Chapter 9 - Segmentation, Targeting, Positioning

The Segmentation, Targeting, and Positioning Process

• The decision making process is not always linear. A firm could start with a strategy but then modify as it gathers more information about various segment's attractiveness.
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Step 1: Establish the Overall Strategy or Objectives

• First step is to articulate the vision or objectives of the company's marketing strategy.

• Must be consistent with and derived from the firm's overall mission and objectives as well as its current situation – SWOT.

• Coca-Cola's objective would be to increase sales in a mature industry. Strength include strong brand name and ability to place new products on retailers shell. Primary weakness, not have a product line for newer market segments.

  Coca-Cola's recent choice to pursue health-conscious men with Coke Zero is consistent for its overall strategy and objectives.

Step 2: Use Segmentation Methods

• Particular method / combination of methods used to segment the market

• Also develops descriptions of the different segments, which helps firms understand the customer profiles in each segmnet

• Help distinguish customer similarities within a segment and dissimilarities across segments

• Uses segmentation methods such as: geographic, demographic, psychographic, behavioural (includes benefits)

• Soft drink marketers, for instance, divide beverage landscape into caffeinated or decaffeinated

  Segmentation method based on the benefits that consumers derive from the products

Geographic Segmentation

• geographic segmentation: the grouping of consumers on the basis of where they live

  • market can be grouped by country, regions (northeast, southeast), or areas within a region (state, city, neighbourhoods, zipcodes)

• Most useful for companies whose products satisfy needs that vary by region

• Firm can provide the same basic goods or services to all segments, even if they market globally

  • BUT better marketers make adjustments to meet the needs of smaller geographic groups

• Store chain such as Safeway or Kroger runs similar stores with similar assortments across United States. However, significant assortment of goods will vary by region, city, or even neighbourhood depending on different needs of the customers that surround each location

Demographic Segmentation

• demographic segmentation: the grouping of consumers according to easily measured, objective characteristics such as age, gender, income, and education

• Most common means to define segments because easy to identify and demographically segmented markets are easy to reach

• Kellogg's uses age segmentation for its breakfast cereals.

  Fruit Loops, Special K, All-Bran

• Demographics may also not be useful.

• Poor predictors of the users of activewear, such as jogging suits and athletic suits.

  Nike assumed that activewear would be purchased exclusively by young, active people.

  Health and fitness trend has led people of all ages to buy

• Rethinking stereotypical ideas about who is buying has become a relatively common trend among firms that once though their target market was well defined

Psychographic Segmentation

• psychographic segmentation: a method of segmenting customers based on how they spend their time and money, what activities they pursue, and their attitudes about the world in which they live

• psychographics: used in segmentation; delves into how consumers describe themselves; allows people to describe themselves using those characteristics that help them choose how they occupy their time (behaviour) and what underlying psychological reasons determine those choices

• person might have strong need for inclusion or belonging, which motivates him or her to seek out activities that involve others, which in turn influences the products he or she buys to fit in with the group

• Determining psychographics involves knowing and understanding three components:

Self-Values

• self-values: goals for life, not just the goals one wants to accomplish in a day, a component of psychographics that refers to overriding desires that drive how a person lives his or her life

• need for self-respect, self-fulfillment, or a specific sense of belonging

• The underlying fundamental, personal need that pushes a person to seek out certain products or brands stems from his or her desire to fulfill a self-value

Self- Concept

• self-concept: the image a person ideally has of himself or herself; a component of psychographics

• A person who has a goal to belong may want to see himself as a fun-loving, gregarious type whom people wish to be around

Lifestyles

• lifestyles: refers to the way a person lives his or her life to achieve goals

• if values provide an end goal and self-concept is the way one sees oneself in the context of that goal, lifestyles are how we live to achieve goals

• The most widely used tool to support psychographic efforts is the VALS framework. Based on consumers answers to questionnaire, can be classified into eight segments.

• 

• Three primary motivations of U.S. consumers:

  • motivated by ideals are guided by knowledge and principles
  • motivated by achievement look for products and services that demonstrate success to their peers
  • motivated by self-expression desire social or physical activity, variety, and risk

• More expensive as a means to identify potential consumers

Behavioural Segmentation

• Clarification: Benefit segmentation relates to why consumers choose a particular product, so it can be considered a segmentation variable under the broader category of Behavioural segmentation
• behavioural segmentation: divides customers into groups based on how they use the product or service

Benefit

• benefit segmentation: market into segments whose needs and wants are best satisfied by the product benefits; derives from the basis of benefits from the products

Occasion

• occasion segmentation: based on when a product or service is purchased or consumed

• sometimes mens need a suit for their everyday work, but some for special occasions such as wedding

  frito-lay also makes and promotes snacks for various occasions such as party or for on the go.

Loyalty

• Loyal customers are those who feel so strongly that firm can meet relevant needs, competitors are excluded from consideration

• loyalty segmentation: strategy of investing in loyalty initiatives to retain the firm's most profitable customers

• buy 10 sandwiches, get the 11th free

Using Multiple Segmentation Methods

• Although all segmentation methods are useful, each has advantages and disadvantages.

• Segmenting by demographics and geography is useful, but does not determine customer's needs

• Most popular mixture of segmentation scheme is...

• geographic segmentation: the grouping of consumers on the basis of a combination of geographic, demographic, and lifestyle characteristics

• Consumers in the same neighbourhoods tend to the buy the same types of cars, appliances, and apparel and shop at the same types of retailers

Step 3: Evaluate Segment Attractiveness

• Marketers must first determine whether the segment is worth pursuing, using several descriptive criteria: identifiable, substantial, reachable, responsive, and profitable

Identifiable

• Firms must be able to identify who is within their market to be able to deisng products or services to meet their needs

• Equally important to ensure segments are distinct from one another.

