SEGMENTATION, TARGETING, AND POSITIONING 08 SEGMENTATION, TARGETING, AND POSITIONING Chapter 8 – Segmentation, Targeting, and Positioning Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Segmentation, Targeting, and Positioning LO1 Identify the five steps in the segmentation, targeting and positioning process. LO2 Outline the different methods of segmenting a market. LO3 Describe how firms determine whether a segment is attractive and therefore worth pursuing. LO4 Articulate the difference among targeting strategies: undifferentiated, differentiated, concentrated, or micromarketing. LO5 Define positioning, and describe how firms do it. These are the learning objectives for this chapter.

Victoria’s Secret Firms constantly look to increase the markets for their products by getting current consumers to consume more, obtaining new consumers for current products, offering new products to current consumers, or entering an entirely new market. When the economy flagged and consumers cut spending, Victoria’s Secret’s parent company, Limited Brands Inc., turned its attention to specific market segments to offset falling sales. Photo by Duffy-Marie Arnoult/WireImage/Getty Images

Segmentation, Targeting, Positioning Process Previous chapters addressed how to plan marketing strategy; this chapter focuses on how firms use that strategy to identify the target markets they will serve.

Step 1: Establish Overall Strategy or Objectives Check Yourself Derived from mission and current state Remind students that any strategy must be consistent with the firm’s mission statement and be based on the current assessments from SWOT analyses

Step 2: Segmentation Methods Group activity: Divide the class into groups. Have them choose either a manufacturer or national retailer. Have them describe their segmentation method and then evaluate whether or not it is the best segmentation method for that firm.

Geographic Segmentation Geographic information software (GIS) aids in such segmentation. Many firms use regional brands of popular products. When Dunkin’ Donuts introduced soup to its menu, it included New England Clam Chowder which appealed to northeastern consumers, but franchisees in Texas objected to this choice. Understanding regional preferences can define a company’s success — or failure. Ask students: How can firms successfully change a national brand into a international brand? This will tie to the previous chapter on global marketing – should they adapt to local tastes? ©ImagineChina

Demographic Segmentation Most common segmentation strategy This web link is to the U.S. Census Bureau. They provide one of the most important marketing research tools: Census data, which offer a rich, free source of information about various consumers that, suggests segmentation possibilities. On the Census Bureau Website, walk students through the information available about the zip code in which your university is located. ©Stockbyte/Getty Images U.S. Census Bureau Website

Balancing Act Career Moms Ask students what types of products can be targeted to this growing segment which has demographic, psychographic and geographic variables.

Psychographic Segmentation Self-values Self-concept Lifestyles Not just businesses segment their customers; segmentation also helps organizations that counsel drug addicts or other at-risk groups. Recall the discussion during the last presidential election about “hockey moms”—middle-class, educated, married women concerned about various threats to their children. Group Activity: Divide students into groups. Have each choose a product/service they like. Have them describe users of that product/service in terms of psychographics ©Benetton Group SPA; Photo by: Oliviero Toscani

VALS Framework Click on the VALS hyperlink and take the survey as a class. Group activity: Students complete the VALS survey individually, and then bring their completed survey to class. Ask students: Why might you fall into similar categories? Who fell into different categories? For example, few business students likely belong to the Believers category, but art majors very well may. VALS Website

Geodemographic Segmentation Click on the Claritas link and conduct the “You Are Where You Live” exercise with the zip codes of the students’ hometowns. Ask students: Describe your neighborhood. How accurately does the site depict your hometown? Claritas Website

State Farm Not Insuring Mississippi Ask students when geographic segmentation is not legal or ethical. You can play this video about State Farm refusing to insure Mississippi.

Benefit Segmentation Group activity: Have students identify products that provide each type of benefit. How else might these products be segmented? This activity provides a good opportunity to remind students that products exist in multiple segments, just as consumers do. Different motives lead different consumers to purchase the same product. ©image100/PunchStock ©image100/PunchStock Michael Hevesy/Photodisc/Getty Images

Behavioral Segmentation Occasion segmentation Loyalty segmentation Royalty-Free/CORBIS Firms encourage loyalty in various ways, such as airline mileage or hotel point reward programs. Ask students: Are you a loyal buyer of any single product, to the extent that you refuse to purchase a substitute? Students may refer to soft drinks, but true brand loyalty is extremely rare.

Check Yourself What are the various segmentation methods? Geographic, Demographic, Psychographic, Geodemographic, Benefits, and Behavioral.

Step 3: Evaluate Segment Attractiveness Marketers first must determine whether the segment is worth pursuing, using several descriptive criteria: Is the segment identifiable, substantial, reachable, responsive, and profitable.

