Chapter 3 Segmentation, Targeting, and Positioning

Mass-marketing A strategy that presumes there is one undifferentiated market and that one product will appeal to all consumers in that market.

Advantages Lower cost One advertising campaign is needed One marketing strategy is developed Usually only one standardized product is developed

Disadvantage It only works if all consumers have the same needs, wants, desires, and the same background, education and experience

Market matching strategy Today, mass marketing has largely been replaced by a three-step market matching strategy

PositioningSegmentation Market Matching Strategy Market Matching Targeting

Market Matching Strategy Segmentation Act of dissecting the marketplace into submarkets that require different marketing mixes Targeting Process of reviewing market segments and deciding which one(s) to pursue Positioning Establishing a differentiating image for a product or service in relation to its competition

Market segmentation The process of dividing a market into distinct subsets (segments) of consumers with common needs or characteristics and selecting one or more to target with a distinct marketing mix

Segmentation Variables Geographic DemographicPsychographic BehavioralGeodemographic

Marketers may use a single variable Marketers may use two or more variables

Geographic Segmentation Division of the market based on the location of the target market People living in the same area have similar needs and wants that differ from those living in other areas Climate Population density Taste Micromarketing

Demographic Segmentation Partitioning of the market based on factors such as  age  gender  marital status  income  occupation  education  ethnicity

Age Product needs and interests often vary with consumers’ age

Age Effects Occurrences due to chronological age

Cohort Effects Based on the idea that people hold onto the interests they learned to appreciate growing up

Gender Gender is frequently a distinguishing variable Changes in the family and growth of the dual- income household have blurred some of the lines

Marital Status Marketers have identified specific marital status groups, such as: 1. Singles 2. Divorced individuals 3. Single parents 4. Dual-income married couples They then market products specifically designed for one or more groups

Income, Education & Occupation These three variables are often related and therefore often used together as a measure of one’s social class. Income is commonly used because marketers feel it is a strong indicator of ability to pay for a particular product or service Income is often combined with other variables to narrow target markets:  With age to identify the important affluent elderly  With age and occupation to produce the yuppie segment

Race and Ethnicity The size and purchasing power of minorities make them an attractive target market The size of the market is growing dramatically relative to the “majority” population Targeting certain products (e.g., alcohol, tobacco) to such groups raises ethical issues

Tobacco and the African American Community Why is there a concern about targeting African Americans? During the ’90s, youth smoking rates increased sharply  12.6% in 1991  22.7% in 1997  80% increase

After Native Americans, African Americans have the highest rate of smokers of any ethnic group in the US African American men have the highest rate of death from lung cancer of any ethnic group in the US  81% of African American men who smoke and contract lung cancer die  51% of white men who smoke and contract lung cancer die

Tobacco companies have clearly targeted African Americans Brown & Williamson’s Kool brand  used a cartoon character, the penguin Willie, that was popular with black teens  Has sponsored an annual jazz festival that attracts large black audiences In 1998 cigarette advertisements represented 60% of ad space in black newspapers Following the success of the movie “Malcolm X”, Star Tobacco Co. introduced a new brand called “X,” packaged in the black, red and green colors of the black nationalist movement  Marketed in 20 states before pressure from the community forced discontinuance of the brand

Geodemographic Segmentation A hybrid segmentation scheme Based on notion that people who live close to one another are likely to have similar financial means, tastes, preferences, lifestyles and consumption habits

Market research firms specialize in producing computer-generated geodemographic market “clusters” of consumers They have clustered the nation’s >250,000 neighborhoods into lifestyle groupings based on postal zip codes Marketers use the cluster data for mail campaigns, to select retail sites and merchandise mixes, to locate banks and restaurants, etc. “You Are Where You Live”.

Psychographic Segmentation Partitioning of the market based on lifestyle and personality characteristics Marketers use it to further refine a target market Its appeal lies in the vivid and practical profiles of consumer segments that it can produce Accomplished by using AIO inventories

AIO Inventories AIO research seeks consumers’ responses to a large number of statements that measure Activities Interests Opinions

Examples of the use of psychographic segmentation reflected in marketing messages Kellogg’s targets health-conscious consumers with brands such as Special K and Product 19 Old Spice is targeting the active sports lifestyle with High Endurance deodorant

Behavioral Segmentation Partitioning of the market based on attitudes toward or reactions to a product and to its promotional appeals

Behavioral segmentation can be done on the basis of: 1. Usage rate 2. Benefits sought from a product 3. Loyalty to a brand or a store

1. Usage Rate Differentiates between  heavy users  medium users  light users  nonusers In general, a relatively small number of heavy users account for a disproportionately large percentage of product usage Targeting those heavy users is a common marketing strategy

2. Benefit Segmentation Marketers constantly attempt to identify the single most important benefit of their product that will be the most meaningful to consumers Changing lifestyles play a major role in determining the product benefits that are important to consumers and also provide marketers with opportunities for new products and services

3. Brand and Store Loyalty The tendency of some consumers to repeatedly select the same brand within a given product category A parallel tendency of some consumers to repeatedly patronize a particular retail establishment

Marketers often try to identify the characteristics of their brand-loyal customers so they can target consumers with similar characteristics in the larger population Marketers also target consumers who show no brand loyalty as a means of penetrating a larger market Marketers reward brand loyalty by offering special benefits to frequent customers

