1. Market Segmentation Rediscovering
By Daniel Yankelovich and David Meer Harvard Business Review – February 2006
Presented by Funball-G 5
Amir H. Taherizadeh CGA060147
Lance Chua CGA090035
Mina Borhani CGA080104
Wilson Koh CGA070022
13 August 2009
Marketing Management CMGB6101

2. Presentation Outline Purpose of the Article
What is Market Segmentation
Problem Statement
Historical Solutions
Aggravating the Problem, Mid-1970s
Consequences
Meaningful Segmentation
Elements of Smart Segmentation Strategy
Gravity of Decision Spectrum
Conclusion

3. Purpose of the Article
To present the elements of a smart segmentation strategy
To introduce a tool: “Gravity of Decision Spectrum” based on consumer behavior notion

4. What is Market Segmentation?
Market segmenting is the process with the help of which a company divides the market into distinct groups who have distinct needs, wants, behavior or who might want different products & services (Aminjonov Mirhabibjon, "Marketing Introduction"(2009))

5. Market Segmentation
Mark McCrindle, Social Researcher, McCrindle Research,

6. Market Segmentation An Appropriate Market Segmentation …
Has Internal Homogeneity, i.e. the same needs within the segment
Has External Heterogeneity, i.e. different needs vis-à-vis other segments
Elicits the same Response to a market stimulus
Can be reached with market intervention
Identifies the groups most worth pursuing- the underserved, the satisfied, and those likely to make a first time purchase

7. Problem Statement
Segmentation has drifted away from its original purpose and potency!
Root Causes:
Market segmentation has become narrowly focused on the needs of advertising.
The Failings of Psychographics
Relationship of Consumers to a Product/Product Strategy Vs. to Their Jobs, friends, family, community (psychographics)
Instead, market segmentation has become narrowly focused on the needs of advertising, which it serves mainly by populating commercials with characters that viewers can identify with—the marketing equivalent of central casting.

8. Problem Statement
World War II vs. Early 1960s- less predictable consumers regarding buying habits.
Affluent uneducated consumers, very price conscious sophisticated consumers.
Tastes and purchasing patterns no longer neatly aligned with age, and income.
Purely demographic segmentations lost their ability to guide companies' decisions.

9. Ineffective Solutions to the Problem
Refinements of existing offerings vs. Original Real Customer Needs
Advertising Focus vs. Consumer Focus
Emotional Benefits vs. Functional Benefits
Intense Unmet Need: Antidandruff Shampoo
Emotional Benefit: Add fresh eggs to cake
As time went on, product introductions re­mained frequent, but they increasingly amounted to refinements of existing offerings that had originally answered real consumer needs but now merely catered to mild preferences.
One way companies found to convince par­ticular groups of consumers that a product was perfect for them was to place in the advertising message a person whom they resembled or wished they did. Another way, which followed from the consumer orientation of the first, was to emphasize the emotional rather than the functional benefits products offered—pride of ownership, increased status, sex appeal. Cake mixes to which a fresh egg had to be added, for example, may have tasted no better than ear­lier versions containing powdered egg. But they sold well because the extra step allowed the preparer to feel she was fulfilling a wife’s traditional domestic role.

10. Aggravating the Problem, Mid-1970s
Using Power of Imagery to stimulate sales of dull items vs. Coming Up with Genuinely Innovative Technology n Fresh Design
Belief in Power of Imagery
Genuinely Innovative Product
belief in the power of imagery to stimulate sales of dull items may have begun to take pressure off product developers to come up with products and services displaying genuinely innovative technology and fresh design, thus aggravating the problem.

11. Aggravating the Problem, Mid-1970s
Applying Social Sciences to Business
The Rise of Psychographics
Confused Business Executives

12. Consequences….
VALS classified individuals according to 9 psychological types
Psychographics became the most accepted mode of segmentation.
It was embraced by ad dept. and agencies.
Pros: Psychographics is effective at brand reinforcement and positioning.
Cons: Psychographics are not drivers of commercial activity.
Vs.

13. Different Segmentation for Different Purposes
Insert Table Here
Psychographic segmentations can be used to purposes. You would need a different kind of teristics of these two types of segmentation create advertising that will influence con-nondemographic segmentation to investi-exercises. sumers to think warmly about a particular gate, for instance, what kinds of products to brand. But they’re not as well suited for other make. Here we set out the different charac
Example
Failure Reason
Lessons: The most memorable ad, if based on a crudely drawn segmentation, will do little to spur sales or garner market share.

