Segmenting and Targeting Markets 6 Canadian Adaptation prepared by Don Hill, Langara College

Learning Objectives 1. Describe the characteristics of markets and market segments 2. Explain the importance of market segmentation 3. Discuss criteria for successful market segmentation

Learning Objectives (continued) 4. Describe the bases commonly used to segment consumer markets 5. Describe the bases for segmenting business markets 6. List the steps involved in segmenting markets

Learning Objectives (continued) 7. Discuss alternative strategies for selecting target markets 8. Explain one-to-one marketing 9. Discuss the forces that have influenced the emergence of one-to-one marketing

Learning Objectives (continued) 10. Discuss privacy issues related to one-to-one marketing 11. Explain how and why firms implement positioning strategies and how product differentiation plays a role

Chapter 7 Learning Objective Describe the characteristics of markets and market segments 1 Online Alliance Atlantis Communications How many different TV channels does Alliance Atlantis have? What “market” segments do you think each of these particular channels would appeal to? What other products and services do they have that might be of interest to Canadian marketers? Online www.allianceatlantis.com www.slice.ca 1

Market Segmentation Market Segment Segmentation People or organizations with needs or wants and the ability and willingness to buy A subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. The process of dividing a market into meaningful, relatively similar, identifiable segments or groups. 1

Chapter 7 A Market Is... (1) people or organizations with (2) needs or wants, and with (3) the ability and (4) the willingness to buy. A group of people that lacks any one of these characteristics is not a market. Notes: All markets share several characteristics, as outlined on this slide. Within a market, a market segment is a subgroup of people or organizations with one or more common characteristics that cause them to have similar product needs. Market segmentation is the division of a market into meaningful, identifiable segments or groups. 1

The Concept of Market Segmentation Chapter 7 The Concept of Market Segmentation 1

Learning Objective 2 Explain the importance of market segmentation 2

The Importance of Market Segmentation Chapter 7 The Importance of Market Segmentation Markets have a variety of product needs and preferences Marketers can better define customer needs Decision makers can define objectives and allocate resources more accurately Notes: Until the 1960s, market segmentation was not used extensively. Consider Coca-Cola with its one product aimed at the entire soft drink market. Today over a dozen different products are marketed to different market segments. Market segmentation plays a key role in the marketing strategy of organizations, with the benefits as described on this slide, leading to competitive advantage. Discussion/Team Activity: Discuss how Coca-Cola’s product lines fit the needs of different market segments. 2

The Importance of Market Segmentation Chapter 7 The Importance of Market Segmentation Market segmentation More precise definition of customers needs and wants More accurate marketing objectives Improved resource allocation Better marketing results 2

Learning Objective Discuss criteria for successful market segmentation 3 3

Criteria for Segmentation Chapter 7 Criteria for Segmentation Substantiality Identifiability Measurability Accessibility Responsiveness Segment must be large enough to warrant a special marketing mix. Segments must be identifiable and their size measurable. Members of targeted segments must be reachable with marketing mix. Unless segment responds to a marketing mix differently, no separate treatment is needed. Notes: Markets are segmented for three reasons: Segmentation enables the identification of groups of customers with similar needs, and the analysis of the buying behaviour of these groups. Segmentation provides information for the specific matching of the design of marketing mixes with the characteristics of the segment. Segmentation helps marketers satisfy customers wants and needs while meeting the organization’s objectives. A segmentation scheme must produce segments that meet the four basic criteria as defined above. 3

Criteria For Successful Segmentation Chapter 7 Criteria For Successful Segmentation 3

Learning Objective 4 Describe the bases commonly used to segment consumer markets 4

Segmentation Bases Segmentation Bases Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables) 4

Bases for Segmentation Chapter 7 Bases for Segmentation Usage Rate Benefits Sought Psychographics Demographics Geography Online Too Faced Cosmetics Visit the various pages on the Too Faced Web site. What demographic group (age, ethnicity, etc.) do you think this new cosmetic company is targeting? Notes: One or more of the characteristics listed above is used to segment markets. Online http://www.toofaced.com 4

Bases for Segmentation 4

Geographic Segmentation Chapter 7 Geographic Segmentation Geographic Segmentation Segmenting markets by region of the country or world, market size, market density, or climate. 4

Geographic Segmentation Chapter 7 Geographic Segmentation Region of the country or world Market size Market density Climate Notes: Geographic segmentation of markets is based on the region, market size, market density (number of people within a unit of land), or climate. 4

Benefits of Regional Segmentation Chapter 7 Benefits of Regional Segmentation New ways to generate sales in sluggish and competitive markets Scanner data allow assessment of best selling brands in region Regional brands appeal to local preferences React more quickly to competition 4

Demographic Segmentation Chapter 7 Demographic Segmentation Demographic Segmentation Segmenting markets by age, gender, income, ethnic background, and family life cycle 4

