BUSI 406 Principles of Marketing: Focusing Marketing Strategy with Segmentation and Positioning

Today’s Agenda Any questions about team case assignment due in class on Wednesday, February 1? Let’s Review Discuss material you read in Chapter 4 of your textbook

Let’s Review Direct Marketing Environment – 3C’s/ SWOT Indirect Marketing Environment Competitive environment Economic/Technological environment Political/Legal environment Cultural/Social environment Qualitative and quantitative criteria for screening opportunities GE Grid, BCG Matrix, …

SWOT Analysis SW Internal, OT External Strengths – What does your company do well? In what areas do you excel? Weaknesses – What does your company not do so well? Where do you really need to improve? Opportunities – What are the existing and emerging business opportunities out there? Threats – What are the greatest challenges you face? What could happen that would really create problems for your business?

Focusing Marketing Strategy with Segmentation & Positioning Segmentation is customer oriented - we begin with needs and wants of different segments and then we try to determine whether it is practical to serve that segment.

Today’s Goals Segmentation and targeting Defining markets Dimensions to use Identifying segments Identifying segments to target Segmentation approaches Differentiation and positioning Understanding customer’s view Positioning techniques Evaluating segment preferences Differentiating the marketing mix Relationship between positioning & targeting

Taking Advantage of Opportunities La-Z-Boy has designed more fashionable chairs to tap into new market segments. Key Issues Prior to introducing a product, however, a firm such as La-Z-Boy has to have a good understanding of the target market. It also needs to assess the current state of competition, including how consumers perceive the differences and similarities among alternative brands. Should the organization then decide to proceed with the development of a marketing mix to serve a particular target market, it must differentiate its offering. From this ad, it appears that La-Z-Boy also thinks that gender provides a good way to segment its market. This presentation will cover how marketers can use market segmentation, differentiation, and positioning to take advantage of opportunities in the marketplace.

Taking Advantage of Opportunities

Search for Opportunities Can Begin by Understanding Markets All customer needs Narrowing down to specific product-market Some generic market One broad product-market Market segmentation is a two-step process. This process fails too often because marketers do not realize the complexities of consumer behavior and they attempt to categorize a market around too few consumer-related variables of distinction. Key Issues All customer needs: Marketers should break apart or disaggregate all customer needs. Generic market: a market with broadly similar needs and sellers offering various ways of satisfying those needs. Defining the market broadly can help the marketer to uncover some potential new opportunities. The marketer can then narrow down to specific product-markets. Product-market: a market with very similar needs and sellers offering various close substitute ways of satisfying those needs. Segmenting: the next step is an aggregating process – the marketer groups together people with similar needs into a market segment. Here we look for similarities. Discussion Question: Using Exhibit 3-3 as a guide, think of the generic market for transportation and the broad product-market of customers for motorcycles. Can you segment the broad product market into several submarkets? After defining the market, marketers can select a particular target market approach. Segmenting into possible target markets Homogeneous (narrow) product-markets Selecting target marketing approach Single target market Multiple target markets Combined target markets

Market Segmentation Defines Possible Target Markets Broad product-market (or generic market) name goes here (The bicycle-riders product-market) Submarket 1 (Exercisers) Submarket 2 (Off-road adventurers) Submarket 3 (Transportation riders) Submarket 4 (Socializers) Submarket 5 (Environmentalists) Market segmentation groups customers with similar needs. Key Issues Here we can see five different submarkets for the broad product market of bicycle riders. Discussion Question: What are the primary needs for each of these submarkets for bicycles?

Segmenting = Aggregating How Far Should Aggregating Go? Product-market showing six segments A. Product-market showing three segments Status dimension As shown in this exhibit, one can segment a market into any number of segments, but how far should a marketer go in aggregating similar consumers into target markets? Key Issues Criteria for segmenting: Homogeneous within--the customers in a market segment should be as similar as possible with respect to their likely responses to marketing mix variables and their segmenting dimensions. Heterogeneous between--the customers in different segments should be as different as possible with respect to their likely responses to marketing mix variables and their segmenting dimensions. Substantial--the segment must be big enough to be profitable. Operational -- actionable Discussion Question: Some firms, like Dell Computer, are able to market directly to individuals and to customize products and services to their unique needs. What advancements make this mass customization possible? Operational--the segmenting dimensions should be useful for identifying customers and deciding on marketing mix variables. Dependability dimension

Criteria for Segmenting Markets Homogenous within markets Heterogeneous between markets Substantial: big enough Operational: useful for targeting & actionable to implement a marketing mix

Segmenting vs. Combining Combiners Try to Satisfy “Pretty Well” Combiners Try to Satisfy “Pretty Well” Profit Is the Balancing Point Too Much Combining Is Risky Too Much Combining Is Risky Key Issues Summary Overview There are many factors that affect the choice between being a “segmenter” and a “combiner.” Key Issues Combiners try to satisfy customers “pretty well.” Too much combining is risky, because an innovative segmenter may “chip away” at the various segments of the combined target market. Discussion Question: What companies you are familiar with have suffered because segmenters have “chipped away” pieces of their target markets? Segmenter try to satisfy customers “very well.” Segmenting may produce bigger sales, if the segmenter can capture a large share of a smaller market segment. Many consumers are willing to pay more in order to satisfy their needs more precisely. Segment or combine? Depends on: firm’s resources; competition in the various segments; characteristics of consumers. Profit is often the balancing point, because the profit potential often dictates how specialized a marketing mix can be. Segment or Combine? Segment or Combine? Segmenters Try to Satisfy “Very Well” Segmenters Try to Satisfy “Very Well” Segmenting May Produce Bigger Sales Segmenting May Produce Bigger Sales

Demographic Dimensions for Segmenting Consumer Markets Income Sex or age Income Sex or age Family size or family life cycle stage Demographic Segmentation Dimensions Family size or family life cycle stage Occupation or education In addition to behavioral and geographic dimensions, there are also demographic segmentation dimensions. Key Issues Income provides one basis – a marketing mix may appeal most to families with a particular income. Gender and age provide another demographic base of segmentation. Family size or family life cycle stage. Family life cycle stages include young singles, young married with no children, families with young children, divorced, empty nesters, or seniors. Occupation and education can also be used for segmentation. Finally, social class – lower, middle or upper And ethnicity – for example: Hispanic, Asian, Native American, white, or multiracial. Discussion Question: Considering the demographic variables of age and education levels, can you provide examples of products or services that are targeted to college students? Ethnicity or social class Occupation or education

Segmenting Consumer Markets Internal Company Techniques Clustering Customer Relationship Management (CRM) External Options/Possibilities https://segmentationsolutions.nielsen.com/mybestsegments/Default.jsp ?ID=20&pageName=ZIP%2BCode%2BLookup Computer-aided methods afford marketers additional help in segmenting markets. The ability of the computer to record, sort, recombine, and analyze a great many variables relating to consumer behavior at the same time allows marketers to develop much more sophisticated market segments. Key Issues Among the techniques are as follows:  Clustering techniques: try to find similar patterns within sets of data.  Customer databases: Past customer behavior is often the source of information. Database sorting is especially helpful in providing services. Discussion Question: How do you provide information to marketers that are attempting to meet your needs?  Customer relationship management (CRM): Sophisticated modeling techniques can predict the types of products or services an individual customer might want, based on the information stored in the database. Anticipation of emerging needs helps a marketer to maintain a long-term relationship with customers.

Segmenting Business Markets Kind of relationship Kind of relationship Type of customer Type of customer Segmenting Dimensions for Business Markets Demographics Demographics Purchasing methods There are also many possible segmentation dimensions in the business or organizational market. Key Issues Among these dimensions are: Kind of relationship between buyer and seller – relationships might range from weak loyalty to strong loyalty to a vendor. Type of customer – customers may be segmented by whether they are service producers, a government agency, or a manufacturer. Demographics variables include geographic locations, size of the company, or industry. How the customer will use the product –will the product being sold be used in an installation, as a component or as a raw material . Type of buying situation – some characteristics of the buying situation might include the number of people involved in the purchase or whether the buying process is centralized or decentralized. Purchasing methods refer to factors like whether the buyer uses bids, vendor analysis, e-commerce websites, or other methods of buying. How customers will use the product How customers will use the product Type of buying situation Type of buying situation

