1. Segmentation, Targeting, and Positioning
10/17, 2017

2. Concepts Concerning Segmentation
Segmentation is a compromise between treating each customer as unique and assuming all customers are equal
A market segment is a group of actual or potential customers who can be expected to respond in a similar way to a product or service offer
Market segmentation is the process of dividing customers whose valuations of a product or service vary greatly into groups or segments containing customers whose valuations vary very little within the group but vary greatly among groups

3. Desirable Criteria for Segments
Sizable
Identifiable
Reachable
Respond Differently
Coherent
Stable

4. Methods for Market Definition and Segmentation
Cluster analysis:
The basic philosophy is to find a group of customers who, with respect to some set of characteristics, are similar within groups (high internal (within-cluster) homogeneity) but different among groups (high external (between-cluster) heterogeneity)
Substitution among products
The basic philosophy is to find a set of products that are substitutes for one another

5. Principles of Cluster Analysis

6. Plot of Concentration versus Category Growth Chocolate Market

7. Cluster Analysis

8. Drawing Industry Boundaries : Identifying the Relevant Market
What industry is BMW in:
World Auto industry
European Auto industry
World luxury car industry?
Key criterion: SUBSTITUTABILITY
On the demand side : are buyers willing to substitute between types of cars and across countries
On the supply side : are manufacturers able to switch production between types of cars and across countries
May need to analyze industry at different levels for different types of decision

9. The Basis for Segmentation: Customer and Product Characteristics
*Size
*Technical
sophistication
*OEM/replacement
Industrial buyers
Characteristics
of the Buyers
*Demographics
*Lifestyle
*Purchase occasion
Household buyers
*Size
*Distributor/broker
*Exclusive/
nonexclusive
*General/special
list
Distribution channel
Opportunities for
Differentiation
Geographical
location
*Physical size
*Price level
*Product features
*Technology design
*Inputs used (e.g. raw materials)
*Performance characteristics
*Pre-sales & post-sales services
Characteristics
of the Product

10. Bases for Segmenting Consumer Markets
Geographic (region; city size; density; climate)
Demographic (age; family size; gender; income; occupation; education; religion; race; generation; nationality; social class)
Psychographic (social class; life style; personality)
AIO variables (Activities; Interests; Opinions)
Behavioral (occasions; benefits; user status; usage rate; loyalty status; readiness stage; attitude toward product)

11. Demographic Segmentation
Age and life-cycle stage
Our wants and abilities change with age
Life stage
A person’s major concern (e.g., divorce)

12. Demographic Segmentation
Gender
Men and women have different attitudes and behave differently
Income
Income segmentation is a long-standing practice

13. Geographic Segmentation
Geographical units
Nations, states, regions, counties, cities, or neighborhoods
Nielsen Claritas’ PRIZM
Education and affluence
Family life cycle
Urbanization
Race and ethnicity
Mobility

14. Geographic Segmentation

15. VALS
Based on attitudes toward issues such as the importance of work, the effectiveness of free enterprises, concentration of power, women’s role, strength of religious belief, personality, and satisfaction
An analysis of 800 such measures across 2,713 consumers produced nine clusters that were labeled: Inner-directed consumers
Integrated; Societally conscious; Experientials; I-am-me consumers
Outer-directed consumers
Achievers; Emulators; Belongers
Need-driven consumers
Survivors; Sustainers

16. Three Categories of Consumer Values and Lifestyles
Need-driven consumers: Exhibit spending driven by need rather than preference and are subdivided into survivors and sustainers, the former among the most disadvantaged people in the economy
Outer-directed consumers: Are the backbone of the marketplace and generally buy with awareness of what other people will attribute to their consumption of that product
Inner-directed consumers: They comprise a much smaller percentage of the population. Their lives are directed more toward their individual needs than toward values oriented to externals. Although their numbers are small, they may be important as trend setters or groups through whom successful ideas and products trickle down

18. Jeep
Shows how a person’s lifestyle can help marketers understand consumer values and their impact on buying behavior.
Ad targets people who want to “leave the civilized world behind.”

19. PRIZM A geodemographic system, marketed by Claritas Corp.
Potential Rating Index by Zip Market
Begins by clustering a reduced set of 1,000 possible demographic measures
The basic unit of analysis is Zip Code areas
Each Zip Code represents a row of the data matrix; demographic attributes define the columns
Nearly 40,000 ZIP codes are clustered into 62 different groups

20. Prizm Geodemographic Segmentation
PRIZM develops cluster solutions, provides a profile of demographic attributes for each cluster, and relates membership in the geodemographic clusters to purchasing of various products and services
An application of PRIZM to the beer market
“Blue Blood Estates”
“Urban Gold Coast”
“Gray Collars”

21. Bases for Segmenting Business Markets
Demographic (industry; company; location)
Operating Variables (technology; user or nonuser status; customer capability)
Purchasing Approaches (purchasing-function organizations; power structure; nature of existing relationships; general purchase policies; purchasing criteria)
Situational Factors (urgency; specific application; size of order)
Personal Characteristics (innovativeness; buyer-seller similarity; attitude toward risk; loyalty)

22. Segmentation Analysis: The Principal Stages
Identify key variables
and categories.
Construct a segmentation matrix
Analyze segment attractiveness
Identify KSFs in each segment
Analyze benefits of
broad vs. narrow scope.
Identify segmentation variables
Reduce to 2 or 3 variables
Identify discrete categories for
each variable
Potential for economies
of scope across segments
Similarity of KSFs
Product differentiation benefits
of segment focus 31