Bases for Demographic Segmentation Chapter 7 Bases for Demographic Segmentation Age Gender Income Ethnic background Family life cycle Video RadioShack Segmentation choices play out in the advertising messages that companies use. Watch the ad for RadioShack and decide which segmentation variables are used to target its products. Notes: Demographic information is widely available and often related to consumer behaviour and buying. Some common bases are age, gender, income, ethnic background, and family life cycle. 4

Age Segmentation Young children under age 9 Tweens Teens Young adults Chapter 7 Age Segmentation Young children Tweens Teens Young adults Baby boomers under age 9 ages 10 to 14 ages 15 to 19 ages 20 to 34 ages 43 to 61 Seniors ages 65 and over 4

Gender Segmentation Canadian population breakdown is; Chapter 7 Gender Segmentation Canadian population breakdown is; 49.5% men 50.5% women Not equal in all age groups; More men in all age groups under 45 More women in over 45 age groups 4

Chapter 7 Income Segmentation Average family income for Canada was $78,400 (2005) Average family expenditures were $66,857 Major Breakdown; Income taxes 20.4% Shelter 18.4% Transportation 13.6% Food 10.7% Recreation 5.9% 4

Ethnic Background Largest Canadian ethnic markets are: European Chapter 7 Ethnic Background Largest Canadian ethnic markets are: European Oriental Black In 2001 visible minorities totaled 13.7% of the Canadian population 4

Family Life Cycle Age Marital Status Children 4 Online Chapter 7 Family Life Cycle Age Marital Status Children Video Dodge Segmentation choices play out in the advertising messages that companies use. Watch this ad for Dodge and decide which segmentation variables it uses to target their products. Notes: Consumption patterns among people of the same age and gender differ because of differences in the family life cycle stage. The FLC is a series of stages determined by a combination of age, marital status, and the presence or absence of children. Online www.reachadvisors.com 4

Family Life Cycle 4 Chapter 7 Discussion/Team Activity: Find examples of advertisements that target different stages of the family life cycle. 4

Psychographic Segmentation Chapter 7 Psychographic Segmentation Psychographic Segmentation Market segmentation on the basis of personality, motives, lifestyles, and geodemographics. 4

Bases for Psychographic Segmentation Chapter 7 Bases for Psychographic Segmentation Personality Motives Lifestyles Geodemographics Video Tostitos Segmentation choices play out in the advertising messages that companies use. Watch this ad for Tostitos and decide which segmentation variables are used. Online Canadian Living Use psychographic segmentation to classify the kinds of consumers who would be interested in the information and promotions offered at Canadian Living online. Notes: Demographic segmentation provides the “skeleton,” but psychographic segmentation adds “meat to the bones.” Personality reflects a person’s traits, attitudes, and habits. Consider the personality types that describe segmented Porsche buyers. Motives: Carmakers appeal to customers with status-related motives, whereas baby products appeal to emotional motives. Lifestyles and geodemographics are described on subsequent slides. Online www.canadianliving.com 4

Lifestyle Segmentation Chapter 7 Lifestyle Segmentation How time is spent Importance of things around them Beliefs Socioeconomic characteristics Notes: Lifestyle segmentation divides people into groups according to how time is spent, the importance of things around them, beliefs, and socioeconomic characteristics such as income and education. For example, Harley-Davidson divides its customers into seven lifestyle segments, ranging from arrogant troublemakers to classy capitalists with wealth. 4

Geodemographic Segmentation Chapter 7 Geodemographic Segmentation Geodemographic Segmentation Segmenting potential customers into neighborhood lifestyle categories. Combines geographic, demographic, and lifestyle segmentation. 4

Benefit Segmentation Benefit Segmentation Chapter 7 Benefit Segmentation Benefit Segmentation The process of grouping customers into market segments according to the benefits they seek from the product. Notes: Most segmentation is based on the assumption that the selected variable(s) and customers’ needs are related. On the other hand, benefit segmentation groups potential customers on the basis of their needs or wants. 4

Benefit Segmentation of the Snack-Food Market Chapter 7 Benefit Segmentation of the Snack-Food Market % of Snackers Lifestyle Character-istics Benefits Sought Consump-tion Level Nutritional Snackers 22% Self-assured, controlled Nutritious w/o artificial ingredients Light Weight Watchers 14% Outdoorsy, influential, venturesome Low in calories, quick Guilty Snackers 9% Highly anxious, isolated Low in calories, good tasting Heavy 4

Usage-Rate Segmentation Chapter 7 Usage-Rate Segmentation Usage-Rate Segmentation Dividing a market by the amount of product bought or consumed. 4