Differentiation & Positioning Marketers can differentiate the marketing mix in order to meet customer needs better than competitors and build a competitive advantage. Differentiation How the marketer tried to distinguish his/her offer in the marketplace Consumers’ perceptions matter Positioning How customers think about brands in a market Marketing research techniques are used to understand consumer perceptions Marketers can differentiate the marketing mix in order to meet customer needs better than competitors and build a competitive advantage. Key Issues Differentiation: How the marketer tries to distinguish her or his offer in the marketplace -- how it is set off from the competition. What really matters is that the consumer perceives the marketer’s product to be different. Positioning: How customers think about proposed and/or present brands in a market. Marketing research techniques are designed to collect information about consumer perceptions and determine how different competing products are in the mind of the consumer.

Differentiation and Positioning Sticks like quattro. Marketers can differentiate the marketing mix in order to meet customer needs better than competitors and build a competitive advantage. Key Issues Differentiation: How the marketer tries to distinguish her or his offering in the marketplace -- how it is set off from the competition. What really matters is that the consumer perceives the marketer’s product to be different. Positioning: How customers think about proposed and/or present brands in a market. Marketing research techniques are designed to collect information about consumer perceptions and determine differences among competing products in the mind of the consumer. Firms often use promotion to help “position” how a marketing mix meets target customers’ specific needs. In this Norwegian ad for the Audi Quattro, the text simply says, “Sticks like quattro.” Although it doesn’t show the car at all, it helps to differentiate the Audi and its four-wheel drive system that holds the road especially well, even in snow.

Positioning Example – Perceptual Map Based on Beliefs About Two Attributes High moisturizing Low moisturizing 2 1 4 5 7 3 8 6 Zest Lever 2000 Safeguard Dial Lifebuoy Tone Dove Lux Coast Lava Nondeodorant Deodorant This diagram shows the output of a computer program that does positioning analysis. Key Issues Two attributes of soap that account for the greatest difference in consumer perceptions: degree to which the soap is a deodorant soap. degree to which the soap is a moisturizing soap; The closer that any two dots are to each other, the more similar those brands are in the minds of consumers. Each segment may have its own preferences. The circles refer to the size of market attracted to a combination of attributes. Discussion Question: What is the largest segment in the diagram? What brands serve that segment best? Positioning may also lead to combining instead of segmenting, if a firm can successfully appeal to several segments with the same product. Therefore, positioning studies can be part of a broader analysis because they: identify important attributes of the product offerings in a market; identify what offerings are likely to appeal to segments; provide a basis for changing the marketing mix, should a marketer decide to reposition a product.

Athletic footwear perceptual map example:

Chocolate candy…

Positioning Example – Perceptual Map Based on Golf Course Booking Behavior This diagram shows the output of a computer program that does positioning analysis. Key Issues Two attributes. The closer that any two dots are to each other, the more similar those brands are in the minds of consumers. Each segment may have its own preferences. The circles refer to the size of market attracted to a combination of attributes. Discussion Question: What is the largest segment in the diagram? What brands serve that segment best? Positioning may also lead to combining instead of segmenting, if a firm can successfully appeal to several segments with the same product. Therefore, positioning studies can be part of a broader analysis because they: identify important attributes of the product offerings in a market; identify what offerings are likely to appeal to segments; provide a basis for changing the marketing mix, should a marketer decide to reposition a product.

Today’s Take-Aways Segmentation is customer oriented - you start by thinking about the unfulfilled needs of different segments, and then determine whether it is profitable to serve that segment. Segmentation defines possible target markets. Target Marketing involves choosing between: Single, Multiple or Combined Target Market/s Differentiation matters, as does positioning Need to understand current positioning to influence future perceptions

For Next Class… Read Chapter 5: Final Consumers and Their Buying Behavior Hand in first team case assignment