Sharpen the Focus: Target Marketing Strategies and Customer Relationship Management Chapter Seven © 2012 Pearson Education, Inc. publishing as Prentice-Hall.

7-2 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Chapter Objectives  Identify the steps in the target marketing process  Understand the need for market segmentation and the approaches available to do it  Explain how marketers evaluate segments and choose a targeting strategy  Understand how marketers develop and implement a positioning strategy  Explain how marketers increase long-term success and profits by practicing customer relationship management

7-3 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Real People, Real Choices: Decision Time at PBS KIDS Sprout  Which strategy should Jim select for Sprout’s first ever consumer-oriented brand campaign? Option 1: Target only Sprout viewers with the marketing campaign Option 1: Target only Sprout viewers with the marketing campaign Option 2: Produce a campaign that is specifically designed for nonviewers Option 2: Produce a campaign that is specifically designed for nonviewers Option 3: Target both those who view or are aware of Sprout, as well as nonviewers, with the same campaign Option 3: Target both those who view or are aware of Sprout, as well as nonviewers, with the same campaign

7-4 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Target Marketing Strategy: Selecting and Entering a Market  Market fragmentation: The creation of many consumer groups due to the diversity of their needs and wants The creation of many consumer groups due to the diversity of their needs and wants  Target marketing strategy: Dividing the total market into different segments based on customer characteristics, selecting one or more segments, and developing products to meet those segments’ needs Dividing the total market into different segments based on customer characteristics, selecting one or more segments, and developing products to meet those segments’ needs

7-5 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Segmentation: The process of dividing a larger market into smaller pieces based on one or more meaningful shared characteristics The process of dividing a larger market into smaller pieces based on one or more meaningful shared characteristics  Segmentation variables: Dimensions that divide the total market into fairly homogeneous groups, each with different needs and preferences Dimensions that divide the total market into fairly homogeneous groups, each with different needs and preferences Steps in the Target Marketing Process Step 1: Segmentation

7-6 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Segmentation variables include: Demographics—size, age, gender, ethnic group, income, education, occupation, and family structure Demographics—size, age, gender, ethnic group, income, education, occupation, and family structure  Generational marketing Psychographics—psychological, sociological, and anthropological factors Psychographics—psychological, sociological, and anthropological factors Behavioral characteristics Behavioral characteristics Steps in the Target Marketing Process Step 1: Segmentation

7-7 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Segmenting by Demographics: Age and Generational Marketing  Children  Teens  Tweens  Generation Y: born between 1977 and 1994  Generation X: born between 1965 and 1976  Baby boomers: born between 1946 and 1964  Older consumers

7-8 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Segmenting by Demographics: Gender  Many products appeal to one sex or the other  Metrosexual A straight, urban male who is keenly interested in fashion, home design, gourmet cooking, and personal care

7-9 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Segmenting by Demographics: Other Variables  Family life cycle: Family needs change over time Family needs change over time  Income: Strongly correlated with buying power Strongly correlated with buying power  Social Class: Consumers buy according to image they wish to portray Consumers buy according to image they wish to portray  Race and ethnicity: African Americans African Americans Asian Americans Asian Americans Hispanic Americans Hispanic Americans  Place of residence: Geographic regions Geographic regions Geodemography Geodemography Geocoding Geocoding

7-10 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Geodemography: Combines geography with demographics Combines geography with demographics  Geocoding: Customizes Web advertising so people who log on in different places see ad banners for local businesses Customizes Web advertising so people who log on in different places see ad banners for local businesses Segmenting by Place of Residence

7-11 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Segmenting by Psychographics  Psychographics: The use of psychological, sociological, and anthropological factors to construct market segments Members of psychographic segments typically share activities, interests, and opinions, or AIOS Members of psychographic segments typically share activities, interests, and opinions, or AIOS The VALS2 system segments U.S. consumers into eight unique groups The VALS2 system segments U.S. consumers into eight unique groups

7-12 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Segmenting by Behavior  Behavioral segmentation: Segments consumers based on how they act toward, feel about, or use a product Segments consumers based on how they act toward, feel about, or use a product  80/20 rule: 20% of purchasers account for 80% of a product’s sales 20% of purchasers account for 80% of a product’s sales

7-13 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Segmenting by Behavior  Long tail concept: Firms CAN make money selling small amounts of items IF they sell enough different items Firms CAN make money selling small amounts of items IF they sell enough different items  User status: Heavy, medium, and light users and nonusers of a product Heavy, medium, and light users and nonusers of a product  Usage occasions

7-14 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Segmenting B2B Markets  Segmentation helps B2B firms understand the needs and characteristics of potential customers  Firms can be segmented by: Organizational demographics Organizational demographics Production technology used Production technology used Whether customer is a user or nonuser of product Whether customer is a user or nonuser of product

