiated Marketing A market coverage strategy in which a firm decides to target several market segments and designs separate offers for each – hope for higher sales & stronger position in the market The cost of doing differentiated marketing is high – extra research, forecasting, sales analysis, promotion, planning, and channel mgmt. Concentrated (Niche) Marketing Firm goes after a large share of one or a few segments or niches – have few competitors The firm achieves strong market position because of its great knowledge of consumer needs in the niches it serves and the special reputation it acquires Markets more effectively by fine-tuning its products, prices and programs to the needs of carefully defined segments – serves the most profitable consumers in the best way Micromarketing An extreme form of market segmentation in which firms tailor products and marketing programs to the needs and wants of specific individuals and local customer segments Local Marketing Involves tailoring brands and promotions to the needs and wants of a small group of people who live in the same city or neighbourhood, or who shop at the same store Can drive up manufacturing and marketing costs and cause logistics problems Helps a company to market more effectively in the face of pronounced regional and and local differences in demographics and lifestyles Individual Marketing Involves tailoring products and marketing programs to the needs and preferences of individual customers – aka Mass Customization Has made relationships with customers more important in selling products and services Choosing a Targeting Strategy Which strategy is best depends on company resources – if they are limited, concentrated marketing makes the most sense The best strategy also depends on the degree of product variability – undifferentiated marketing is more suited for uniform products; products that can vary = differentiation The product`s life-cycle stage: New product = concentrated, mature = differentiated Market Variability – if buyers have same tastes, buying habits, etc. = undifferentiated Competitor`s marketing strategies – if they use undifferentiated, use differentiated
Differentiation and Positioning Differentiation: Differentiating the market offering to create superior customer value Positioning: Arranging for a market offering to occupy a clear, distinctive, and desirable place relative to the completion in the minds of target consumers The company must decide on a product’s value proposition – The full positioning of a brand the full mix of benefits upon which a product is positioned A product’s position is a complex set of perceptions, impressions, and feelings that consumers have for the product compared to other competing products Choosing a Differentiation and Positioning Strategy This task consists of three steps: identifying a set of differentiating competitive advantages upon which to build a position, choosing the right competitive advantages, and selecting an overall positioning strategy Then the company must effectively communicate and deliver the chosen position Identifying Possible Value Differences and Competitive Advantages A competitive advantage is an advantage over competitors gained by offering greater customer value through lower prices or by providing more benefits to justify high prices Can differentiate along the lines of o Product: Features, performance, style and design o Services: Speedy, convenient, and careful delivery o Channels: Channel coverage, expertise and performance o People: Hiring and training better people than the competitors o Image: Developing strong and distinctive image that consumers are aware of Choosing the Right Competitive Advantage How Many Differences to Promote A company should develop a Unique Selling Proposition for a brand and stick o Each brand picks an attribute and says they are the best for that attribute It may also be necessary to have more than one differentiator if there is another brand that is claiming to also be the best in that attribute Which Differences to Promote A difference is worth establishing to the extent that it satisfies the following criteria o Important: The difference delivers a highly valued benefit to target buyers o Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way o Superior: The difference is superior to the other ways that customers might obtain the same benefit o Communicable: The difference is communicable and visible to buyers o Pre-emptive: Competitors cannot easily copy the difference o Affordable: Buyers can afford to pay for the difference o Profitable: The company can introduce that difference profitably
Selecting an Overall Positioning Strategy The full positioning of a brand is called the brand’s value proposition (look above) The five “winning” value propositions are as follows: More for More Involves providing the most upscale product and charging a high price to cover the costs High quality product that gives prestige to the owner These brands often invite imitator products into the market More for the Same Companies can battle “more for more” by offering similar quality product at lower prices More for Less This is the “winning” value proposition but companies can only do this in the short term o In the long run, companies will find it hard to maintain this position since offing more costs more so low prices cannot be maintained The Same for Less You don’t claim to have “better” products but instead offer the same brands and quality as everyone else, but at a lower price – based on purchasing power & low cost-structures Less for Much Less Many customers are will to get slightly lower quality products with fewer features for a lower price to them – they don’t need “the bells and whistles” Developing a Positioning Statement A positioning statement is a statement that summarizes company or brand positioning Takes the form: To (target segment and need) our (brand) is (concept) that (point of difference) Communicating and Delivering the Chosen Position All of a company’s marketing efforts must support the company’s positioning strategy Designing the marketing mix involves working out the tactical details of the strategy o If the firm seizes a more for more position it knows that it must produce high quality products, charge a high price, distribute through high-quality dealers, and advertise in high-quality media – they must hire the best people too A position can take years to build but lost quickly – therefore companies must make sure a position is maintained through consistent performance and communication It must closely monitor and adapt the position over time to match changes in consumer needs and competitors’ strategies – should avoid abrupt changes, ie. Smooth transitions
