Segmentation & Target Marketing Dr. Close Segmentation & Target Marketing

Market Segmentation Dividing market into meaningful, similar groups (or aggregating those with similar needs) Why is segmentation important?.... Markets have a variety of product preferences Marketers can better define customer needs Decision makers can define objectives and allocate resources more accurately Target market – Group or market segment that a company selects to focus on

A Model of the Market Segmentation Process

Understanding Market Segmentation Delineate the firm’s current situation Intended to be a reminder of tasks to be performed prior to marketing planning Determine consumer needs and wants Successful marketing strategies depend on meeting consumer needs and wants Industry within which firm operates specifies boundaries of firm’s need satisfaction activities At a strategic level, need and wants usually are translated into more operational concepts

Dimensions for Market Division Three important questions to be considered are Should the segmentation be a priori or a post hoc? How does one determine the relevant dimensions or bases to use for segmentation? What are some bases for segmenting consumer and organizational buyer markets?

A Priori versus Post Hoc Segmentation A priori segmentation – An approach where the marketing manager has decided on the appropriate basis for segmentation in advance of doing any research on a market Post hoc segmentation – An approach in which people are grouped into segments on the basis of research findings

Relevance of Segmentation Dimensions At least some initial dimensions can be determined from Previous research Purchase trends Managerial judgment Consideration and research of sought benefits are a strongly recommended approach

Bases for Segmenting Markets Geography Demographics Psychographics Benefits Usage Rate Region Market size Market density Climate Age Gender Income Ethnicity Family life cycle Personality Motives Lifestyle Geodemo-graphics Benefits sought Former Potential 1st time Light or irregular Medium Heavy

Bases for Segmentation Benefit segmentation – Focuses on benefits sought by consumers Is a market-oriented approach Psychographic segmentation – Focuses on consumer lifestyles Lifestyles are measured on the bases of activities, interests and opinions (AIO) of consumers Best-known type of segmentation is VALSTM (“values and lifestyles”) Product of SRI Consulting Business Intelligence

Bases for Segmentation Geodemographic Segmentation – Identifies households in a market by focusing on local geography PRIZM NE – Potential Ranking Index by ZIP Markets – New Evolution Assumes that consumers in particular neighborhoods are similar in many respects and that the best prospects are those who actually use a product Classifies every U.S. neighborhood into a total of 66 distinct segments You are where you live: PRIZM data exercise. Is your zipcode accurate for market segmentation purposes?

Bases for Segmentation Useful Segmentation Bases for Consumer Markets

Bases for Segmentation Useful Segmentation Bases for Consumer Markets

Positioning Developing a marketing mix to influence potential customers’ overall perception of a brand, product line, or organization in general. How is Wal-Mart Positioned? Notes: Position is the place a product, brand, or group of products occupies in consumers’ minds relative to competing offerings. Positioning assumes that consumers compare products on the basis of important features. Effective positioning requires assessing the positions occupied by competing products, determining the important dimensions underlying these positions, and choosing a position in the market where the marketing efforts will have the greatest impact.

Positioning Bases Attribute Price and Quality Use or Application Product User Product Class Competitor Emotion Notes: The following bases for positioning are used: Attribute: Association of a product with a product feature, an attribute, or customer benefit. Price and quality: High price as a symbol of quality, or low price as an indicator of value may be used to position a product. Use or application: Stressing use or applications. Product user: Positioning base focuses on a personality or type of user. Product class: Product is positioned as associated with a particular category of products. Competitor: Positioning against competitors is a part of any positioning strategy. Emotion: Positioning using emotion focuses on how the product makes customers feel. One or more positioning bases is often used.

Develop Product Positioning Positioning can be achieved through any one of these strategies Superiority to competitive products on one or more product attributes Positioned by use or application Positioned in terms of particular types of users Positioned relative to a product class Positioned directly against particular competitors Position mapping – Visual depiction of customer perceptions of competitive products, brands, or models

Positioning Map for Automobiles

Market Segmentation Strategies Firm may decide to do the following Not to enter the market To segment but to be a mass marketer Market is so small that it is not profitable to market to one portion of it Heavy users comprise such a large proportion of sales that they are the only relevant target Product is a dominant brand, and targeting to a few segments is not beneficial To market to one segment To market to more than one segment and design a separate marketing mix for each

Market Segmentation Strategies Criteria to base a firm’s segmentation strategy decisions are Measurable – Firm must be capable of measuring its size and characteristics Meaningful – Large enough to deliver sufficient sales and growth potential Marketable – Can be reached and served in an efficient manner

Market Segmentation Strategies Selecting Target Markets: Some Questions Marketing Managers Should Answer

Market Segmentation Strategies Selecting Target Markets: Some Questions Marketing Managers Should Answer

Design Marketing Mix Strategy Selection of target market and designing the market should go hand in hand Marketing mix decisions should have already been carefully considered Product positioning has many implications for promotion and channel distribution

Product Differentiation A positioning strategy that some firms use to distinguish their products from those of competitors. Are distinctions real or perceived?