Segmentation, Targeting, Differentiation, and Positioning Strategies E-M ARKETING /6E C HAPTER 8

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-2 C HAPTER 8 O BJECTIVES  After reading Chapter 8, you will be able to:  Outline the characteristics of the three major markets for e-business.  Explain why and how e-marketers use market segmentation to reach online customers.  List the most commonly used market segmentation bases and variables.

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-3 C HAPTER 8 O BJECTIVES, CONT.  Outline several types of Internet usage segments and their characteristics.  Describe two important coverage strategies e-marketers can use to target online customers.  Define differentiation and positioning and give examples of companies using them. 8-3

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-4  Jim McCann started Flowers as a traditional retailer in New York City in  In 1995, he extended the brand to the Internet and offer 24/7 worldwide delivery.  He used SAS data mining software to identify customer segments for better targeting.  The software analyzed the clickstreams and purchasing patterns of the firm’s 21 million customers. T HE F LOWERS S TORY

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8-6 THE FLOWERS STORY, Cont.  Flowers can respond to the segment of one person and their purchasing patterns.  The Web site’s Facebook page has nearly 500,000 likes, nearly 14,000 people talking about the site, and over 20,000 Twitter followers.  Over half of its 4.6M online customers were repeated buyers.  Why do you think better segmentation and targeting lead to reduced phone time and lower costs?

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8-8 S EGMENTATION & T ARGETING O VERVIEW  Marketing segmentation is the process of grouping individuals or businesses, according to use, consumption, or benefits of a product or service.  Market targeting is the process of selecting market segments that are most attractive to the firm.  Targeting segments can include accessibility, profitability and growth potential.

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-9 T HREE M ARKETS  Three important markets sell to and buy from each other:  Business Market: Marketing of products for use in the business operation, as components, or for resale.  Government Market: Federal, state, county, city, and foreign governments.  Consumer Market: The consumer market involves marketing goods and services to end consumers. Outline the characteristics of the three major markets for e- business.

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-10 T HREE B ASIC M ARKETS

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-11  Marketers create segments to identify and reach the right people at the right time.  Geographic location  Demographics  Psychographics  Behavior with regard to the product  Companies can also combines bases, such as geodemographics (geography and demographics) (Claritas PRIZM System)  Marketers create segments based on variables that can be used to identify and reach the right people at the right time. M ARKET S EGMENTATION B ASES AND V ARIABLES List the most commonly used market segmentation bases and variables.

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-12 G EOGRAPHIC S EGMENTS  Product distribution strategy is a driving force behind geographic segmentation.  Countries may be segmented based on Internet usage.  China has 513M users.  U.S. has 245M users.  Geographic markets may also be evaluated by rates of global Facebook and search engine adoption, language spoken, and other variables.  Other countries have their own search engines and social networks (Google.sa)  Global markets require careful study

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-13 T OP I NTERNET L ANGUAGES

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-14  In the early years, Internet users were young, college educated males with above average income.  In developed nations, users are much like the mainstream population demographically.  Two market segments are of great interest to e-marketers.  Millennials  Kids D EMOGRAPHIC S EGMENTS

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-15 D EMOGRAPHIC S EGMENTS, C ONT. M ILLENNIALS  Born between 1979 & 1994, over 95% use the Internet.  “Confident, connected, and open to change.”  Skillful at multitasking and able to handle the information overload  Heavy social networking users  Sleep with cell phones  Live on text messages  The first generation to ignore marketers  Media channels used Text, , Facebook, iPods, P2P Networks and Virtual worlds  This group is a marketing proving ground for the future.

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-16 D EMOGRAPHIC S EGMENTS, C ONT. K IDS  Spending power of $40 Billion  Under 11 year old segment jumped to 20 million in 2011 and increasing.  Under 17 online group is increasing.  Online activities include:  Online gaming  Homework  Music  Videos   Shopping  Music and game downloads  Instant messaging  Chat rooms

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-17 P SYCHOGRAPHIC S EGMENTS  User psychographics include:  Personality (traits; other-oriented vs self- oriented)  Values deeply held principles (e.g. religious, and green environment beliefs)  Lifestyles & Activities refer to nonproduct- specific behavior (e.g. playing sports or eating out)  Interests & Opinions are attitudes and beliefs people hold (e.g. Facebook is waste of time, others they could not exist without )

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-18 I NTEREST C OMMUNITIES  10 important types of online communities (Exhibit 8.7), including  Social networking,  Six degrees of separation (LinkedIn)  Three ways to target online communities.  Provide online discussion groups, bulletin boards, and events or through company- owned social network pages.  Advertise on another firm’s community site.  The firm can join the community and post as a member.  Advantages & disadvantages

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-19  Attitudes – internal evaluations about people, products, and other objects  Behaviors – what a person physically does (talking…).  Psychographic information helps e-marketers define and describe market segments.  Most marketers believe that a segment’s attitudes toward technology can help determine buying behavior.  Forrester Research measures attitudes toward technology with a system called Technographics. A TTITUDES AND B EHAVIORS