Psychographic Segmentation Dividing the market into different segments based on social class, lifestyle, personality... Targeting people looking for an adventure, looking to relax, who are outgoing, etc. Behavioural Segmentation Dividing the market into different segments based on consumer knowledge, attitudes, uses, or responses from products – many believe that this is the best starting point Occasions Dividing the market into segments according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item o Can help firms build up product usage – drink OJ any time, not just morning Benefits Sought Dividing the market into segments according to the different benefits that consumers seek from the product Do you want value? Do you seek performance? Durability? User Status Markets can be segmented into non-users, ex-users, potential users, first-time users, and regular users of the product Marketers want to reinforce and retain regular users, attract non-users, and reinvigorate relationships with ex-users Usage Rate Markets can also be into light, medium, and heavy product users Heavy users are often a small percentage of the market but account for a high percentage of consumption Loyalty Status Segmenting based on their degree of customer loyalty to a brand, store, and company Some consumers are completely loyal – they only buy one brand all the time Some are somewhat loyal – loyal to two or three brands of a given product or favour one brand why sometimes buying others Some show no loyalty to a brand – something different each time or buy what’s on sale Studying loyal customers: Can pinpoint the target market and develop marketing appeals By studying less-loyal customers, a company can detect which brands are most competitive with its own and learn about the company’s own marketing weakness Using Multiple Segmentation Bases Marketers often use multiple segmentation bases in an effort to identify smaller, betterdefined groups – ex. 18-24 year old men, adventurous, looking for performance, reg users Allows a company to really focus its marketing effort on a specific group or groups with similar characteristics
Segmenting Business Markets Business buyers can also be segmented like consumers Also some variables like customer operating characteristics, purchasing approaches, situational factors, and personal characteristics are used Companies will create distinct marketing programs for ex. Merchants, corporations, etc. Companies do not have to choose between consumer and business market segments o Could sell a phone to a big corporation and to individual consumers Marketers believe buying behaviour & benefits provide the best base for business markets Segmenting International Markets Different countries, even those in close proximity to one another, can vary greatly Can be segmented by geographic region if countries have similar traits and behaviours Segmented on the basis of economic factors – income lvl or lvl of economic development Can be segmented based by political and legal factors – types and stability of gov’t, receptivity of foreign firms, monetary regulations, and amount of bureaucracy Cultural factors – grouping according to common languages, religions, values and attitudes, customs, and behavioural patterns Intermarket Segmentation: Forming segments of consumers who have similar needs and buying behaviour even though they are located in different countries Requirements for Effective Segmentation Measurable: The size, purchasing power, and profiles of the segments can be measured Accessible: The market segments can be effectively reached and served Substantial: The markets are large or profitable enough to serve – worth pursuing Differentiable: Segments are conceptually distinguishable and respond differently to different marketing mix elements and programs Actionable: Effective programs can be designed for attracting and serving the segments o Don’t go after a large segment if you are a small company Market Targeting Evaluating Market Segments Firms must look at segment size and growth – segment sales, growth rates, profitability o Remember: Sometimes the fastest growing or largest segment is not the best Examine the major structural factors - # of competitors, existence of substitute products that may limit prices, the relative power of buyers and suppliers o Buyers with strong bargaining power will demand low prices and reduce profits o Suppliers can demand high prices or reduce the quality of the p/s – reduce profits Companies must also consider their resources and objectives – don’t mesh with the company’s long run objectives or if they lack the skills & resources to serve the segment
Selecting Target Markets After evaluating the segments, a company must then choose its target market(s) o Target Market: The segment that the company decides to serve Undifferentiated Marketing (Mass-Marketing) A market coverage strategy in which a firm decides to ignore segment differences and go after the whole market with one offer Focus on what is common in the needs of consumers, not what is different Differentiated Marketing A market coverage strategy in which a firm decides to target several market segments and designs separate offers for each – hope for higher sales & stronger position in the market The cost of doing differentiated marketing is high – extra research, forecasting, sales analysis, promotion, planning, and channel mgmt. Concentrated (Niche) Marketing Firm goes after a large share of one or a few segments or niches – have few competitors The firm achieves strong market position because of its great knowledge of consumer needs in the niches it