Customers, Segmentation, and Target Marketing 6 C H A P T E R

Buyer Behavior in Consumer Markets Irrational and unpredictable Can progress through 5 stages (see next slide) Does not always follow these stages in sequence May be characterized by loyalty Includes “what” to buy and “where” to buy

The Consumer Buying Process Need Recognition Information Search Evaluation of Alternatives Purchase Decision Postpurchase Evaluation From Exhibit 6.1

Need Recognition Need Want Demand Occurs when the consumer’s current level of satisfaction does not equal their desired level of satisfaction. Want A consumer’s desire for a specific product that will satisfy the need. Demand When wants for specific products are backed up by the customer’s ability and willingness to pay for the product.

Discussion Question Many people criticize marketing as being manipulative based on the argument that marketing activities create needs where none previously existed. Marketers of SUVs, tobacco products, diet programs, exercise equipment, and luxury products are typically most criticized. Given what you now know about the differences between needs and wants, do you agree with these critics? Explain.

Information Search (1 of 2) Marketing activities can stimulate a desire for information: Passive information search Active information search Sources of information: Internal sources Personal sources External sources

Information Search (2 of 2) Time, effort, and expense dedicated to information search depends on: Degree of risk involved in the purchase Financial risk Social risk Emotional risk Personal risk Amount of expertise with the product category Actual cost of the search Evoked set A narrowed down set of alternatives that the customer is considering

Evaluation of Alternatives Customers evaluate products as bundles of attributes Brand attributes Product features Aesthetic attributes Price Customers place different levels of importance on attributes Important considerations in the evaluation stage: Products must be in the evoked set Consumers’ choice criteria must be understood Marketing programs must be designed to influence consumers’ opinions about product or brand image

Purchase Decision Purchase intention and the act of buying are distinct concepts Potential intervening factors between intention and buying (car example): Unforeseen circumstances Angered by the salesperson or sales manager Unable to obtain financing Customer changes mind Key issues in the purchase decision stage: Product availability Possession utility

Postpurchase Evaluation Four possible outcomes in the postpurchase stage: Delight Satisfaction Dissatisfaction Cognitive Dissonance Cognitive dissonance is more likely to occur when: Dollar value of the purchase increases Opportunity cost of rejected alternatives is high Purchase decision is very involving or emotional Firm’s ability to manage dissatisfaction and cognitive dissonance is: A key to creating customer satisfaction A major influence on word of mouth communication

Factors Affecting the Consumer Buying Process Decision-Making Complexity High/Low Complexity Individual Differences Demographics, perceptions, motives, interests, attitudes, opinions, lifestyles, etc. Social Influences Culture, subculture, social class, reference groups, opinion leaders, etc. Situational Influences

Common Situational Influences Physical and Spatial Influences Social and Interpersonal Influences Temporal (Time) Influences Purchase Task or Product Usage Influence Consumer Dispositional Influences From Exhibit 6.2

Understanding Business Buying Behavior Four Types of Business Markets: Producer markets (a.k.a. commercial markets) Reseller markets Government market Institutional markets Unique Characteristics of Business Markets: The Buying Center Hard and Soft Costs Reciprocity Mutual Dependence

The Business Buying Process Problem Recognition Develop Product Specifications Vendor Identification and Qualification Solicitation of Proposals or Bids Vendor Selection Order Processing Vendor Performance Review

Market Segmentation The process of dividing the total market for a particular product or product category into relatively homogeneous segments or groups Should create groups where members are similar to each other but dissimilar to other groups Involves the fundamental decision of whether to segment at all Typically allows firms to be more successful

Traditional Market Segmentation Approaches Used successfully for decades by many successful firms Are not out-of-date Are sometimes used in combination with newer approaches

Mass Marketing Involves no segmentation whatsoever Is an undifferentiated approach Works best when the needs of an entire market are homogeneous Is efficient from a production standpoint Results in lower marketing costs Is inherently risky and vulnerable to competitors

Differentiated Marketing Involves dividing the total market into groups of customers having relatively common or homogenous needs and developing a strategy to pursue one or more of these groups May be necessary when customer needs are similar within groups but differ across groups Involves two options: Multisegment approach Market concentration approach

Niche Marketing Focuses marketing efforts on one small, well-defined market segment or niche that has a unique, specific set of needs Requires that firms understand and meet the needs of target customers so completely that the firm’s substantial share of the segment makes it highly profitable

Individualized Segmentation Approaches Are viable due to advances in technology Allow firms to combine demographic data with behavioral data to precisely match customer preferences Will become more important in the future Can be prohibitively expensive to deliver Depend on: Automated delivery Personalization

Three Individualized Segmentation Approaches One-to-one marketing Involves creating an entirely unique product offering for each customer Mass customization An extension of one-to-one marketing Refers to providing unique solutions to individual customers on a mass scale Permission marketing Customers choose to become a member of the firm’s target market Key advantage  Customers are already interested in the product offering

Discussion Question Many consumers and consumer advocates are critical of individualized segmentation approaches due to personal privacy concerns. They argue that technology has made it far too easy to track buyer behavior and personal information. Marketers counter that individualized segmentation can lead to privacy abuses, but that the benefits to both consumers and marketers far outweigh the risks. Where do you stand on this issue? What are the benefits and risks associated with individualized segmentation?

Successful Segmentation Requires that market segments fulfill 5 criteria: Identifiable and Measurable Substantial Accessible Responsive Viable and Sustainable Avoid ethically sensitive, but legal, segments Avoid segments that do not match the firm’s expertise

Discussion Question The size of the consuming population over the age of 50 continues to grow. What are some of the current ethical issues involved in targeting this age group? As this group gets older, will these issues become more or less important? Explain.

Identifying Market Segments Involves selecting the most relevant variables to identify and define the target market Involves the isolation of individual characteristics that distinguish one or more segments

The Chinese Market With 1.4 billion consumers, the Chinese market is hard to ignore. U.S. products are already having some success there. What are the challenges faced by U.S. businesses in harnessing the potential of the Chinese market? Beyond the Pages 6.2

Segmenting Consumer Markets Behavioral Segmentation Demographic Segmentation Geographic Segmentation Psychographic Segmentation From Exhibit 6.3

Benefit Segmentation of the Snack Food Market Exhibit 6.4

VALS Consumer Profiles Innovators Thinkers Achievers Experiencers Believers Strivers Makers Survivors From Exhibit 6.5

Segmenting Business Markets Type of Organization Organizational Characteristics Benefits Sought or Buying Process Personal and Psychological Characteristics Relationship Intensity

Target Marketing Strategies Single Segment Targeting Selective Targeting Mass Market Targeting Product Specialization

Basic Strategies for Target Market Selection Exhibit 6.6