The 80/20 Principle 80 / 20 Principle Chapter 7 The 80/20 Principle 80 / 20 Principle A principle holding that 20 percent of all customers generate 80 percent of the demand. Notes: Segmenting by usage rate enables marketers to focus efforts on heavy users or to develop multiple marketing mixes aimed at different segments. The focus of marketing is often on the heavy-user segment, based on the 80/20 principle. Discussion/Team Activity: What programs do companies have to develop customers into heavy users? The list should include airline frequent flyer programs and in-store coupon dispensing. 4

Learning Objective Describe the bases for segmenting business markets Chapter 7 Learning Objective Describe the bases for segmenting business markets 5 Notes: The business market consists of four segments: Producers Resellers Institutions Government 5

Bases for Business Segmentation Chapter 7 Bases for Business Segmentation Online Atlas Overhead Doors How does Atlas Overhead Doors’ website differentiate between business and consumer market segments? (Hint: Click on the inquiry button). Explain what you find. atlasdoors.ca Notes: Company characteristics include geographic location, type of company, company size, and product use. The purchasing strategies of buyers provide useful segments. Two purchasing profiles are satisficers and optimizers. Satisficers contact familiar suppliers and place the order with the first one to satisfy product and delivery requirements. Optimizers consider numerous suppliers, obtain bids, and study all proposals before selecting one. Customer relationship building focuses on the type of relationship established with customers, such as the amount of revenue generated, and how cost-effective it is to serve particular customers. Online www.atlasdoors.ca 5

Buyer Characteristics Chapter 7 Buyer Characteristics Demographic characteristics Decision style Tolerance for risk Confidence level Job responsibilities Notes: The personal characteristics of the buyers influence their buying behaviour and offer a viable basis for segmenting some business markets. 5

Learning Objective List the steps involved in segmenting markets 6 6 Chapter 7 Learning Objective 6 List the steps involved in segmenting markets 6

Steps in Segmenting a Market Chapter 7 Steps in Segmenting a Market Select a market for study Choose bases for segmen-tation Select descrip-tors Profile and analyze segments Select target markets Design, imple- ment, maintain mkting mix Notes: The purpose of market segment is to identify marketing opportunities. This slide traces the steps in segmenting a market. Keep in mind that markets are dynamic and must be monitored proactively for changes in age, etc. 6

Chapter 7 Learning Objective Discuss alternative strategies for selecting target markets 7 7

Target Market Target Market Chapter 7 Target Market Target Market A group of people or organizations for which an organization designs, implements, and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges. Notes: Because most markets will include customers with different lifestyles, backgrounds, and income levels, it is unlikely that a single marketing mix will attract all segments of the market. 7

Strategies for Selecting Target Markets Chapter 7 Strategies for Selecting Target Markets Concentrated Strategy Undifferentiated Multisegment Online Barbie Look at Barbie.everythinggirl.com and Barbie collector.com. How are they linked together? How are these two sites different? The same? What targeting strategies can you identify on the respective sites? www.barbie.everythinggirl.com www.barbiecollector.com Notes: The three general strategies for selecting target markets are illustrated in Exhibit 7.4 and on this slide. A description of each follows. Online http://www.barbie.everythinggirl.com www.barbiecollector.com 7

Undifferentiated Targeting Strategy Chapter 7 Undifferentiated Targeting Strategy Undifferentiated Targeting Strategy Marketing approach that views the market as one big market with no individual segments and thus requires a single marketing mix. 7

Undifferentiated Targeting Strategy Chapter 7 Undifferentiated Targeting Strategy Advantages: Potential savings on production and marketing costs Disadvantages: Unimaginative product offerings Company more susceptible to competition Notes: The first firm in an industry sometimes uses an undifferentiated strategy. Consider Coca-Cola when it had a single product and a single size of its original soft drink. Marketers of commodity products, such as flour and sugar, are also likely to use this strategy. 7

Concentrated Targeting Strategy Chapter 7 Concentrated Targeting Strategy Concentrated Targeting Strategy A strategy used to select one segment of a market for targeting marketing efforts. Notes: A concentrated strategy of focusing on a narrow market is sometimes more profitable than spreading resources over several different segments. A concentrated strategy often enables small firms to compete effectively with much larger firms. 7

Niche Niche One segment of a market. 7 Chapter 7 Discussion/Team Activity: Identify firms that have adopted a niche strategy. Examples: Porsche, OshKosh B’Gosh, Orvis, Starbucks, AOL, Enterprise Rent-A-Car, and Hot Topic. 7

Concentrated Targeting Strategy Chapter 7 Concentrated Targeting Strategy Advantages: Concentration of resources Meets narrowly defined segment Small firms can compete Strong positioning Disadvantages: Segments too small, or changing Large competitors may market to niche segment 7

Multisegment Targeting Strategy Chapter 7 Multisegment Targeting Strategy Multisegment Targeting Strategy A strategy that chooses two or more well-defined market segments and develops a distinct marketing mix for each. Notes: Examples of multisegment targeting strategy include Stouffer’s—with its line of gourmet entrees, as well as Lean Cuisine for another segment. 7

Multisegment Targeting Strategy Chapter 7 Multisegment Targeting Strategy Advantages: Greater financial success Economies of scale Disadvantages: High costs Cannibalization 7

Costs of Multisegment Targeting Chapter 7 Costs of Multisegment Targeting Product design costs Production costs Promotion costs Inventory costs Marketing research costs Management costs Cannibalization 7

Cannibalization Cannibalization Chapter 7 Cannibalization Cannibalization Situation that occurs when sales of a new product cut into sales of a firm’s existing products. 7

Review: Alternative Strategies for Targeting 7

Chapter 7 Learning Objective 8 Explain one-to-one marketing 8

One-to-One Marketing One-to-One Marketing Chapter 7 One-to-One Marketing One-to-One Marketing An individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer. 8

What Is One-to-One Marketing? Information-Intensive Long-Term Oriented One-to-One Marketing is... Individualized Strong Relationships With a Goal of… Cost Reduction Profitability Personalized Customer loyalty 8

One-to-One Marketing One-to-One Marketing Mass Marketing Focuses on Share of Customer Develops Customers Finds Products for Customers Mass Marketing Focuses on Share of Market Develops Products Finds Customers for Products 8

One to One Marketing 8

Learning Objective Discuss the forces that have influenced the emergence of one-to-one marketing 9 9

Forces Influencing One-to-One Marketing Chapter 7 Forces Influencing One-to-One Marketing Online: CBC Visit CBC's website and sign on to become a member. How does CBC personalize its content? Can this action be considered one-to-one marketing? Why or why not? www.cbc.ca Notes: Forces that have helped shape the one-to-one focus on customers include the factors described on this slide: A more diverse society: Homes today no longer live the “Leave it to Beaver” life. Modern families are split into many smaller segments, and society has accepted that diversity. More demanding, time-poor consumers. The rise in the number of women in the workforce and the rise in single-parent households have contributed to a shortage of time to spend on anything but the most pressing details of their lives. Consumers have less time to shop, and more than two-thirds of the population order goods by phone, mail, or on-line. Decreasing brand loyalty. Consumers are likely to experiment with generics or switch between major brands. This decline can be attributed in part to couponing, trade deals, and deep price promotions. Additionally, the proliferation of available brand choices has led to a confusion about product differences or the lack of time to learn about each new brand. Price has become a major differentiation factor. Emergence of new media alternatives: Hundreds of available television channels and the power of the Internet are changing the face of mass-media advertising. Marketers are splitting their marketing dollars among the various media available, concentrating on the best bang for the buck. Demand for accountability: The impact of mass-media advertising on sales has always been difficult to measure. Management now wants proof that money spent on advertising and marketing will deliver results. Online www.cbc.ca 9

How have these Trends Influenced One-To-One Marketing? One-size-fits-all no longer fits Direct and personal marketing Deep price promotions Proliferation of brands 9

Learning Objective 10 Discuss privacy issues related to one-to-one marketing 10

Privacy Concerns with One-to-One Marketing Chapter 7 Privacy Concerns with One-to-One Marketing Invasion of Privacy Misunderstanding about privacy laws and regulations Popularity of Internet for data collection Unawareness of information collected Online Privacy Commissioner of Canada Visit the Privacy Commissioner of Canada website. What resources have been made available to marketers and businesspeople to help them comply with Canadian privacy laws? Take the privacy quiz to see how well you know your privacy rights. How did you do? www.privcom.gc.ca Online www.privcom.gc.ca 10

Privacy Issues 10

Learning Objective Explain how and why firms implement positioning strategies and how product differentiation plays a role 11 11

Chapter 7 Position Position The place a product, brand, or group of products occupies in consumers’ minds relative to competing offerings. 11

Effective Positioning Chapter 7 Effective Positioning Assess the positions occupied by competing products Determine the dimensions of these positions Choose an effective market position Online Use the Internet to see how the positionings of the whiskies listed in Exhibit 6.9 are reflected on the Johnnie Walker website. www.johnniewalker.com Online www.johnniewalker.com 11

Product Differentiation A positioning strategy that some firms use to distinguish their products from those of competitors. 11

Perceptual Mapping Perceptual Mapping A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds. 11

Positioning Bases Attribute Price and Quality Use or Application Chapter 7 Positioning Bases Attribute Price and Quality Use or Application Product User Product Class Competitor Online www.canadaegg.ca 11

Repositioning Repositioning Chapter 7 Repositioning Repositioning Changing consumers’ perceptions of a brand in relation to competing brands. 11

Repositioning 11