23. Segmenting the World Automobile Market
REGION
US& Canada W.Europe E.Europe Asia Lat America Australia Africa
Luxury Cars
Full-size sedans
Mid-size sedans
Small sedans
Station wagons
Passenger minivans
Sports cars
Sport-utility
Pick-up trucks

24. Vertical Segmentation & Industry Profit Pools
—The US Auto Industry
25% 20
Leasing
Service & repair
Operating margin 15
Warranty
Aftermarket
parts
Auto manufacturing 10
Auto rental
Auto insurance
Auto loans
New car dealers 5
Used car dealers
Gasoline
100%
Share of industry revenue

25. Identifying Key Success Factors
Pre-requisites for success
Pre-requisites for success
What do customers want?
How does the firm survive competition
Analysis of competition
What drives competition?
What are the main dimensions of competition?
How intense is competition?
How can we obtain a superior competitive position?
Analysis of demand
Who are our
customers?
What do they want?
What drives competition?
What are the main
dimensions of competition?
How intense is competition?
How can we obtain a
superior competitive position?
KEY SUCCESS FACTORS

26. Segmentation and Key Success Factors in the U.S. Bicycle Industry
* Low-costs through global sourcing of components
& low-wage assembly.
* Supply contract with major retailer.
Leading competitors: Taiwanese & Chinese assemblers,
some U.S manufacturers, e.g. Murray Ohio, Huffy
Low price bicycles sold primarily
through department and discount
stores, mainly under the retailer’s
own brand (e.g. Sears’ “Free Spirit”);
*Cost efficiency through large scale operation and
either low wages or automated manufacturing.
*Reputation for quality (durability, reliability) through
effective marketing to dealers and/or consumers.
* International marketing & distribution.
Leading competitors: Raleigh, Giant, Peugeot, Fuji
Medium-priced bicycles sold
primarily under manufacturer’s brand
name and distributed mainly through
specialist bicycles stores;
*Quality of components and assembly, Innovation in
design (e.g. minimizing weight and wind resistence).
*Reputation (e.g. through success in racing, through
effective brand management).
*Strong dealer relations.
High-priced bicycles for enthusiasts.
Children’s bicycles (and tricycles) sold
primarily through toy retailers (discount
toy stores, department stores, and
specialist toy stores).
Similar to low-price bicycle segment. 2

27. Evaluating Market Segments
Segment Size and Growth
Analyze current segment sales, growth rates, and expected profitability.
Segment Structural Attractiveness
Consider competition, existence of substitute products, and the power of buyers & suppliers.
Company Objectives and Resources
Examine company skills & resources needed to succeed in that segment.
Offer superior value & gain advantages over competitors.

28. Brand and Category Development
BDI
High
Low
High
Market
Penetration
Maintain
Point of Entry
CDI
Category
Build ?
Low

29. Positioning
Positioning refers to the act of locating a brand in customers’ minds over and against other products in terms of product attributes and benefits that the brand does or does not offer
Attribute or Benefit
Quality and Price
Use or User
Competition

30. Competition-Based Positioning Triangle
Category
Point of Parity
or Examplar
Point of Parity
or Examplar
Brand A
Brand B
Point of Difference

31. Goal-Based Positioning Triangle
Point of Commonality
Brand Essence
Goal
Laddering
Occupation
Brand
Other Objects
Car
Entertainment
Point of Complementarity

32. Gap Analysis
Its maps of the market are used to determine how various products are perceived by how they are positioned on the market map
On any map the items plotted tend to cluster here and there, with open space between them
These open spaces are gaps, and a map that show gaps is called a gap map

33. Gap Maps
Determinant gap map: managerial expertise and judgment (our factors and our scores)
Attributes that are both differentiating and important are called determinant attributes
AR perceptual gap map: customer attribute rating (our attributes and customers’ scores)
OS perceptual gap map: overall similarities (customers’ attributes and customers’ scores)

34. Determinant Gap Map $ ? $ ? $ ? Crunchiness Peanuts Pretzels Fritos
High
Raw vegetables
Nachos
Granola bar
Potato chips
Popcorn
$ ?
Apple
Corn curls
Beef jerky
Soda crackers
Cookies
Candy bar
Pizza
Raisins
Nutritional
Value
Bagels
Low
Pie
$ ?
High
Donut
Cake
Banana
Cheese
Ice cream
$ ?
Yogurt
Soda pop
Fruit juice
Low

35. Multidimensional Scaling (MDS)
The purpose of MDS is to transform consumer judgments of similarity or preference (e.g., preference for stores or brands) into distances represented in multidimensional space
The resulting perceptual maps show the relative positioning of all objects

36. AR Perceptual Gap Maps
Attributes ratings (AR) perceptual gap mapping asks market participants (buyers and users of the product) to tell what attributes they believe products have
Perceptual maps are based on marketplace perceptions of reality, which may or may not be accurate

37. Attribute Perceptions Questionnaire
Rate each brand you are familiar with each of the following:
Disagree Agree
1. Attractive design
2. Stylish
3. Comfortable to wear
4. Fashionable
5. I feel good when I wear it
6. Is ideal for swimming
7. Looks like a designer label
8. Easy to swim in
9. In style
10. Great appearance
11. Comfortable to swim in
12. This is a designer label
13. Gives me the look I like
14. I like the colors it comes in
15. Is functional for swimming

38. AR Perceptual Map of Swimsuit Brands
Comfort
Gap 1
Aqualine
Islands
Molokai
Fashion
Splash
Sunflare
Gap 2

39. OS Perceptual Gap Maps
OS techniques run on perceptions of overall similarities between pairs of choices
Dissimilarity (Similarity) Matrix
Convert the similarity ratings into a perceptual map