Marketing: Advertising and Sales Promotion Food Communication II Section D – Segmenting and Targeting All of the information has been adapted from: Kotler P. Armstrong, G., 2004. Principles of Marketing. 10th International Edition. New Jersey: Pearson Education. & Lamb et al. 2008. Marketing. Third South African Edition. Oxford University Press, Southern Africa. Administrative info Introduction • Companies today recognise that they cannot appeal to all buyers in the marketplace, or at least not in the same way. • Buyers are too numerous, too widely scattered, and too varied in their needs and buying practices. • Also, the companies themselves vary widely in their abilities to serve different segments of the market. • Rather than trying to compete in an entire market, sometimes against superior competitors, each company must identify the parts of the market that it can serve best and most profitably. Introduction • Thus, most companies are being more choosy about the customers with whom they which to build relationships. • Most have moved away from mass marketing and toward market segmentation and targeting. • Instead of scattering their marketing efforts (the “shotgun” approach), firms are focusing on the buyers who have greater interest in the values they create best (the “rifle” approach). Market Segmentation 1. Identify bases for Segmenting the market 2. Develop segment profiles Target Marketing 3. Develop measure of Segment attractiveness 4. Select target segments Market Positioning 5. Develop positioning For target segments 6. Develop a marketing Mix for each segment Steps in Segmenting, Targeting, and Positioning SEGMENTATION Market Segmentation • Market Segmentation: Dividing a market into distinct groups with distinct needs, characteristics, or behaviour who might require separate products or marketing mixes. • Target Marketing: The process of evaluating each market segment's attractiveness and selecting one or more segments to enter. • Market Positioning: Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Market Segmentation • Markets consist of buyers, and buyers differ in more than one or more ways. • They may differ in their wants, resources, locations, buying attitudes, and buying practices • Through market segmentation, companies divide large, heterogeneous markets into smaller segments. • So that they can be reached more effectively and efficiently with products and services that match their unique needs. Market Segmentation Criteria 1. Identifiable & Measurable: The size, purchasing power, and profiles of the segments must be able to be identified and measured. 2. Sustainable: A segment must be large and profitable enough to warrant developing and maintaining a special marketing mix. 3. Accessible: The market segment must be able to be effectively reached and served. (koi san) 4. Differentiable: The segments must be conceptually distinguishable and respond differently to different marketing mix elements and programmes. 5. Actionable: Effective programmes muse be able to be designed to attract and serve the segments. Market Segmentation Bases Please see Table 8.1 Major segmentation variables for consumer markets on the printed handout. Geographic Demographic Psychographic Behavioural Benefit Find an explanation on the printed handout titled (Benefit Segmentation) Also please consider the tabled example of the snack food market. (Also a hand-out) Market Segmentation Bases Group Work – Read the piece titled “Marketing in practice: Spot the Teen Reader.” – Then, by using the hand-out titled “Table 8.1 Major segmentation variables for consumer markets”, complete the 3 questions underneath. Market Segmentation Steps 1. Select a market or product category. 2. List the potential needs in this market/product category. 3. Choose the basis or bases for segmenting. 4. Select identifiable descriptors. 5. Profile and analyse homogeneous segments. 6. Identify the determining dimensions. 7. Name and select target markets. See printed handout titled Figure 6.3 Steps in segmenting a market for more details TARGETING Evaluating Market Segments • When evaluating the different market segments, a firm must look at three factors: – Segment size and growth (sales, growth rates, expected profitability) – Segment structural attractiveness (Porters 5 Forces) – Company objectives and resources (does segment mesh with company objectives and can company offer superior value) Porters 5 Forces Selecting Target Segments • Target Market: A set of buyers sharing common needs or characteristics that the company decides to serve. Undifferentiated (mass) marketing Differentiated (segmented) marketing Concentrated (niche) marketing Targeting Broadly Micro-marketing (local/ Individual) marketing Targeting Narrowly Target Marketing Strategies Selecting Target Segments • Undifferentiated (mass) marketing: A marketcoverage strategy in which a firm decides to ignore market segments and go after the whole market with one offer. • Differentiated (segmented) marketing: A market coverage strategy in which a firm decides to target several market segments and design separate offers (multi-segment strategy). • Concentrated (niche) marketing: A marketcoverage strategy in which the firm goes after a large share of one or a few small segment niches. Selecting Target Segments • Micro-marketing: The practice of tailoring products and marketing programmes to the needs and wants of specific individuals and local customers groups. • Local Marketing: Tailoring brands and promotions to the needs and wants of local customer groups – cities, neighbourhoods, and even specific stores. • Individual marketing: Tailoring products and marketing programmes to the needs and preferences of individual customers – also labelled – “Markets-of-one marketing” – “Customized marketing” – “One-to-one marketing” Selecting Target Segments Advantages and disadvantages of target marketing strategies Targeting Strategy Advantages Undifferentiated Potential savings on production and marketing costs Differentiated Concentrated Greater financial success Economies of scale Disadvantages Unimaginative product offerings Firm more susceptible to competition High costs Cannibalisation Concentration of resources Segments too small, or Can better meet the needs changing of narrowly defined segment Large competitors may more Allows some firms to better effectively market to niche compete with larger firms segment Stronger positioning Source: Marketing, Lamb et al, (2008) Selecting Target Segments • Companies need to consider many factors when choosing a target-marketing strategy. • Which strategy is best depends on company resources. • When limited, concentrated targeting makes most sense. • Undifferentiated marketing is more suited for uniform products such as grapefruit or steel. • Products that can vary in design, such as cameras and cars, are more suited to differentiation or concentration. Selecting Target Segments • The product life cycle must also be considered. When a firm introduces a new product, it may be practical to launch only one version, and undifferentiated or concentrated marketing may make most sense. • In the mature stage of the product life cycle, however, differentiated marketing begins to make more sense. • Considering competitor strategies is also important. If they are using differentiated marketing, it would be silly to be undifferentiated. • And if they are undifferentiated, a firm could gain some market share by being differentiated.