Market Segmentation and Strategic Targeting CHAPTER THREE Market Segmentation and Strategic Targeting

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Learning Objectives To Understand Why Market Segmentation Is Essential. To Understand the Criteria for Targeting Selected Segments Effectively. To Understand the Bases for Segmenting Consumers. To Understand How Segmentation and Strategic Targeting Are Carried Out. Here is an outline of the topics for Chapter Three. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

What Kind of Consumer Does This Ad Target? Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall This Ad Targets Runners Who Are Physically Active People and Also Relish the Outdoors. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Why Segmentation is Necessary Consumer needs differs Differentiation helps products compete Segmentation helps identify media Not all consumers are alike – different customers have different needs. By segmenting the market and choosing target markets, companies can differentiate their products to provide the benefits that the segments desire. Once a marketer has identified their segment, they can choose media that is targeted to that segment for their advertising. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Positioning The value proposition, expressed through promotion, stating the product’s or service’s capacity to deliver specific benefits. Positioning is the unifying element of each marketing mix. Product, place, price, and promotional strategies must work to state the product or service’s ability to deliver benefits to the consumer. Positioning is discussed in more detail in Chapter 6, but it is important to think about the concept as it is closely tied to the choice of a target market. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Criteria for Effective Targeting Identifiable Sizeable Stable Accessible Congruent with the company’s objectives and resources There are five criteria for effective targeting, as shown on the slide. First of all, the target must be identifiable. This means that the marketer must be able to see or find the characteristic they have chosen for segmentation. The segment must also be sizeable. It must be large enough to be profitable to the marketer. A stable segment means that the consumers are not “fickle” and likely to change very quickly. A group of consumers must be accessible to be targeted. The marketer must be able to reach that market in an affordable way. Finally, the target must be congruent with the company’s objectives and resources. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Which Distinct Benefit Does Each of the Two Brands Shown in This Figure Deliver? Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall The Dentyne Ad’s Benefit is Fresh Breath and the Nicorette Ad is Whitening and Smoking Cessation Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Bases for Segmentation This two-by-two matrix is important for understanding types of segmentation schemes. It is possible to break segmentation into two broad groups – those that are based on the consumers themselves and those that are based on the consumers’ interaction or potential interaction with the product and are therefore consumption based. Within each of these two larger types of schemes, segmentation variables can be considered to be based on facts or what is absolutely known and measureable about the consumer versus cognitions, which are abstract and can be determined only through more complex questioning. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Discussion Questions Considering the largest bank in your college’s city or town: How might consumers’ needs differ? What types of products might meet their needs? What advertising media makes sense for the different segments of consumers? Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Consumer-Rooted Segmentation Bases Demographics Geodemographic Personality Traits Lifestyles Sociocultural Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Demographic Segmentation Age Gender Marital Status Family Life-cycle Income, Education, and Occupation Demographics are the core of almost all segmentation because they are easy and logical. In addition, they are a cost-effective way to reach segments and demographic shifts are easier to identify than other types of shifts. When researching segmentation and media exposure, a consumer researcher will learn that media exposure is often directly related to demographics. Age segmentation includes segments such as the baby boomers and generations X and Y. Family life-cycle is based on the premise that many families pass through similar phases in their lives and share major life events such as moving, marriage, birth of a child, and retirement. Income, education, and occupation tend to tie together and lead to segmentation based on social class. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Discussion Questions What types of marketers might segment according to social class? What ethical issues might marketers have when marketing to different social classes? Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Geodemographic Segmentation Based on geography and demographics People who live close to one another are similar “Birds of a feather flock together” Geodemographic segmentation is a popular use of geography in targeting. People who live close to one another are likely to be similar in tastes, incomes, lifestyles and consumption. They might eat similar foods, like the same movies, and take the same types of vacations. This web link is to Claritas’ Prizm classifications. If you enter your zip code, you can find out which Prizm clusters are in your area. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

