The Value of Segmentation and Targeting LECTURE WEEK 5 The Value of Segmentation and Targeting

Lecture questions What are the different levels of market segmentation? How can a company divide a market into segments? How should a company choose the most attractive target markets? What are the requirements for effective segmentation?

Lecture questions (continued) How can a firm create, develop and communicate a successful positioning strategy in the market? Why is the concept of positioning so important to marketing practitioners? How can companies seek to positively differentiate their offerings in today’s market conditions? When might companies need to reposition their market offerings and what are the main inherent risks of such a strategy?

Morgan cars serve a niche market Morgan Cars: have a long order book and continue to serve a niche market for handbuilt traditional sports cars for baby boomers Source: Steve Sant/Alamy

Effective targeting requires… Identify and profile distinct groups of buyers who differ in their needs and preferences. Select one or more market segments to enter. Establish and communicate the distinctive benefits of the market offering.

Four levels of micromarketing Segments Niches Local areas Individuals

What is a market segment? A market segment consists of a group of customers who share a similar set of needs ad wants. For a discussion of market analysis and market segmentation, view the following video: www.youtube.com/watch?v=llJNwdV-G88

Flexible marketing offerings Naked solution: Product and service elements that all segment members value. Discretionary options: Some segment members value options but not all.

Preference segments Homogeneous preferences exist when consumers want the same things. Diffused preferences exist when consumers want very different things. Clustered preferences reveal natural segments from groups with shared preferences.

This delicatessen focuses on local marketing A Polish food shop opens to provide a taste of home for the large local Polish community in Darlington in the north of England Source: Gregory Wrona/Alamy

The long tail Chris Anderson explains the long tail equation: The lower the cost of distribution, the more you can economically offer without having to predict demand. The more you can offer, the greater the chance that you will be able to tap latent demand for minority tastes. Aggregate enough minority taste, and you may find a new market. See a video clip featuring Chris Anderson at www.youtube.com/watch?v=0Yku0GTrcuw

What is customerisation? Customerisation combines operationally driven mass customisation with customised marketing in a way that empowers consumers to design the product and service offering of their choice.

Segmenting consumer markets Geographic Demographic Psychographic Behavioural

Claritas’ PRIZM Education and affluence Family life cycle Urbanisation Race and ethnicity Mobility For a discussion on how to maximise revenue using PRIZM, watch this video clip: www.youtube.com/watch?v=LtFHyaJvkiw

Demographic segmentation Age and life cycle Life Stage Gender Income Generation Social class

Mini cooper: generation targeting Memories for baby boomers and a cool car for 20 year olds Source: Sandro Campardo/AP/PA Photos

Psychographic segmentation Psychographic segmentation divides buyers into different groups on the basis of traits, lifestyles or values. For a discussion on demographic vs psychographic segmentation view this video: www.youtube.com/watch?v=4A-1qfiz4EQ

Forces shaping social change Table 10.4 The forces shaping social change Source: L. Hasson (1995) Monitoring social change, International Journal of Market Research, 37(1), 69–80. Copyright © 1995 Market Research Society (www.ijmr.com). Reproduced with permission

SINUS typology Table 10.5 SINUS typology

The VALS system Figure 10.2 The VALS™ segmentation system: an eight-part typology Source: VALS™. Copyright © SRI Consulting Business Intelligence. Reproduced with permission

Behavioural segmentation: decision roles Initiator Influencer Decider Buyer User

Behavioural segmentation: behavioural variables Occasions Benefits User status Usage rate Buyer-readiness Loyalty status Attitude John Kelly makes the case for behavioural segementation in this video clip: www.youtube.com/watch?v=5gNus1ePAdg

The brand funnel illustrates variations in the buyer-readiness stage Aware Ever tried Recent trial Occasional user Regular user Most often used

Figure 10.3 Brand funnel

Loyalty status Hard-core Split loyals Shifting loyals Switchers

Attitudes about product purchases Enthusiastic Positive Indifferent Negative Hostile

Behavioural segmentation breakdown Figure 10.4 Behavioural segmentation breakdown

The conversion model Nonusers Users Convertible Shallow Average Entrenched Nonusers Users Strongly unavailable Weakly unavailable Ambivalent Available

Segmenting for business markets Demographic Operating variable Purchasing approaches Situational factors Personal characteristics

Steps in segmentation process Needs-based segmentation Segment identification Marketing-mix strategy Segment attractiveness Segment profitability Segment positioning Segment acid test

Effective segmentation criteria Measurable Substantial Accessible Differentiable Actionable

Patterns of target market selection Figure 10.5 Five patterns of target market selection Source: Adapted from D. F. Abell (1980) Defining the Business: The Starting Point of Strategic Planning, Upper Saddle River, NJ: Prentice Hall, Chapter 8, pp. 192–6. Copyright © 1980. Reproduced with permission from Pearson Education, Inc.

Patterns of target market selection (continued) Figure 10.5 Five patterns of target market selection (continued) Source: Adapted from D. F. Abell (1980) Defining the Business: The Starting Point of Strategic Planning, Upper Saddle River, NJ: Prentice Hall, Chapter 8, pp. 192–6. Copyright © 1980. Reproduced with permission from Pearson Education, Inc.

Patterns of target market selection (continued) Figure 10.5 Five patterns of target market selection (continued) Source: Adapted from D. F. Abell (1980) Defining the Business: The Starting Point of Strategic Planning, Upper Saddle River, NJ: Prentice Hall, Chapter 8, pp. 192–6. Copyright © 1980. Reproduced with permission from Pearson Education, Inc.

Figure 10.6 Segment-by-segment invasion plan

What is positioning? Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the mind of the target market. For an interesting bookmercial for Ries and Trout watch this video: www.youtube.com/watch?v=EE4YAIuccIs

Examples of Value propositions Table 10.8 Examples of value propositions Source : M. R. V. Goodman, Durham University

Defining associations Points-of-difference (PODs) Attributes or benefits consumers strongly associate with a brand, positively evaluate and believe they could not find to the same extent with a competitive brand. Points-of-parity (POPs) Associations that are not necessarily unique to the brand but may be shared with other brands.

Establishing category membership Announcing category benefits Comparing to exemplars Relying on the product descriptors

Consumer desirability criteria for PODs Relevance Distinctiveness Believability

Deliverability criteria for PODs Feasibility Communicability Sustainability

Negatively correlated attributes and benefits Table 10.10 Examples of negatively correlated attributes and benefits

Addressing negatively correlated PODs and POPs Present separately Leverage equity of another entity Redefine the relationship

Understanding competitive structure of a market How do customers view the brand? Which competitive brands do customers perceive to be their closest competitors? What market offering and company attributes are most responsible for these perceived differences?

What is perceptual mapping? Perceptual (or positioning) mapping is a marketing tool that enables marketers to plot the position of their offering against those of the competition? For advice on how to do a perceptual map go to the following video clip: www.youtube.com/watch?v=wphoXc0qANE Figure 10.7 Example positioning map of the UK chocolate block sector market Source : M. R. V. Goodman, Durham University

Differentiation strategies Product Personnel Channel Image

Product differentiation Product form Features Performance Conformance Durability Reliability Reparability Style Design Ordering ease Delivery Installation Customer training Customer consulting Maintenance

Recap: can you explain? How can a company divide a market into segments? How should a company choose the most attractive target markets? What are the requirements for effective segmentation?

Recap: can you explain? (continued) How can a firm create, develop and communicate a successful positioning strategy? How can companies seek to positively differentiate their offerings in today’s market conditions? When might companies need to reposition their market offerings and what are the main inherent risks of such a strategy?