Chapter Six Market Segmentation

Chapter Objectives Identify the rationale for using a target marketing strategy. Identify the bases for consumer segmentation. Identify the requirements necessary for effective market segmentation. Describe the three targeting strategies used by companies. Describe the six positioning strategies. Identify the rationale for using a target marketing strategy. Identify the bases for consumer segmentation. Identify the requirements necessary for effective market segmentation. Describe the three targeting strategies used by companies. Describe the six positioning strategies.

The Market Segmentation Targeting Positioning Consumers are numerous and their needs and wants are too diverse. Why Market Segmentation? Market Segmentation

Market segmentation involves identifying consumers who are similar with regard to key traits, such as product-related needs and wants, and who would respond well to a similar marketing mix. The company can then produce products that meet the precise needs and wants of target consumers. Important Important: Segment has to be large enough and stable over time Segment has to be “homogenous within, heterogeneous between” Most companies use more than one type of segmentation Firms categorize potential consumers into segments. The three levels of segmentation are Mass marketing, Segment marketing and Micromarketing. Market segmentation involves identifying consumers who are similar with regard to key traits, such as product-related needs and wants, and who would respond well to a similar marketing mix. The company can then produce products that meet the precise needs and wants of target consumers. Important Important: Segment has to be large enough and stable over time Segment has to be “homogenous within, heterogeneous between” Most companies use more than one type of segmentation Firms categorize potential consumers into segments. The three levels of segmentation are Mass marketing, Segment marketing and Micromarketing.

Bases for Segmentation - Benefit - Usage rate - User status - Loyalty status - Buyer readiness - Occasion - Geographic - Psychographic - Age - Gender - Ethnicity - Income - Education - Occupation - Behavioral - Demographic Consumers

Geographic Segmentation Segmentation is based on geographic location, such as region, state, or city. Small companies normally focus on markets in close proximity. Often used by retailers Often used by small businesses Oldest segmentation base* Segmentation is based on geographic location, such as region, state, or city. Small companies normally focus on markets in close proximity. Often used by retailers Often used by small businesses Oldest segmentation base*

Demographic Segmentation Based on statistics that describe the population, e.g., age, gender, life-cycle stage, etc. Reasoning Reasoning: –Segments respond differently to different combinations of the 4 P’s. Therefore, in order to target segments more efficiently, marketers need to know their characteristics. Example Example: –Clothing, cosmetics, and hair products are tailored based on gender and age, as well as income. Most popular segmentation base* Based on statistics that describe the population, e.g., age, gender, life-cycle stage, etc. Reasoning Reasoning: –Segments respond differently to different combinations of the 4 P’s. Therefore, in order to target segments more efficiently, marketers need to know their characteristics. Example Example: –Clothing, cosmetics, and hair products are tailored based on gender and age, as well as income. Most popular segmentation base*

Psychographic Segmentation Demographics are closely linked to psychographics, which include lifestyle, values, attitudes, interests, and opinions. The VALS2 typology provided by SRI Consulting Business Intelligence segments consumers psychographically. Demographics are closely linked to psychographics, which include lifestyle, values, attitudes, interests, and opinions. The VALS2 typology provided by SRI Consulting Business Intelligence segments consumers psychographically.

Behavioral Segmentation Benefit segmentationBenefit segmentation Based on important differences between the benefits sought You need to understand the consumers’ motivation to send the right signals! Usage rate segmentationUsage rate segmentation Based on the extent to which consumers are nonusers, occasional users, medium users, and heavy users Allocate resources for new products primarily to heavy users (prime target) Benefit segmentationBenefit segmentation Based on important differences between the benefits sought You need to understand the consumers’ motivation to send the right signals! Usage rate segmentationUsage rate segmentation Based on the extent to which consumers are nonusers, occasional users, medium users, and heavy users Allocate resources for new products primarily to heavy users (prime target)

Behavioral Segmentation (cont.) User status segmentationUser status segmentation Users of competitors’ products, ex-users, potential users, first- time users, and regular users Don’t focus marketing efforts on regular users only... new users can offer great potential. Loyalty status segmentationLoyalty status segmentation Degree of brand preference, commitment, retention, allegiance, and the extent to which consumers engage in repeat purchase By consistently providing high quality, a company can gain valuable customers. Buyer-readiness stage segmentationBuyer-readiness stage segmentation Based on individuals’ stage of readiness to buy the product Some consumers might not even be aware of product, some can’t afford it, others don’t need it, etc. User status segmentationUser status segmentation Users of competitors’ products, ex-users, potential users, first- time users, and regular users Don’t focus marketing efforts on regular users only... new users can offer great potential. Loyalty status segmentationLoyalty status segmentation Degree of brand preference, commitment, retention, allegiance, and the extent to which consumers engage in repeat purchase By consistently providing high quality, a company can gain valuable customers. Buyer-readiness stage segmentationBuyer-readiness stage segmentation Based on individuals’ stage of readiness to buy the product Some consumers might not even be aware of product, some can’t afford it, others don’t need it, etc.

Behavioral Segmentation (cont.) Occasion segmentationOccasion segmentation Based on the time or the occasion when the product should be purchased or consumed Examples Examples: –On Halloween, candy is sold in large packages that include small portions. –On Valentine’s Day, candy is presented in red and heart shaped packages. Occasion segmentationOccasion segmentation Based on the time or the occasion when the product should be purchased or consumed Examples Examples: –On Halloween, candy is sold in large packages that include small portions. –On Valentine’s Day, candy is presented in red and heart shaped packages. *Note segmentation for services Business markets can also be segmented according to geographic location, behavioral dimensions, buyer readiness stage, degree of loyalty, and other dimensions.

Requirements for Successful Segmentation MeasurabilityMeasurability: –The ability to identify segment and to estimate its size SubstantialitySubstantiality: –The segment should be large enough that investment will yield a profit. StabilityStability: –The stability of consumer segment preferences over time AccessibilityAccessibility: –The ability of the company to communicate with the target market ActionabilityActionability: –The ability of the company to design effective programs that can effectively serve the market Differential responseDifferential response: –The segment should respond differently to strategies than other segments. MeasurabilityMeasurability: –The ability to identify segment and to estimate its size SubstantialitySubstantiality: –The segment should be large enough that investment will yield a profit. StabilityStability: –The stability of consumer segment preferences over time AccessibilityAccessibility: –The ability of the company to communicate with the target market ActionabilityActionability: –The ability of the company to design effective programs that can effectively serve the market Differential responseDifferential response: –The segment should respond differently to strategies than other segments. Target Marketing Decisions Differentiated ConcentratedUndifferentiated

Positioning the Brand Positioning entails placing the brand in the consumer’s mind in relation to other competing products. Positioning entailsPositioning entails: –Identifying competitors –Determining how the competitors are perceived and evaluated by target consumers –Determining the competitors’ positions in the consumers’ mind –Analyzing the customers –Selecting the position –Monitoring position Positioning entails placing the brand in the consumer’s mind in relation to other competing products. Positioning entailsPositioning entails: –Identifying competitors –Determining how the competitors are perceived and evaluated by target consumers –Determining the competitors’ positions in the consumers’ mind –Analyzing the customers –Selecting the position –Monitoring position

Attribute/Benefit Positioning Attribute 1 Benefit 1 Consumers’ perceived position of product relative to competitors’ product

Positioning by Perceptions and Preferences

Positioning the Brand (cont.) Additional Positioning Strategies Price/Quality Positioning Use or Application Positioning Product User Positioning Product Class Positioning Competitor Positioning Price/Quality Positioning Use or Application Positioning Product User Positioning Product Class Positioning Competitor Positioning Source: Courtesy of Bozell Worldwide, Inc. as agent for the National Fluid Milk Processor Promotion Board.