1. Segmentation and Targeting Marketing 5341 Chip Besio

2. What Is Market Segmentation? Market segmentation is the subdividing of a market into distinct subsets, where any subset may conceivably be selected as a marketing target to be reached with a distinct marketing mix

3. Segmentation Dilemma MASS MARKETING Economies of Scale CUSTOMIZATION Everyone Wants Something Different

4. Segmentation Criteria I. Customer Characteristics II. Benefits Sought III. Customer Behaviors

5. Customer Characteristics DEMOGRAPHICS Consumer Markets: –Gender –Age –Income –Dual income family Industrial Markets: –SIC code –Size of company

6. Customer Characteristics PSYCHOGRAPHICS Consumer Markets: –Environmentally-conscious –Value and lifestyles VALS (1978); VALS 2 (1989) Distinct patterns based on attitudes and values Industrial Markets: –Corporate culture –Purchasing orientation

7. Customer Characteristics GEOGRAPHY Regional Segmentation Zip Clustering –Distinct marketing strategies created for similar types of neighborhoods stretched across the nation –Examples include PRIZM, Market Metrics

8. Benefit Segmentation WHAT BENEFIT DO YOU WANT? Rationale - The benefits people are seeking in consuming a given product are the true reasons for the existence of segments Example - Toothpaste –Cavity prevention (e.g., Crest) –Fresh breath (e.g., Aquafresh) –White teeth (e.g., Rembrandt)

9. Behavior Segmentation USAGE BEHAVIORS Volume of usage –Heavy users, moderate users, light users and nonusers –80/20 rule Brand usage –Increase usage among users –Get users of competing brand to switch –Get nonusers to start Usage occasion

10. What Is “Targeting” a Market Segment? “You can’t be all things to all people” Therefore, companies typically focus on one or more segments and orient their marketing activities to those (potential) customers

11. Which Are the “Good” Segments to Target? The most attractive market segments are: Large Growing and have: High purchase volume High margins High customer value

12. Which Are the “Good” Segments to Target? * However, the most attractive segments are frequently already well-served and so are highly competitive … so you must also consider: Number and strength of competitors Ease of entry into the segment Company’s current positioning

13. Targeting Dilemma - Segment Attractiveness SEGMENT VALUE More Opportunity COMPETITION More Companies Compete for Valuable Segments

14. Which Are the “Good” Segments to Target? Additional considerations for targeting: Customers are addressable - you can reach them The company is capable of building a marketing program to target them

15. Targeting Examples of successful targeting: –Wal-Mart - Value-conscious shoppers that do not want to worry about short-term sales –Lexus - People with high disposable income who value reliability and service, as well as prestige and luxury –Cray - Price insensitive computer users that require maximum computing power –Dupont - Less price-sensitive innovators in the use of plastics (skim pricing)

16. Porter’s Market Forces Model

17. An important tool to help us understand the character of competition in a market is Michael Porter’s market forces model It assists in evaluating the attractiveness of a market for potential entry

18. Porter’s Market Forces Model The character of competition in markets varies widely: “Cooperative” Competition Intense Rivalry Character of Competition in a Market

19. Porter’s Market Forces Model What determines the attractiveness, or potential long-term profitability, of a market? Buyers (Buyer Power) Substitutes (Threat of Substitutes) Suppliers (Supplier Power) Potential Entrants (Threat of Mobility) Industry Competition (Segment Rivalry) Michael E. Porter

20. Porter’s Market Forces Model How does the model predict the intensity of competitive rivalry?