Week 5 – 10.13.04 On Line http://www.snipits.com http://www.cartoon-cuts.com http://www.kidscuts.com Market Segmentation, targeting and Positioning for Competitive Advantage

A Market is... (1) people or organizations with (2) needs or wants, and with (3) the ability and (4) the willingness to buy. A group of people that lacks any one of these characteristics is not a market. Notes: All markets share several characteristics, as outlined on this slide. Within a market, a market segment is a subgroup of people or organizations with one or more common characteristics that cause them to have similar product needs. Market segmentation is the division of a market into meaningful, identifiable segments or groups.

Steps in Market Segmentation, Targeting, and Positioning 1. Identify bases for segmenting the market 2. Develop segment profiles Market Targeting 3. Develop measure of segment attractiveness 4. Select target segments Market positioning 5. Develop positioning for target segments 6. Develop a marketing mix for each segment

Definition: Market Segmentation Dividing a market into distinct groups with distinct needs, characteristics, or behavior who might require separate products or marketing mixes.

The Importance of Market Segmentation Markets have a variety of product needs and preferences Marketers can better define customer needs Decision makers can define objectives and allocate resources more accurately Competitive Advantage Notes: Until the 1960s, market segmentation was not used extensively. Consider Coca-Cola with its one product aimed at the entire soft drink market. Today over a dozen different products are marketed to different market segments. Market segmentation plays a key role in the marketing strategy of organizations, with the benefits as described on this slide, leading to competitive advantage.

Segmentation Bases Characteristics of individuals, groups, or organizations used to divide a total market into segments. (variables)

The Concept of Market Segmentation Notes: Exhibit 7.1 illustrates the concept of market segmentation, using age and gender as the bases. Discussion/Team Activity: Discuss other ways of segmenting the market in addition to age and gender.

Step 1. Market Segmentation Requirements for Effective Segmentation Measurable Accessible Substantial Size, purchasing power, profiles of segments can be measured. Differentiable Segments can be effectively reached and served. Actionable Segments are large or profitable enough to serve. Segments must respond differently to different marketing mix elements & programs. Effective programs can be designed to attract and serve the segments.

Geographic Segmentation World Region or Country City or Metro Size Density or Climate

Market Segmentation Demographic Dividing the market into groups based on variables such as: Age Gender Family size or life cycle Income Occupation Education Religion Race Generation Nationality Most Popular Bases & Easiest to Measure

Bases for Psychographic Segmentation On Line http://www.marthastewart.com http://www.goodhousekeeping.com Psychographic Segmentation Personality Motives Lifestyles Geodemographics On Line Martha Stewart Living Good Housekeeping Use psychographic segmentation to classify the kinds of consumers who would be interested in the products offered by Martha Stewart and Good Housekeeping on-line. Notes: Demographic segmentation provides the “skeleton,” but psychographic segmentation adds “meat to the bones.” Personality reflects a person’s traits, attitudes, and habits. Consider the personality types that describe segmented Porsche buyers. These are described on the next slide and in Exhibit 7.3. Motives: Carmakers appeal to customers with status-related motives, whereas baby products appeal to emotional motives. Lifestyles and geodemographics are described on subsequent slides.

Taxonomy of Porsche Buyers Notes: 1. Segmentation of Porsche buyers.

Multi-bases Segmentation Claritas Notes: Lifestyle segmentation divides people into groups according to how time is spent, the importance of things around them, beliefs, and socioeconomic characteristics such as income and education. For example, Harley-Davidson divides its customers into seven lifestyle segments, ranging from arrogant troublemakers to classy capitalists with wealth.

Step 1. Market Segmentation Behavioral Segmentation Dividing the market into groups based on variables such as: Occasions Benefits User status Usage rate Loyalty status Readiness stage Attitude toward product

Benefit Segmentation of the Snack-Food Market Notes: Exhibit 7.4 shows the six benefit segments of the snack-food market. Discussion/Team Activity: Discuss advertisements of snack foods that appeal to different benefit segments of the snack-food market.

Segmenting International Markets Geographic Location Factors Used to Segment International Markets Economic Factors Cultural Factors Political and Legal Factors

Step 2. Market Targeting Evaluating Market Segments Segment Size and Growth Analyze current sales, growth rates and expected profitability for various segments. Segment Structural Attractiveness Consider effects of: competitors, availability of substitute products and, the power of buyers & suppliers. Company Objectives and Resources Company skills & resources needed to succeed in that segment(s). Look for Competitive Advantages.

Step 2. Market Targeting Market Coverage Strategies Company Marketing Mix Market Company Marketing Mix 1 Segment 1 Company Marketing Mix 2 Segment 2 A. Undifferentiated Marketing Company Marketing Mix 3 Segment 3 Segment 1 Company Marketing Mix Segment 2 B. Differentiated Marketing Segment 3 C. Concentrated Marketing

Undifferentiated Targeting Strategy Advantages: Potential savings on production and marketing costs Disadvantages: Unimaginative product offerings Company more susceptible to competition Notes: The first firm in an industry sometimes uses an undifferentiated strategy. Consider Coca-Cola when it had a single product and a single size of its original soft drink.

Multisegment Targeting Strategy Advantages: Greater financial success Economies of scale Disadvantages: High costs Cannibalization

Cannibalization Situation that occurs when sales of a new product cut into sales of a firm’s existing products.

Concentrated Targeting Strategy Advantages: Concentration of resources Meets narrowly defined segment Small firms can compete Strong positioning Disadvantages: Segments too small, or changing Large competitors may market to niche segment

Socially Responsible Target Marketing Smart targeting helps companies and consumers alike. Target marketing sometimes generates controversy and concern. Disadvantaged and vulnerable can be targeted. Cigarette, beer, and fast-food marketers have received criticism in the past. Internet has come under attack because of the loose boundaries and lack of control in marketing practices.

Step 3. Choosing a Positioning Strategy Product’s Position - the way the product is perceived by consumers on important attributes Marketers must: Plan positions to give their products the greatest advantage in selected target markets, Design marketing mixes to create these planned positions.

Step 3. Choosing a Positioning Strategy Step 1. Identifying Possible Competitive Advantages Step 2. Selecting the Right Competitive Advantage Step 3. Communicating and Delivering the Chosen Position

Choosing the Right Competitive Advantage Important Profitable Distinctive Criteria For Determining Which Difference To Promote Superior Affordable Communicable Unique Selling Proposition Preemptive

Communicating and Delivering the Chosen Position Company must take strong steps to deliver and communicate the desired position to target consumers. All the company’s marketing mix must support the positioning strategy. Positioning strategy must be monitored and adapted over time to match changes.

Positioning of Procter & Gamble Detergents Notes: Exhibit 7.8 describes the positioning of eleven different laundry detergents made by Procter & Gamble. Positioning assumes that consumers compare products on the basis of important features. Discussion/Team Activity: 1. Select other families of products made by companies. What is each product’s unique positioning?

Perceptual Mapping A means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds.

Perceptual Map and Positioning Strategy for Levi Strauss Products Notes: Exhibit 7.9 shows Levi’s brands and subbrands, based on price and fashion style. Discussion/Team Activity: What is the target market and marketplace perception of some of Levi’s brands? What are Levi’s strengths in the marketplace? What are Levi’s weaknesses? How can Levi’s use perceptual mapping to enhance its product strategy?