7-15 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Targeting: A strategy in which marketers evaluate the attractiveness of each potential segment and decide in which segment they will invest resources to try to turn them into customers A strategy in which marketers evaluate the attractiveness of each potential segment and decide in which segment they will invest resources to try to turn them into customers The customer group(s) selected are referred to as the target market The customer group(s) selected are referred to as the target market Steps in the Target Marketing Process Step 2: Targeting

7-16 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Evaluation of Market Segments  A viable target segment should: Have members with similar product needs or wants who are different from members of other segments Have members with similar product needs or wants who are different from members of other segments Be measurable in size and purchasing power Be measurable in size and purchasing power Be large enough to be profitable Be large enough to be profitable Be reachable by marketing communications Be reachable by marketing communications Have needs the marketer can adequately serve Have needs the marketer can adequately serve

7-17 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Developing Segment Profiles  After segments are identified, profiles or descriptions of the “typical” customer in a segment are developed: Segment profiles might include demographics, location, lifestyle, and product-usage characteristics Segment profiles might include demographics, location, lifestyle, and product-usage characteristics

7-18 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Choosing a Targeting Strategy  Undifferentiated targeting strategy: Appeals to a broad spectrum of people Appeals to a broad spectrum of people  Differentiated targeting strategy: Develops one or more products for each of several customer groups Develops one or more products for each of several customer groups  Concentrated targeting strategy: Offers one or more products to a single segment Offers one or more products to a single segment

7-19 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Choosing a Targeting Strategy  Custom marketing strategy: Tailors specific products to individual customers Tailors specific products to individual customers Common in personal and professional services, and in industrial marketing Common in personal and professional services, and in industrial marketing Mass customization Modifies a basic good or service to meet the needs of an individual Mass customization Modifies a basic good or service to meet the needs of an individual

7-20 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Positioning Developing a marketing strategy to influence how a particular market segment perceives a good/service in comparison to the competition Steps in the Target Marketing Process Step 3: Positioning

7-21 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Steps in Positioning  Analyze competitors’ positions  Define your competitive advantage  Finalize the marketing mix by matching mix elements to the selected segment  Evaluate target market’s responses and modify strategies as needed

7-22 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Modifying Positioning Strategies  Repositioning is commonly used to change the brand image Requires redoing a product’s position in response to marketplace changes Requires redoing a product’s position in response to marketplace changes  Repositioning may breathe life into retro brands A once-popular brand that has been revived to experience a popularity comeback, often by riding a wave of nostalgia A once-popular brand that has been revived to experience a popularity comeback, often by riding a wave of nostalgia

7-23 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. The Brand Personality  Brand personality A distinctive image that captures the brand’s character and benefits  Perceptual map: A technique used to visually describe where products or brands are “located” in consumers’ minds relative to competing brands A technique used to visually describe where products or brands are “located” in consumers’ minds relative to competing brands

7-24 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Customer Relationship Management (CRM): Toward a Segment of One  Customer relationship management A systematic tracking of consumers’ preferences and behaviors over time in order to tailor the value proposition as closely as possible to each individual’s unique wants and needs A systematic tracking of consumers’ preferences and behaviors over time in order to tailor the value proposition as closely as possible to each individual’s unique wants and needs  CRM facilitates one-to-one marketing

7-25 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Four Steps in One-to-One Marketing  Identify customers and get to know them in as much detail as possible  Differentiate customers by their needs and value to the company  Interact with customers, and find ways to improve cost efficiency and the effectiveness of the interaction  Customize some aspect of the products you offer each customer

7-26 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. CRM: A New Perspective on an Old Problem  CRM systems use computers, software, databases, and the Internet to capture information at each touchpoint Touchpoints are any direct interface between customers and a company (online, by phone, in person, etc.) Touchpoints are any direct interface between customers and a company (online, by phone, in person, etc.)

7-27 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Characteristics of CRM  Share of customer  Lifetime value of the customer  Customer equity  Focus on high-value customers

7-28 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Real People, Real Choices: Decision Made at NutriSystems, Inc.  Jim chose option 3 Why do you think Sprout chose to target both current viewers and nonviewers with the same brand awareness campaign? Why do you think Sprout chose to target both current viewers and nonviewers with the same brand awareness campaign?

7-29 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Keeping It Real: Fast-Forward to Next Class Decision Time at Bossa Nova Beverage Company  Meet Palo Hawken, co-founder and VP of research and innovation at Bossa Nova Beverage Company  Firm markets premium guarana flavored carbonated energy drinks  The decision to be made includes: How to fit the new acai juice into the current product line

7-30 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America