One PRIZM Segment - Table 3.4 (excerpt) MOVERS & SHAKERS 1.59 of U.S. households, Median household income: $95,372, Predominant employment: Professional Social group: Elite suburbs, Life stage group: Midlife success, Key education level: College grad+ Adult age range: 35–64 CHARACTERISTICS Movers & Shakers is home to America’s up-and-coming business class: a wealthy suburban world of dual-income couples who are highly educated, typically between the ages of 35 and 54 and often with children. Given its high percentage of executives and white-collar professionals, there’s a decided business bent to this segment: Movers & Shakers rank number-one for owning a small business and having a home office. LIFESTYLE TRAITS: Go scuba diving/snorkeling, Plan travel on the Internet Read PC Magazine, Listen to adult contemporary radio Drive a Porsche This is one of four PRIZM segments that are shown in the text. The other two are the New Empty Nests, The Boomtown Singles, and Bedrock America. Each one is described by where they live, their income, their lifestyle traits, and characteristics. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Personality Traits People often do not identify these traits because they are guarded or not consciously recognized Consumer innovators Open minded Perceive less risk in trying new things Personality traits help us identify what segments are valuable to marketers. For instance, if an innovator also classifies themselves high on an “exhibition” personality trait, it means they want to be the center of a group and might be important as these are the type of innovators to spread word-of-mouth messages regarding new products and services. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Lifestyles Psychographics Includes activities, interests, and opinions They explain buyer’s purchase decisions and choices Demographics will tell us the consumer’s ability to buy them and will work for segmentation of basic products, but psychographics or lifestyles are based on consumer’s values. These shared values, interests, activities, opinions, and interests are an effective way to explain buyers’ purchase decisions. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Discussion Questions How might you differ from a person with similar demographics to yourself? How would this be important for marketers? Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Two Views of Post-Retirement Lifestyle Table 3.6 (excerpt) AS AN OPPORTUNITY TO MAKE A NEW START This group regards retirement as an exciting time. Work will have been largely unrewarding, so the transition is seen as a freedom from the constraints of their former role. Retirement will invigorate such people and inspire them toward undertaking activities that work largely prevented them from pursuing. AS A CONTINUATION OF THEIR PRE-RETIREMENT LIFESTYLE To such people, retirement is not perceived as signaling a drastic change. Work life has not been as unsatisfying as for others, hence its ending is not greeted with euphoria. There is, however, some satisfaction that retirement permits more opportunity to devote time to existing activities outside of their working role. The future is likely to see an increase in such activities but no real desire to engage in new ones. These are two of the four views presented in the book in Table 3.6. In this segmentation by lifestyle, you will have two individuals with similar demographics who share a very different view of this stage of the family life-cycle. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall VALS – Figure 3.4 VALS is the most popular segmentation system that combines lifestyles and values. You can see how it is related to Maslow’s hierarchy of needs and the concept of social character. The system looks at three primary motivations and then the resources that individuals might have to draw upon. The lower resource consumer is at the bottom and labeled survivors while the highest resource consumer is often the innovator. We will talk about innovators in later chapters who are similar to this innovator. This web link will take you to the VALS website so you can see where you are classified. If you are a full-time student, run the survey twice – once with your own salary and once with your parents’. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Socio-Cultural Values and Beliefs Sociological = group Anthropological = cultural Include segments based on Cultural values Sub-cultural membership Cross-cultural affiliations An American might identify with common American cultural values, such as fitness and health but also with sub-cultural values if they are Hispanic or Asian Americans. In this global world, marketers must often think cross-culturally, including many countries and more global marketing segmentation. A consumer may be cross-cultural if they were born in one country and are now living in another. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Consumption-Specific Segmentation Bases Usage rate Usage situation Benefit segmentation Perceived brand loyalty Brand relationship Consumption-specific bases include facts about actual consumption behavior and cognitions consumers have about products and services in the form of attitudes and preferences. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Consumption-Specific Segmentation Usage-Behavior Usage rate Awareness status Level of involvement Usage rate is often based on whether a group of consumers are heavy, medium, light, or nonusers of a product. Many marketers target the heavy consumers since they are often the most loyal and account for the largest portion of sales. A company with a strong growth objective might target the other usage segments to fuel their growth in the marketplace. Furthermore, a marketer might target those who are unaware of their product in order to start the process that could lead to purchase. Level of involvement is discussed in future slides when we reach Chapter seven. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Consumption-Specific Segmentation Usage-Behavior Usage-situation segmentation Segmenting on the basis of special occasions or situations Example : When I’m away on business, I try to stay at a suites hotel. Usage rate or amount is important to some marketers, but it might also be worth considering WHEN a given product is used. This is the basis for a usage-situation segmentation opportunity. People might consume certain products for special events, certain days of the week, or certain times during the year. Think of the rise of sales in chocolate and flowers for Valentine’s Day. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Which Consumption-Related Segmentation Is Featured in This Ad? Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

This is an Example of a Situational Special Usage Segmentation. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Benefits Segmentation Benefits sought represent consumer needs Important for positioning Benefits of media In many ways, segmentation is tied to the benefits that a group desires from your product or service. Knowing these benefits is important for positioning your product in the minds of the consumer. Consumers are constantly weighing the benefits of different types of media and noticing that digital media might be preferred in immediacy and accessibility but that traditional media often provides more depth and details. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide 28

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Benefits Visiting Tourists Seek in National Park – Table 3.13 (excerpt) Segment Description Environmentalists Interested in an unpolluted, un-spoilt natural environment and in conservation. Not interested in socializing, entertainment, or sports. Desire authenticity and less man-made structures and vehicles in the park. Want-it-all Tourists Value socializing and entertainment more than conservation. Interested in more activities and opportunities for meeting other tourists. Do not mind the “urbanization” of some park sections. Independent Tourists Looking for calm and unpolluted environment, exploring the park by themselves, and staying at a comfortable place to relax. Influenced by word of mouth in choosing travel destinations. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Brand Loyalty and Relationships Brand loyalty includes: Behavior Attitude Frequency award programs are popular Customer relationships can be active or passive Retail customers seek: Personal connections vs. functional features Banking customers seek: Special treatment Confidence benefits Social benefits Brand loyalty includes the behavior to the brand – how often somebody purchases the brand, in addition to the attitude or feeling the consumer has to a brand. Many companies have frequency award or loyalty programs where loyal customers receive rewards and benefits for purchasing often. Customer relationships are very complex and differ based on commitment by the customers, their sense of loyalty, their expectations of specialty treatment, their confidence in the company, and how they are treated by staff and employees from the company. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Implementing Segmentation Strategies Micro- and behavioral targeting Personalized advertising messages Narrowcasting Email Mobile Use of many data sources Micro-targeted began in 2004 and is growing field within marketing. It is growing due to the marketer’s ability to use complex databases and personalized media including email and mobile phones. Micro-targeting focuses on delivering a personalized advertising message to the user whether they are at work, at home, or on-the-go. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Sample Acxiom Clusters - Table 3.16 (excerpt) Shooting Stars Still relatively young at a mean age of 36, and with top rankings for income, college education, home value and net worth, these consumers have the world by the tail. Feeling financially secure with large investment portfolios, Shooting Stars spend their disposable Income making life a comfortable one, focusing on health, exercise, gourmet food, golf, and travel. Tots & Toys Two things—work and family—consume these professional working couples. They’re putting their college degrees into action, climbing the corporate ladder for lucrative careers, while saving for their children’s education through do-it-yourself home improvements and trips to the zoo for entertainment. With time at a premium, it’s not surprising that the radio is the most relied-upon source for news and entertainment. Acxiom is a major company involved in profiling customers and providing marketers with data. Like VALS and PRIZM, they have created segments or clusters for marketers. This table shows three sample clusters, including shooting stars, tots & toys, and Mid Americana. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Implementing Segmentation Strategies Concentrated Marketing One segment Differentiated Several segments with individual marketing mixes Countersegmentation Concentrated marketing usually involves only one segment, whereas a differentiated marketing strategy is targeting several segments with individual marketing mixes. Differentiated marketing is usually used by financially strong companies that are well established in their market sector. Countersegmentation involves combining existing segments for a company to become more efficient and profitable. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide

Copyright © 2010 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. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter Three Slide