14. Meaningful Segmentation
Type of Data to Collect
Emerging social, economic and technological trends which may alter purchasing and usage patterns
Which benefits and features matter to your customers?
Which customers are willing to pay higher prices or demand lower ones?

15. Meaningful Segmentation
How to Collect?
Qualitative Research
To explore underlying motives and needs propelling current purchases
Quantitative Research
To understand competitive strengths and vulnerabilities
Reexamine the sales data
To reveal the hidden patterns in consumers’ behavior
Retain trend-tracking services

16. Elements of Smart Segmentation Strategy
Reflects Company’s Strategy
Indicates Sources of Revenue
Identifies Customers’ Values, Attitudes, etc in Relation to Product/Service
Focuses on Actual Customer Behavior
Makes Sense to Top Executives
Accommodate/Anticipates Changes in Markets/Customer Behavior

17. Elements of Smart Segmentation Strategy
What are we trying to do?
CMO often uses the segmentation exercise in an organisation without knowing the alignment of company’s strategic decision would benefit from the guidance of a segmentation.
No longer explore the personalities of customer.
Identify groups of potentially interested or susceptible customers sufficiently numerous and lucrative to justify pursuit.
Customer Segmentation – A method for grouping customers based upon similarities they share with respect to any dimensions you deem relevent to your business.
1. Customer Needs 2. Channel Preference 3. Interest in the product features. 4. Customer Profitability

18. Elements of Smart Segmentation Strategy
Example: Organisation applying different strategies based
on the nature of the business
Nature of Business
Strategy Applied
Traditional Brokerage
Reduce customer defection
Personal Care Products Company
Extend a strong Soap brand into Deodorants
Fast-Food Chain
Produce healthier menu alternatives

19. Elements of Smart Segmentation Strategy
No retention Strategy
(Do nothing)
Customer who are
Not Profitable to retain
Segment #2:
Retention
Strategy A
Customer who are
Profitable to retain
Segment #3:
Retention
Strategy B
Segment (Seg)
Predicted Profit for Customer
Seg #1: Do Nothing
N/A
Seg #2: Strategy A
($27)
Seg #3: Strategy B $3
Seg #4: Strategy C
$23
1. Identify the root problem
2. Use the right strategies
3. Tackle the problems
segmentation works perfectly with correct strategy (In Pair)
Segment #4:
Retention
Strategy C
McDonald, Malcolm & Dunbar, Ian (2004). Market Segmentation: How to do it, how to profit from it. Butterworth-Heinemann, 2004.

20. Elements of Smart Segmentation Strategy
Which customer drive profits?
Rank the customers by the profitability towards the organisation and giving the right attention to them
Understand what make its best customers as profitability as they are and than seek new customer who share similar characteristic
Example: A bank is concerning its overall business was suffering from low rates of growth and stagnant market share

21. Elements of Smart Segmentation Strategy
Existing Segmentation
Relationship Manager
CUSTOMER
Senior Branch Personnel
Based on Customer
Assets & Incomes
Junior Branch Personnel
Serve
Rediscovering Market Segmentation, Daniel Yankelovich and David Meer (2006)

22. Elements of Smart Segmentation Strategy
Marketing research on the lifetime value of Wealthy Prospects
Demographic
Behavioral
Attitudinal
Age
Which service customer already in used?
Financial sophistication
Occupation
How many institutions they did business with?
Time spent on investment
Assets
How many transactions they made in a month?
Risk Tolerance
- New segment identified as “Young Families” has variations in
Profitability even in the existing high- profit segment.

23. Elements of Smart Segmentation Strategy
Segments that contribute almost no profit after research has
been conducted
On Their
Way
Contribute almost
NO PROFIT
Established
Families
Many people which fell into the Non profit segment had been assigned to the Relationship Manager
Bank quickly reduce the cost of servicing those people by reassigning them to more junior personnel, call centers or to web.
50% of the Customer based
Retirement
Planners
Rediscovering Market Segmentation, Daniel Yankelovich and David Meer (2006)

24. Elements of Smart Segmentation Strategy
Which attitudes matter to buyer decision?
Examining people’s lifestyle, attitudes, self- image and aspirations would be crucial as these characteristic are expected to change along with customer’s value and environment.