  • else may eat away at firm's other product lines

Substantial

• If the market is too small or its buying power insignificant, it won't generate sufficient profits or be able to support marketing mix activities

• as China's economy started growing, there was not enough middle-class car buyers to push foreign automakers to design entry-level vehicle

Reachable

• Best product or service cannot have any impact if target market cannot be reached (or accessed) through persuasive communications and product distribution

• The customer must know the product exists, understand what it can do for him and her, and recognize how to buy it

• if Victoria Secret fails to tell women it is offering more affordable options, shoppers will walk past to buy from Macy's

Responsive

• Customers in the segment must react similarly and positively to the firm's offering.

Profitable

• Marketers must also focus their assessment on the potential profitability of each segment, both current and future
• Includes analyzing market growth (current size and expected growth rate), market competitiveness (number of competitors, entry barriers, product substitutes), and market access (ease of developing or accessing distribution channels and brand familiarity)
• Segment profitability = (Segment size x Segment adoption percentage x Purchase behaviour x Profit margin percentage) - fixed costs

Step 4: Select a Target Market

• The key factor likely to affect this decision is the marketer's ability to pursue such an opportunity or target segment
• Assesses attractiveness of the target market (opportunities/threats) and its own competencies (strength/weaknesses) very carefully

Undifferentiated Targeting Strategy, or Mass Marketing

• undifferentiated targeting strategy (mass marketing): a marketing strategy a firm can use if the product or service is perceived to provide the same benefits to everyone, with no need to develop separate strategies for different groups.
• Focussed on similarities of needs as opposed to differences
• If product is perceived to provide similar benefits to most consumers, little need to develop separate strategies for different groups
• Commodities such as salt or sugar, gas.
• Firms still try to differentiate (gas high octane, low, etc.)

Differentiated Targeting Strategy

• differentiated targeting strategy: a strategy which a firm targets several market segments with a different offering for each
• Helps obtain a bigger share of the market and increase the market for their products overall

Concentrated Targeting Strategy

• concentrated targeting strategy: When an organization selects a single, primary target market and focuses all its energies providing a product to fit that market's needs

• Newton running targets to runners, but not all runners. Focuses on those who prefer to land on their forefeet while running

  Nike is also known for running shoes, but uses a differentiated targeting strategy. Segments include basketball and football players

Micromarketing

• micromarketing (one-to-one marketing): an extreme form of segmentation that tailors a product or service to suit an individual customer's wants or needs
• Small producers can tailor their offerings to individual consumers more easily.

Step 5: Identify and Develop Positioning Strategy

• market positioning: involves the process of defining the marketing mix variables so that target customers have a clear, distinctive, desirable understanding of what the product does or represents in comparison with competing products.

• value proposition: the unique value that a product or service provides to its customers and how it is better than and different from those of competitors

• Best situation is if a firm's product or service offering overlaps with customer needs and wants but suffers no overlap with competitor's offerings

• Visualizations of a successful value proposition

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• Firms must constantly and closely monitor their competitors' offerings.

  • Important attributes from competitors should be considered for inclusion in firm's offerings

• The main value proposition components are:

  1. Target market
  2. Offering name or brand
  3. Product/service category or concept
  4. Unique point of different/benefits

• To [non-cola consumers][7-Up] is a [non-caffeniated soft drink] that is [light, refreshing, lemon-lime flavoured, and has a crisp, bubbly, and clean taste]

  In-class style:

  For (customer segment), (brand) is the only (type of product) that provides (unique benefit/differentiation)

Positioning Methods

• Firms position their products according to value and salient attributes.

• value: reflects the relationship of benefits to costs, or what the consumer gets for what he or she gives

• Value is a popular positioning method because the relationship of price to quality is among the most important considerations for consumers

• Values $\neq$ Low price

  • Luxury brands

• Another common positioning strategy is focus on product attributes that are most important to the target market

• Audi positioned itself on performance and handling. Targeting a different market, Subaru positions on safety and handling

• Firms can choose to position their products or services against specific competitor or an entire product/service classification

Positioning Using Perceptual Mapping

• perceptual map: displays, in two or more dimensions, the position of products or brands in the consumer's mind
• ideal point: the position at which a particular market segment's ideal product would lie on a perceptual map
• To derive a perceptual map, marketers follow 6 steps:

1. determine consumers' perceptions and evaluations of the product or service in relation to competitors'

   • determine their brand's position by asking questions about their and competitors' products

     • might ask how the consumer uses the existing product or services
     • what items the consumer regards as alternative sources
     • what the person likes or dislikes about the brand in relation to competitors

2. identify the market's ideal points and size

   • on a perceptual map, marketers can represent the size of current and potential markets

3. identify competitor's positions

   • when the firm understands how its customers view its brand relative to the competitors'

4. determine consumer preferences

   • firm now must find out what the consumer really wants.

     • the ideal product or service that appeals to each market

5. select the position

   • multiple alternatives:

     • firm can develop new product that meets the needs of target market
     • firm can reposition its marketing approach – its product and promotion – to sell original product to new target market
     • it could ignore what target market wants and hope consumers will be attracted to original product because it is closer to ideal product than anything else on market

6. monitor the positioning strategy

   • markets are not stagnant – consumers' tastes shift and competitors react to those shifts
   • firms must view first 3 steps as ongoing with adjustments made in step 4 as necessary.