serves and the special reputation it acquires Markets more effectively by fine-tuning its products, prices and programs to the needs of carefully defined segments – serves the most profitable consumers in the best way Micromarketing An extreme form of market segmentation in which firms tailor products and marketing programs to the needs and wants of specific individuals and local customer segments Local Marketing Involves tailoring brands and promotions to the needs and wants of a small group of people who live in the same city or neighbourhood, or who shop at the same store Can drive up manufacturing and marketing costs and cause logistics problems Helps a company to market more effectively in the face of pronounced regional and and local differences in demographics and lifestyles Individual Marketing Involves tailoring products and marketing programs to the needs and preferences of individual customers – aka Mass Customization Has made relationships with customers more important in selling products and services Choosing a Targeting Strategy Which strategy is best depends on company resources – if they are limited, concentrated marketing makes the most sense The best strategy also depends on the degree of product variability – undifferentiated marketing is more suited for uniform products; products that can vary = differentiation The product`s life-cycle stage: New product = concentrated, mature = differentiated Market Variability – if buyers have same tastes, buying habits, etc. = undifferentiated Competitor`s marketing strategies – if they use undifferentiated, use differentiated
Differentiation and Positioning Differentiation: Differentiating the market offering to create superior customer value Positioning: Arranging for a market offering to occupy a clear, distinctive, and desirable place relative to the completion in the minds of target consumers The company must decide on a product’s value proposition – The full positioning of a brand the full mix of benefits upon which a product is positioned A product’s position is a complex set of perceptions, impressions, and feelings that consumers have for the product compared to other competing products Choosing a Differentiation and Positioning Strategy This task consists of three steps: identifying a set of differentiating competitive advantages upon which to build a position, choosing the right competitive advantages, and selecting an overall positioning strategy Then the company must effectively communicate and deliver the chosen position Identifying Possible Value Differences and Competitive Advantages A competitive advantage is an advantage over competitors gained by offering greater customer value through lower prices or by providing more benefits to justify high prices Can differentiate along the lines of o Product: Features, performance, style and design o Services: Speedy, convenient, and careful delivery o Channels: Channel coverage, expertise and performance o People: Hiring and training better people than the competitors o Image: Developing strong and distinctive image that consumers are aware of Choosing the Right Competitive Advantage How Many Differences to Promote A company should develop a Unique Selling Proposition for a brand and stick o Each brand picks an attribute and says they are the best for that attribute It may also be necessary to have more than one differentiator if there is another brand that is claiming to also be the best in that attribute Which Differences to Promote A difference is worth establishing to the extent that it satisfies the following criteria o Important: The difference delivers a highly valued benefit to target buyers o Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way o Superior: The difference is superior to the other ways that customers might obtain the same benefit o Communicable: The difference is communicable and visible to buyers o Pre-emptive: Competitors cannot easily copy the difference o Affordable: Buyers can afford to pay for the difference o Profitable: The company can introduce that difference profitably
Selecting an Overall Positioning Strategy The full positioning of a brand is called the brand’s value proposition (look above) The five “winning” value propositions are as follows: More for More Involves providing the most upscale product and charging a high price to cover the costs High quality product that gives prestige to the owner These brands often invite imitator products into the market More for the Same Companies can battle “more for more” by offering similar quality product at lower prices More for Less This is the “winning” value proposition but companies can only do this in the short term o In the long run, companies will find it hard to maintain this position since offing more costs more so low prices cannot be maintained The Same for Less You don’t claim to have “better” products but instead offer the same brands and quality as everyone else, but at a lower price – based on purchasing power & low cost-structures Less for Much Less Many customers are will to get slightly lower quality products with fewer features for a lower price to them – they don’t need “the bells and whistles” Developing a Positioning Statement A positioning statement is a statement that summarizes company or brand positioning Takes the form: To (target segment and need) our (brand) is (concept) that (point of difference) Communicating and Delivering the Chosen Position All of a company’s marketing efforts must support the company’s positioning strategy Designing the marketing mix involves working out the tactical details of the strategy o If the firm seizes a more for more position it knows that it must produce high quality products, charge a high price, distribute through high-quality dealers, and advertise in high-quality media – they must hire the best people too A position can take years to build but lost quickly – therefore companies must make sure a position is maintained through consistent performance and communication It must closely monitor and adapt the position over time to match changes in consumer needs and competitors’ strategies – should avoid abrupt changes, ie. Smooth transitions