25. Elements of Smart Segmentation Strategy
What are my customers actually doing?
Considering relevant attitudes, values and expressed preferences in segmentation, is not enough to predict customer actual purchase behavior.
Conjoint analysis is an analytical technique used in market research to determine how people value different features and attributes that make up an individual product or service.
The objective of conjoint analysis is to determine what combination of a limited number of attributes is most influential on respondent choice or decision making. A controlled set of potential products or services is shown to respondents and by analyzing how they make preferences between these products, the implicit valuation of the individual elements making up the product or service can be determined. These implicit valuations (utilities or part-worths) can be used to create market models that estimate market share, revenue and even profitability of new designs.
Conjoint originated in mathematical psychology and was developed by marketing professor Paul Green at the Wharton School of the University of Pennsylvania and Data Chan. Other prominent conjoint analysis pioneers include Richard Johnson (founder of Sawtooth Software) who developed the Adaptive Conjoint Analysis technique in the 1980s and Jordan Louviere who invented and developed Choice-based approaches to conjoint analysis and related techniques such as MaxDiff.
Today it is used in many of the social sciences and applied sciences including marketing, product management, and operations research. It is used frequently in testing customer acceptance of new product designs, in assessing the appeal of advertisements and in service design. It has been used in product positioning, but there are some who raise problems with this application of conjoint analysis (see disadvantages).
Advantages
estimates psychological tradeoffs that consumers make when evaluating several attributes together
measures preferences at the individual level
uncovers real or hidden drivers which may not be apparent to the respondent themselves
realistic choice or shopping task
able to use physical objects
if appropriately designed, the ability to model interactions between attributes can be used to develop needs based segmentation
Disadvantages
designing conjoint studies can be complex
with too many options, respondents resort to simplification strategies
difficult to use for product positioning research because there is no procedure for converting perceptions about actual features to perceptions about a reduced set of underlying features
respondents are unable to articulate attitudes toward new categories, or may feel forced to think about issues they would otherwise not give much thought to poorly designed studies may over-value emotional/preference variables and undervalue concrete variables
does not take into account the number items per purchase so it can give a poor reading of market share

26. Elements of Smart Segmentation Strategy
Will this segmentation make sense to senior management?
Marketers have increasingly turned to advanced statistical techniques for dissecting segments into ever finer slice.
Not only focus on external parties, but also consider internal constituency!
No matter how scientific and technical you’ve performed the segmentation, if the segments seem unmeaning to the management or inconsistent with manager’s experience, the research is unlikely to be accepted and applied.

27. Elements of Smart Segmentation Strategy
consumer’s needs, attitudes & behavior
Can our segmentation register change?
market conditions (fluctuating economics, emerging consumer niches, new technologies)
Market Segmentation

28. Elements of Smart Segmentation Strategy
Relevance of market segmentation should be monitored regularly and be updated as needed

29. Gravity of Decision Spectrum
Start with consumer expectation
Then you probe consumers’ Motives, Concerns, and Psyches.
Shallow
Save Time, Effort, Money
STIs, e.g. Toiletries and Snacks
Middle
Concerned about Quality, Design, Complexity, Status
BTIs, e.g. Cars, & Electronic Devices
Deep
Great Emotional Investments, Their Core Values are engaged
Health Treatments, e.g. Cancer
What Is at Stake?

30. Gravity of Decision Spectrum

31. Concluding Remarks…. Segmentations failures are mainly due to
Excessive interest in consumers' identity rather than the focus on Product Features that matter most to current and potential customers.
Too little emphasis on actual consumer behavior which reveals their attitudes
Undue absorption in the technical details of devising segmentation which estranges marketers from the decision makers on whose support their initiatives depend

32. References McCrindle, M. Social Researcher, McCrindle Research,
Retrieved at:
McDonald, Malcolm & Dunbar, Ian (2004). Market
Segmentation: How to do it, how to profit from it.
Butterworth-Heinemann, 2004.
Yankelovich, D, & Meer, D. (2006). Rediscovering Market
Segmentation, Harvard Business review.

33. Thanks for Your Attention! The Floor Is Open to Your Comments…
Finito!
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