Chapter 7 Sharpen the Focus: Target Marketing Strategies and Customer Relationship Management

Chapter Objectives Identify the steps in the target marketing process Understand the need for market Segmentation and the approaches available to do it Explain how marketers evaluate segments and choose a Targeting strategy (there are 4 main ones) Understand how marketers develop and implement a Positioning strategy Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Target Marketing Strategy: Selecting and Entering a Market Market fragmentation means… The existence of many consumer groups due to the diversity of their needs and wants Target marketing strategy: Dividing the total market into different segments based on customer characteristics, selecting one or more segments, and developing products to meet those segments’ needs Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Figure 7.1 Steps in the Target Marketing Process Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Market Segmentation Market Segmentation - division of the total market into smaller, relatively homogeneous (similar) groups Key Points – There is often more than one viable target market for a product. No single marketing mix can satisfy every target market, therefore, different marketing mixes must be developed for different target markets. You have to find ways to logically slice and dice society into viable target markets for each unique product.

No Market Segmentation

Segmented by Gender

Segmented by Age

Criteria for Effective Segmentation To be effective, segmentation must meet the following basic requirements. The market segments must be measurable in terms of both purchasing power and size. Marketers must be able to effectively reach (promote to and serve) a market segment. Market segments must be sufficiently large enough to be potentially profitable. The firm must be financially able to market to the segments selected.

Segmenting Consumer Markets

Segmenting Consumer Markets 1. Geographic Segmentation: Dividing an overall market into groups on the basis of their locations (region, country, etc)

Using Geographic Segmentation Does not ensure that all consumers in a location will make the same buying decision, though helpful in identifying some general patterns. Most major brands get 40-80 percent of their sales from what are called core regions Climate is another important segmentation factor Northern consumers, for example, eat more soup than Southerners Southerners use more chlorine for their swimming pools than Northern residents

Segmenting Consumer Markets 2. Demographic segmentation: Dividing consumer groups according to characteristics such as gender, age, income, occupation, education, household size, and stage in the family life cycle

Segmenting by Gender Marketers must ensure that traditional assumptions are not false Some products appeal to men in similar ways to women and some products don’t

Segmenting by age Products are often designed to meet the specific needs of certain age groups Examples: baby food and denture cream.

Segmenting by age – The Cohort Effect Cohort effect is a tendency among members of a generation to be influenced and drawn together by significant events occurring during their key formative years, roughly 17 to 22 years of age Sociologists attribute different consumer needs and wants among various age groups to the cohort effect

Boomers—People born from 1946 until 1964. About 40 percent of U. S Boomers—People born from 1946 until 1964. About 40 percent of U.S. adults were born in this period. Values of this age group were influenced both by the Vietnam War and the career-driven era.

Segmentation by Age, specifically Boomers Segmentation by Age, specifically Boomers. Young consumers tend to buy products to feel older, while older consumers tend to buy products to feel younger !

Segmenting by Ethnic Group Census Bureau projects that by 2050, & possibly much sooner, nearly 1/2 of the US population will be nonwhite. The 3 largest and fastest-growing racial/ethnic groups in the US are African Americans, Hispanics, and Asian Americans.

Would this ad have run in the U.S 10 years ago? Why not?

Segmenting by Family Life Cycle Stages Life Cycle - The process of family formation and dissolution. The underlying theme is that life stage, not age per se, is the primary determinant of many consumer purchases. One important trend - Women are having children at a later age.

Segmenting Consumer Markets 3. Psychographic Segmentation Divides a population into groups that have similar psychological characteristics, values, and lifestyles VALS (Values and Lifestyles) – a psychographic segmentation system

VALS 2 Abundant Resources Action Oriented Principle Oriented Status Oriented FULFILLED 11% BELIEVERS 16% ACTUALIZERS 8% ACHIEVERS 13% STRIVERS 13% STRUGGLERS 12% Abundant Resources Minimal Resources Action Oriented EXPERIENCERS 12% MAKERS 13% VALS 2

