Marketing and Segmentation Suppose a teenage girl is looking for a pair of jeans. What influences her? 1. 2. 3. 4. 5. 6. Demographics Psychographics Perceptual clues Symbolism Past experience Group dynamics Rituals Family Reference groups Race & ethnic factors Social class Subculture Culture Market Segmentation “Smart marketing starts with smart segmentation.” Jeffrey J. Fox Target Market: A group of people or organizations which a business creates and maintains a marketing mix specifically designed to satisfy the needs of group members Market Segment: Individuals, groups, or organizations with one or more similar characteristics that cause them to have similar product needs Market Segmentation: The process of dividing a total market into groups with relatively similar product needs to design a marketing mix that matches those needs Marketing Concept: “All marketing strategies should be based on known customer needs and or wants.” Segmentation is the practical application of marketing research and consumer behavior. Reminder: The “marketing mix” consists of: Product Price Promotion Distribution (Place) Almost no one tries to sell to everyone! Concentrated Undifferentiated Major kinds: 1. Undifferentiated marketing strategy: Generic Differentiation Same marketing mix for ALL segments Overlooks segment differences 4-Ps designed for everyone Advantage: Concentrated resources Major kinds: 1. Undifferentiated marketing strategy: Generic Differentiation Same marketing mix for ALL segments Overlooks segment differences 4-Ps designed for everyone Disadvantage: 4-Ps for everyone? Competing against focused firms Major kinds: 2. Single Marketing Strategy: Targeted Differentiation Niche Marketing Go after one segment (ethnic marketing) Advantage: Sharp focus… good expertise efficiency… high profits gives smaller firms a chance good place to start Major kinds: 2. Single Marketing Strategy: Targeted Differentiation Niche Marketing Go after one segment (ethnic marketing) Disadvantage: More risk… eggs in one basket Competition can wipe you out Major kinds: 3. Full-coverage marketing strategy: Segmented Differentiation Treat each segment as separate market 4-Ps designed for every market Advantage: Focus… Major kinds: 3. Full-coverage marketing strategy: Segmented Differentiation Treat each segment as separate market 4-Ps designed for every market Disadvantage: Development costs (must weigh increased costs increased sale) Major kinds: 4. Concentrated marketing strategy: Hybrid Differentiation Single product to several segment 5. Micromarketing Local marketing and individual marketing Mass Customization Build-to-Order (BTO) To work, segments must have: 1. Substantiality Must be large enough enough money, customers, etc enough room to grow Basic marketing rule: The best product, best prices, and best business in the world will fail if there are no customers! To work, segments must have: 2. Identifiablity Must be able to identify segment and measure it To work, segments must have: 3. Reachability Must be accessible must be actionable (can action be taken?) The Segmentation Tradeoff: Synergies vs. Cannibalization • Organizational Synergy Increased customer value through efficient marketing and manufacturing • Cannibalization • “Tiffany/Walmart” Strategies two-tier products 8-24 The five key steps in segmenting and targeting markets that link market needs to a firm’s marketing program 8-25 Step 1. Criteria to Use in Forming the Segments • Simplicity and Cost-Effectiveness of assigning potential buyers to Segments • Potential for increased Profit • Similarity of needs of potential buyers within a Segment • Difference of needs of buyers among Segments • Potential of a marketing action to reach a Segment 8-26 Step 1. Common Segments Geographical Climate Region City size Population density 8-27 Market Segmentation 1. Geographic Market Segmentation 1. Geographic 2. Demographic Step 1. Common Segments Demographics Age (Generational marketing) Gender (?) Marital status Income Education Occupation Racial and Ethnic 8-32 Market Segmentation 1. Geographic 2. Demographic 3. Psychographic Step 1. Common Segments Psychographics Perception Gender (?) Motivation Personality Attitudes http://www.expedia.com/Waterloo-Hotels-Baymont-Inn-SuitesWaterloo.h17890.HotelInformation?chkin=10%2F29%2F2013&chkout=10%2F30%2F2013&rm1= a2&hwrqCacheKey=3ac1ed16-2067-4bf3-b2a08b521c84be7aHWRQ1381949822543&c=30126d42-02ed-4261-9ade64b0ef193af1 & 8-34 Market Segmentation 1. Geographic 2. Demographic 3. Psychographic The Nine Nations Step 1. Common Segments Lifestyle Combination of: Place Person Products VALs 8-37 Step 1. Common Segments Usage Use-related usage rate brand loyalty http://www.youtube.com/watch?v=vbsyEI78m5s awareness Use-situation where… when… why… with whom 8-39 Step 1. Common Segments Behavioral Product features Usage rates (frequency) 80/20 rule Long tail Selling small amounts to few customers, BUT have lots of things to sell (Netflix) 8-40 Step 1. Common Segments Socio-cultural Culture and subculture Social class Religion 8-41 Social class may be hard to define, but we all know it when we see it. Segmentation bases, variables, and breakdowns for U.S. consumer markets 8-47 The five key steps in segmenting and targeting markets that link market needs to a firm’s marketing program 8-48 Step 2: Target Marketing The process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. Marketing positioning Arranging for a product to occupy a clear, distinctive , and desirable place relative to competing products in the minds of target consumers. Product positioning: is the place an offering occupies in a consumer’s mind on important attributes relative to competitive products. 8-51 Product differentiation: is a marketing strategy that involves a firm using different marketing mix activities to help consumers perceive the product as being different and better than competing products. 8-52 8-53 Prince Sports targets racquets at specific market segments 8-54 Step 3 Market-product grids show alternative strategies for a lawnmower manufacturer 8-55 The five key steps in segmenting and targeting markets that link market needs to a firm’s marketing program 8-56 STEP 4: SELECT TARGET MARKETS Criteria to Use in Selecting Target Markets • Two Types of Criteria Those that divide a market into Segments Those that actually pick the Target Segments 8-57 Criteria to Use in Selecting Target Markets • Market Size • Expected Growth • Competitive Position • Cost of reaching the Segment • Compatibility with organizational objectives and resources 8-58 Perceptual Map Example A Perceptual Map to Reposition chocolate milk for adults: • Identify Important Attributes for Adult Drinks • Discover How Adults See Competing Drinks • Discover How Customers See Chocolate Milk • Reposition Chocolate Milk to Make It More Appealing to Adults 8-59 A perceptual map: is a means of displaying or graphing in two dimensions the location of products or brands in the minds of consumers to enable a manager to see how consumers perceive competing products or brands, as well as the firm’s own product or brand. 8-60 A perceptual map of the location of beverages in the minds of American adults 8-61 The strategy American dairies are using to reposition chocolate milk to reach adults 8-62 Step 5 Do it!