Choosing Market Segments to Target Once an organization has identified its most promising market segments, it must decide whether to target one segment or several segments Each targeted segment will then receive a specially designed marketing mix — i.e., a specially tailored product, price, distribution network and/or promotional campaign

Market Targeting Strategies There are three basic types of strategies: 1. Undifferentiated 2. Multisegment (Differentiated) 3. Concentration (Niche)

1. Undifferentiated Strategy A strategy that ignores differences between groups within a market and offers a single marketing mix to the entire market It works when a product is new to the market and there is minimal or no competition

Advantages and Disadvantages Economies in production and marketing Vulnerability to competitors offering more differentiated products and services to market subsegments

2. Multisegment/Differentiated Strategy Targeting two or more segments with different marketing mixes for each

Advantages and disadvantages Minimizes risks, as losses in one segment can be made up for in others Unique product features allow for higher prices Increased costs for differentiated products and marketing

3. Concentration/Niche Marketing Strategy Focus on one sub-market

Greater knowledge of customers’ needs Economies of scale Entry of a strong competitor Change in size or tastes of the segment

Positioning Deciding how the firm wants the company and its brands to be perceived and evaluated by target markets Differentiating the product from other products of the firm or its competition

Positioning complements and is an integral part of the company’s segmentation strategy and selection of target markets The same product can be positioned differently to different market segments The result of successful positioning is a distinctive brand image on which consumers rely in making product choices

Perceptual Mapping A spatial picture of how consumers view products or brands within a market Allows marketers to determine how their product appears in relation to competitive brands Enables them to see gaps in in positioning of all brands in the product class to identify areas in which consumer needs are not being met

A visual profile of how consumers perceive a number of pain relievers on the two dimensions of effectiveness vs. gentleness. Effectiveness  Tylenol  Extra-Strength Tylenol  Bufferin  Nuprin  Motrin  Advil  Anacin  Bayer  Excedrin  Private Label Aspirin  Aleve  OrudisActron  Gentleness to Stomach More Less More

Repositioning Marketers may be forced to reposition products due to competition or a changing environment

Modifying an existing brand Targeting it to a new market segment Emphasizing new product uses and benefits Stressing different features with the intention of boosting sales

Selected Psychographic/Demographic Characteristics of the PC Magazine Subscriber Source: 1997 Lifestyles Study, PC Magazine Subscriber Study, Ziff-Davis, Inc., June DEMOGRAPHICSPercent SEX (BASE 990) Men86 Women13 PSYCHOGRAPHICSPercent USE A COMPUTER100 At home96 At work89 On vacation/traveling46 AGE Under or older 5 Mean age44.1 SELECTED USE OF COMPUTER Word Processing96 Connect to Internet For work80 Accounting/record keeping75 Reference68 Recreation/games66

DEMOGRAPHICSPercent PSYCHOGRAPHICSPercent EDUCATION Some college or less27 Graduate college27 Education beyond college graduate46 EMPLOYMENT STATUS Employed by someone else68 Self-employed21 Other11 PORTABLE DEVICES USED WHEN TRAVELING ON BUSINESS Laptop/notebook computer57 Cellular phone47 Beeper or pager30 Personal Digital Assistant/ electronic organizer14

DEMOGRAPHICSPercent PSYCHOGRAPHICSPercent OCCUPATION/BUSINESS DEPT. Computer related- professional22 Senior or corporate management16 Engineering-related professional13 Administrative/ manufacturing, accounting, finance, purchasing, advertising, marketing, sales26 Others23 TRAVEL FOR BUSINESS/PLEASURE Business Travel 5 or more days per month31 5 or more nights away from home per month17 Pleasure/Vacation Travel 15 or more days per year37 Mean number of days per year15.5 MEMBER OF FREQUENT FLYER PROGRAMS90

DEMOGRAPHICSPercent PSYCHOGRAPHICSPercent INCOME Under $30,0007 $30,000 - $49,99915 $50,000 - $74,99924 $75,000 - $99,99919 $100,000 or more24 Mean income$87,700 PRIMARY RESIDENCE Own74 Rent18 Other3 No answer5 FINANCIAL SERVICES Currently own Mutual funds48 Stocks44 Bonds24 Life insurance/annuities44 Currently use Brokerage services36 On-line investment services16 Retirement/financial planning41

RESPONSE OF SELECTED CONSUMER PSYCHOGRAPHIC STATEMENTSPercent Research before choose brand of new product to buy41 Other people ask my opinion about which computer products to buy41 Usually buy products based on quality, not price26 Prefer products that are latest in new technology26 Among group I am one of first to try new product19 Walking/running/jogging63 Exercise/fitness/weight training44 Bicycling7 Swimming37 Golf27 Fishing23 Boating/sailing19 Skiing19 Tennis14 SELECTED SPORTS/ACTIVITES PLAYED/PARTICIPATED IN PAST YEARPercent

Listen to music77 Reading61 Going to movies60 Surfing the Internet50 Games-videos on computer48 Gardening32 Going to the theater32 Cooking30 Photography30 Collecting stamps/coins11 Sewing needlecraft6 HOBBIES/OTHER ACTIVITIES PARTICIPATED INPercent