T ECHNOGRAPHICS  Technographics – measures consumer and business attitudes toward technology by combining three variables  optimistic or pessimistic toward technology  Income level  Primary motivation for going online  Forrester identified 10 consumer Technographics segments in the U.S.  Results revealed that  Technology optimism declines with age  Men are more optimistic about technology  40% of high income citizens are optimistic ©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-20

T ECHNOGRAPHICS, C ONT.  How these findings translate to online purchasing? 1. high income optimists shop online while low-income pessimistic not a good market 2. Early adopters: high-income technology optimists - first consumers to shop online, while Laggards: low- income technology pessimists - last consumers to shop online. 3. Companies can use Technographics segments to profile consumers who shop online & where to allocate resources  Technographics survey results assist businesses with product development and launches, lead generations, cross-selling opportunities, customer service, and brand building. ©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-21

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-22 I NFLUENTIALS  Influentials are individuals who are opinion leaders online. They include:  Online journalists, such as Arianna Huffington of The Huffington Post.  Industry opinion leaders, such as Brian Solis, author, speaker, analyst, and blogger.  Influential social network authors, such as Lady Gaga.

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-23  Two common segmentation variables are benefits sought and product usage.  Marketers using benefit segmentation form groups of consumers based on the benefits they desire from product.  Product usage is applied to segmentation in many ways.  Marketers often segment by light, medium, and heavy product usage.  Marketers can segment users as brand loyal, loyal to a competitive product, switchers, and nonusers. B EHAVIOR S EGMENTS

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-24 B EHAVIOR S EGMENTS, C ONT. B ENEFIT S EGMENTS  The Internet offers something for everyone (information, entertainment, news, etc.), thus, design products and services to meet those needs.  This approach is more practical than demographic one  To determine benefits sought, marketers can look at what people actually do online.  Online activities: connect, create, learn, enjoy, trade and give.  Marketers also check popular websites  Microsoft, Google, and Yahoo! are consistently among the top Web sites in most countries.

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-25 B EHAVIOR S EGMENTS, C ONT. U SAGE S EGMENTS  Marketers can segment according to technology- use characteristics such as smartphone, tablet, or PC and which browser they use.  Mobile access  55% of cell phone owners connect to the internet using smartphones.  90% of smartphone users have taken an action, such as booking a hotel, after searching. Outline the five types of Internet usage segments and their characteristics

B EHAVIOR S EGMENTS, C ONT. O NLINE E NGAGEMENT L EVEL  Customer Engagement Online: Users are actively participating by adding content for others to view.  Forrester categorizes social media users according to usage segments that are highly engaged online:  Creators who gather other people’s content, upload or share it.  Conversationalists  Critics  Collectors  Joiners  Spectators  Inactives ©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-26

B EHAVIOR S EGMENTS, C ONT. I NDUSTRY -S PECIFIC U SAGE S EGMENTS  Industry-Specific Usage Segments – usage varies from industry to industry. Some categories from the auto industry:  Explorers – the smallest group, but half buy their new vehicle within two months of visiting a site  Off-roaders – tend to do a lot of research online, are likely to purchase offline  Cruisers – visit car sites frequently but only 15% buy a car in the short term ©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-27

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-28 T ARGETING O NLINE C USTOMERS  E-marketers select a targeting strategy.  Which targets to serve online  Which locations  Other factors (catalog)  Two targeting strategies are well-suited for the internet.  Niche marketing.  Micromarketing (individualized targeting). Describe two important coverage strategies e- marketers can use to target online customers.

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-29 T ARGETING O NLINE C USTOMERS, C ONT.  Niche marketing  Selecting one segment and develops one or more marketing mixes to meet the needs of that segment (e.g. Amazon)  Can be risky because competitors may be drawn into profitable markets  Micromarketing (individualized targeting)  When a firm tailors all of the marketing mix to a very small number of people.  The Internet’s big promise is individualized targeting.

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-30  AMA define a differential advantage 1. A property of any product that is able to claim a uniqueness over other products in its category. The differential advantage of a firm is often called its distinctive competences. 2. An advantage unique to an organization; an advantage extremely difficult to match by a competitor (economic definition).  Differentiation is what a company does to the product to convince the market that the product has specific advantages. D IFFERENTIATION O NLINE Define differentiation and positioning and give examples of companies using them.

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-31 DIFFERENTIATION DIMENSIONS  A company can differentiate its offering along many dimensions, including:  Product innovation  Mass customization  Service differentiation  Customer relationship management (CRM)  Personnel differentiation  Channel differentiation  Image differentiation  Site atmospherics  Efficient and timely order processing

©2014 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-32  Positioning is a strategy to create a desired image for a company and its products in the minds of a chosen user segment. 1. Determine the product category in which the brand competes 2. Determine whether the brand is differentiated in that product category 3. Tell the brand story from the consumer’s viewpoint  Examples of positioning bases online  Product or service attributes  Technology position  Benefits position  User category position  Competitor position  Integrator position P OSITIONING

8-33 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2014 Pearson Education, Inc. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall