TIØ4165 Marketing Management Segmentation and Targets Arild Aspelund IØT, NTNU

Emerging Trends in Consumer Behavior Metrosexual – Straight urban man who enjoys shopping and using grooming products

Outline The purpose of segmentation Levels of segmentation Categories of segmentation variables Segmentation process and criteria Cost considerations

Why Segmentation? Properties of ”mass markets” makes it hard to earn above-average rent on merely selling products to customers This is due to the unfortunate economic postulate that prices in the long run tend to equal marginal costs of production in perfect markets; that is… Homogeneous products Perfect information symmetry Perfect competition No “friction” or switching costs It is therefore paramount to Clearly identify your segment – where the customer that are willing to pay a disproportional high price in sufficient volumes Differentiate your product to offer superior value to your key segments Monopolize your key segments through Shade information Create favorable customer preferences Loyalty

Levels of Segmentation Mass marketing Volumes to the masses! Segment marketing Group of customers that share a similar set of needs and wants Niche marketing Group of customers that share the same distinctive mix of benefits Local marketing Tailored to meet the needs and wants of a local customer group

Levels of Segmentation - Mass Marketing No customization or market adoption Cost oriented Volumes to the masses! Are there any examples of this in the modern Norwegian economy?

Levels of Segmentation - Segment Marketing Groups of customers that share needs and wants

Levels of Segmentation - Segment Marketing

Levels of Segmentation - Niche Marketing Targeting a narrowly defined customer group seeking a distinctive mix of benefits Often identified by sub-segments

Levels of Segmentation - Local Marketing Tailored to meet the needs and wants of a local customer group Endeavors to get as close and personally relevant to individual customers as possible An increasing trend in terms of “glocalization” and “customerization”

Segmentation of Consumers Geographic Demographic Psychographic Behavioral

Geographic Segmentation Dividing the market into multiple geographical units Nations , states, regions, counties, cities or neighborhoods Firms may operate in only one, a few or all, but adopts local variations Many areas may have similarities and knowledge of such are valuable Are there any similarities in the localization of new consumer concepts such as Lidl?

Demographic Segmentation Age and life-cycle stage People’s needs and preferences change with age and life-cycle stage Defining the persons major concern Gender No, in terms of consumer behavior we are not equal… Income Goes without saying. Think of Maslow’s hierarchy… Generation Generations share experiences, and to some extent outlooks and values Social class A reference to Maslow again…

Psychographic Segmentation The VALS Segmentation System

Behavioral Segmentation Decision Roles Initiator, Influencer, Decider, Buyer, User Behavioral Variables Occasions Benefits or value orientation User status Nonusers, ex-users, potential users, first-time users and regular users Usage rate Buyer – readiness stage Loyalty status Hard-core loyals, split loyals, shifting loyals, and switchers Attitude Enthusiastics, positive, indifferent, negative, and hostile

Behavioral Segmentation

Segmentation Process Needs-based segmentation Segment identification Segment attractiveness Segment profitability Segment positioning Segment acid test Marketing-Mix Strategy

Effective Segmentation Criteria Measurable Can you measure your key variables? Substantial Is it large and profitable enough? Accessible Can they be effectively reached and served? Differentiable Are they conceptually different from other groups and do they respond differently to marketing actions? Actionable Can you design an effective targeting program for attracting attention, communicating and serving the target segment

Selecting Target Markets I

Selecting Target Markets II

Selecting Target Markets III

Cost Considerations Segmentation and targeting most likely increase sales, but also inflict costs in terms of Product modification costs Manufacturing costs Administrative costs Inventory costs Promotion costs It is often nicer to think of increase of revenues per new customer, but a top manager would worry about new customer costs inflicted over the whole value chain

Segmentation Some typical examples of firms and their segments Volvo Toyota Body Shop

Summary and Continuation We have established an argument of why segmentation is a valuable tool in terms of increasing profitability We have identified categories of segmentation variables We have also presented some features of good segmentation variables and a feasible way of conducting market segmentation Finally, we have touched upon the concept of targeting through the process of selecting market segments Continuation Positioning and competition