Identifiable Who is in their market? Are the segments unique? Does each segment require a unique marketing mix? Ask students: When would these women all be in the same segment? When would they be in different segments? These women would appear in the same segment if the segmentation variable were gender but in individual segments based on race or lifestyle. They also may be in different geographic or income segments, for example. Liquidlibrary/Dynamic Graphics/Jupiterimages Liquidlibrary/Dynamic Graphics/Jupiterimages Comstock Images/JupiterImages

Substantial Too small and it is insignificant Too big and it might need it’s own store Just because a firm can find a market does not necessarily mean it represents a good market. But size in terms of number of people is not the only consideration; despite its small size, the market for the original Hummer was incredibly profitable, and therefore was substantial ©Jerry Arcieri/Corbis

Reachable Know the product exists Understand what it can do Recognize how to buy The Internet has enabled more people to be reached more easily, but various areas around the world simply cannot be served because they aren’t accessible to marketing messages or because there isn’t adequate distribution. Ask students: What types of media influence the way they shop? The answer may lead to an interesting discussion about how difficult it is to reach Generation Y customers either because they don’t participate in traditional media such as newspapers or because they are skeptical about being influenced by commercial messages. ©Digital Vision/PunchStock

Responsive Customers must: React positively to firm’s offering Move toward the firms products/services Accept the firm’s value proposition Group activity: Nike is very successful at selling sports related goods. Would consumers accept personal care products from Nike? Why or why not? Develop a list of potential products for Nike. Ask students: Are any of the following acceptable: cologne, deodorant, toothpaste, or hair gel. Why or why not? What about Nike towels, sheets, or pajamas? What differences can you identify between these two types of product categories? Students are likely to say they will not understand the value proposition and the company’s expertise. Yet other students might say that they will believe in personal care product because Nike offers superior products.

Profitable A hot segment today may not last long enough to make it worth investment. Many firms are investigating when and how much to invest in the Millennial/GenY generational cohort. Firms in financial services and housing understand that it provides a new potential market, but the debt levels this segment carries makes it difficult to target effectively.  

Profitable Segments Segment size = 60 million (<15 yrs) Segmentation Adoption Percentage = 35% Purchase Behavior = $500 x 1 time purchase Profit margin % = 10% Fixed Cost = $50M Children under 15 represent a very profitable market segment as this example illustrates. ©Comstock/PunchStock Is this segment profitable?

Step 4: Selecting a Target Market Conde Nast has more than 20 niche magazines focused on different aspects of life. Hallmark looks at geographic segmentation when building new stores. They also use benefit segmentation for their online cards. In general, a company matches their competencies with the attractiveness of target markets. ©M Hruby

Segmentation Strategy Ask students: What is an example of a mass market product? Answer: There are very few mass market products. Even commodity goods such as flour are now differentiated. Ask students: What are examples of products that use differentiated, concentrated, and micromarketing segmentation strategies?  Differentiated = Coca Cola Concentrated = Helena Rubenstein or Clinique Microtargeting = Financial Services Providers  

Step 5: Develop Positioning Strategy Positioning Methods Value Salient Attributes Symbol Competition Positioning strategies generally focus on either how the product or service affects the consumer or how it is better than competitors’ products and services. When positioning against competitors, the objective is to play up how the brand being marketed provides the desired benefits better than do those of competitors. Firms thus position their products and services according to value, salient attributes, and symbols, and against competition. Photo by Tiffany Rose/WireImage/Getty Images

Positioning Ask students – how is this positioning? They should say salient attributes and competition. Green Giant for Business Wire via Getty Images

Perceptual Maps This perceptual map was created by the process on the previous page. It was for Gatorade which was seeking a positioning of healthy and sweet taste.

Positioning Steps 1. Determine consumers’ perceptions and evaluations in relation to competitors’. 2. Identify competitors’ positions 3. Determine consumer preferences. 4. Select the position. 5. Monitor the positioning strategy. This slide provides the steps necessary to develop the positioning map on the next slide. Switch back and forth on these two slides to explain the positioning map.

Check Yourself What is a perceptual map? Identify the five positioning steps. A perceptual map displays, in two or more dimensions, the position of products or brands in the consumer’s mind. Determine consumers’ perceptions and evaluations of the product or service in relation to competitors’, identify competitors’ positions, determine consumer preferences, select the position, monitor the positioning strategy.

Glossary Benefit segmentation groups consumers on the basis of the benefits they derive from products or services. Benefit segmentation groups consumers on the basis of the benefits they derive from products or services.

Glossary Demographic segmentation groups consumers according to easily measured, objective characteristics such as age, gender, income, and education. Demographic segmentation groups consumers according to easily measured, objective characteristics such as age, gender, income, and education.

Glossary Geodemographic segmentation uses a combination of geographic, demographic, and lifestyle characteristics to classify consumers. Geodemographic segmentation uses a combination of geographic, demographic, and lifestyle characteristics to classify consumers.

Glossary Geographic segmentation organizes customers into groups on the basis of where they live. Geographic segmentation organizes customers into groups on the basis of where they live.

Glossary Behavioral segmentation divides customers into groups based on how they use the product or service. Behavioral segmentation divides customers into groups based on how they use the product or service.

Glossary Psychographic segmentation, or psychographics, allows people to describe themselves using characteristics that help them choose how they occupy their time (behavior) and what underlying psychological reasons determine these choices. Psychographic segmentation, or psychographics, allows people to describe themselves using characteristics that help them choose how they occupy their time (behavior) and what underlying psychological reasons determine these choices.

Glossary The Value and Lifestyle Survey (VALS) is a psychographic tool that classifies consumers into eight categories based on their answers to a questionnaire. The Value and Lifestyle Survey (VALS) is a psychographic tool that classifies consumers into eight categories based on their answers to a questionnaire.