Using Psychographic Segmentation Psychographic profiles produce rich descriptions of potential target markets The greater detail aids in matching a company’s image and its offerings with the types of consumers who are likely purchasers

Segmenting Consumer Markets 4. Product-related segmentation: dividing a consumer population into homogeneous groups based on characteristics of their relationships to the product Can take the form of segmenting based on: Benefits that people seek when they buy Usage rates for a product – 80/20 rule Consumers’ brand loyalty toward a product

Strategies for Reaching Target Markets Undifferentiated Marketing Differentiated Marketing Concentrated Marketing Customized Any of the 4 strategies may prove effective for a particular situation

Undifferentiated Marketing Q. Can you think of an example? Undifferentiated marketing: when a firm produces only one product or product line and promotes it to all customers with a single marketing mix Sometimes called mass marketing Much more common in the past Q. Can you think of an example?

Differentiated Marketing Differentiated marketing: when a firm produces numerous products and promotes them with a different marketing mix designed to satisfy smaller segments Tends to raise costs Firms may be forced to practice differentiated marketing to remain competitive Best Example – Procter & Gamble: www.pg.com Differentiated Marketing

Concentrated Marketing Concentrated marketing: When a firm commits a large percentage of its marketing resources to serve a single market segment Attractive to small firms with limited resources and to firms offering highly specialized goods and services Q. Can you think of an example?

Customized: involves targeting potential customers at a very basic level, such as by ZIP code, specific occupation, lifestyle, or even individual Customized

Figure 7.3 Choosing a Target Marketing Strategy Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Segmenting B2B Markets Segmentation helps B2B firms understand the needs and characteristics of potential customers Firms can be segmented by: Organizational demographics Production technology used Whether customer is a user/nonuser of product North American Industry Classification System (NAICS) Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Positioning *After segmenting the market, selecting target markets, and choosing the strategy to reach the target markets, the next step is Positioning Positioning: Striving to create a certain image in buyers’ minds which is differentiated from the competition.

Steps in Developing a Positioning Strategy Analyze competitors’ positions Offer a good or service with a competitive advantage Finalize the marketing mix by matching mix elements to the selected segment Evaluate target market’s responses and modify strategies as needed Positioning is a strategic level decision that is critical in directing the marketing communication efforts for the brand. Competitive advantages ideally should be sustainable, but rarely are for the long haul. In fact, lack of sustainability is the biggest difficulty faced by those who position themselves as the “low cost” alternative. Using competitive advantages, or “points of difference” in the positioning strategy will only be effective if the competitive advantage chosen is meaningful enough to the consumer to influence his or her brand selection. However, consumers can surprise marketers with what they find to be meaningful. Apple’s sales soared when they began offering their computers in different colors—a feature totally unrelated to the functional benefits of the brand, but one that helped the users express their individuality and personality. In many product categories, it simply isn’t possible to develop a truly meaningful “real” competitive advantage, based on actual benefit-related differences. When products are fairly homogenous (cola soft drinks), marketers turn to image considerations and use these as the basis for positioning. In terms of finalizing the marketing mix, there are several implementation issues. Advertising slogans offer one method of expressing the brand’s position succinctly. Examples: Bounty is the “Quicker, Picker-Upper”; L’Oreal “Costs More, But I’m Worth It.” Distribution decisions can also influence perceptions of the brand’s quality or other attributes. (It would be inconsistent with the desired position to distribute a luxury good through mass merchandise stores.) And of course price and quality perceptions are strongly intertwined. Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Modifying Positioning Strategies Repositioning is commonly used to change the brand image Requires redoing a product’s position in response to marketplace changes. Ex: Domino’s Repositioning may breathe life into Retro brands A once-popular brand that has been revived to experience a popularity comeback, often by riding a wave of nostalgia. Ex: Old Spice Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Positioning map: Graphic illustration that shows differences in consumers’ perceptions of competing products

Where would you position these automobiles on this Positioning Map? Class Discussion Where would you position these automobiles on this Positioning Map? BMW Conv VW Bug Accord Corolla Prius Expensive Inexpensive High Quality Low Quality