Slides 1-14 Precursor to Segmentation ( Topic 4)

What is a Business Market? Business Buyer BehaviourBusiness Buyer Behaviour refers to the buying behaviour of: all the organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. The business market is huge and involves many more dollars and items than consumer markets.

ORGANISATIONAL BUYING BEHAVIOUR How does BT’s appeal to business customers differ from its appeal to domestic customers?

Some Examples of Organizational Buying  Paper cups by McDonald's  Computer chips by Toshiba  Concrete by Local Authorities  Oil by Electricity Generators  Fertiliser by Farmers  Accountancy services by Ltd. Companies  TV’s by Comet or Dixons

4-5 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Stages of the Business Buying Process Problem Recognition General Need Description Product Specification Supplier Search Proposal Solicitation Supplier Selection Order Routine Specification Performance Review

4-6 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 B2B and Consumer Markets_1 B2B customers Purchase products to meet specific business needs Emphasize economic benefits Use formal, lengthy purchasing policies and processes Consumer customers Purchase products to meet individual or family needs Emphasize psychological benefits Buy on impulse or with minimal processes

4-7 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 B2B and Consumer Markets_4 B2B customers Purchase direct from suppliers Justify an emphasis on personal selling Consumer customers Purchase from intermediaries Justify an emphasis on mass media

4-8 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 B2B and Consumer Markets_2 B2B customers Involve large groups in purchasing decisions Buy large quantities infrequently Want a customised product package Consumer customers Purchase as individuals or as a family unit Buy small quantities frequently Are content with standardised product packages

4-9 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 B2B and Consumer Markets_3 B2B customers Experience major problems if supply fails Find switching suppliers difficult Negotiate on price Consumer customers Experience minor irritation is supply fails Find switching suppliers easy Accept stated price

4-10 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 B2B and Consumer Markets_4 B2B customers Purchase direct from suppliers Justify an emphasis on personal selling Consumer customers Purchase from intermediaries Justify an emphasis on mass media

4-11 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Types of B2B Customers Commercial enterprises Government bodies Institutions

4-12 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Figure 3.5 Family as a Decision-Making Unit (See Topic 3) Initiator Influencer User Decider Purchasing Decision Purchaser

Participants in the Business Buying Process: The Buying Centre Buying Center UsersGatekeepers BuyersDeciders Influencers

Decision-making Unit Buyer Decider (Decision Maker) User Gatekeeper Influencer Decider Initiator

Decision-making Unit Buyers choose suppliers and negotiate purchase terms often reducing the actual purchase to a clerical task. Users actually use the product. They may be the one who initiates the purchase process and may develop the product specification. Deciders (Decision Makers) have the authority to approve the purchase. Deciders (Decision Makers) have the authority to approve the purchase. Influencers supply information and advice. Outsiders such as consultants sometimes perform the role. Gatekeepers control the flow of information to the buying centre. Purchasing department Staff frequently fill the role but it could be any member of the organization. Deciders have the authority to select the supplier or model. Initiators begin the purchase Process. Initiators begin the purchase Process.

Choice Criteria Types.  Economic. e.g. price, return on investment.  Technical. e.g. reliability, delivery.  Social (Organizational). e.g. status, office politics.  Personal. e.g. personal risk reduction, liking/disliking. In all cases PERCEPTION is critical.

4-17 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Buying Criteria: Economic Influences Appropriate prices Quality consistency Product specification Supply reliability and continuity Customer service

4-18 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Buying Criteria: Non-Economic Influences Prestige FriendshipCareer security Other personal needs Trust

Topic 4 segmenting markets

4-20 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 learning objectives_1 Define the concept of Segmentation. Explain how both B2B and consumer markets can be broken down into smaller, more manageable groups of similar customers

4-21 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 learning objectives_2 Understand the effects on the marketing mix of pursuing specific segments Understand the potential benefits and risks of segmentation Appreciate the role of segmentation in strategic marketing thinking

4-22 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Segmentation Defined Segmentation is the art of discerning and defining meaningful differences between groups of customers to form the foundations of a more focused marketing effort.

4-23 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 The need for market segmentation Marketers understand that they cannot be all things to all people, all of the time. Buyers and markets are too complex and diverse for one simple marketing formula to adequately address the needs of all.

4-24 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 WHAT IS SEGMENTATION ABOUT? “The identification of sub-sets of buyers within a market who share similar needs and who have similar buying processes” Companies aim to satisfy the needs of specific market segments better than anybody else

Segmentation the Concept Customer orientated concept - based on understanding customers. Practical - breaking large markets down into manageable parts or groups. Proactive part of developing a marketing strategy. Consumer markets and B2B markets segmented differently.

Segmentation Process Defining the boundaries of the market - what business are we in?, and looking at the world through the customers’ eyes. Targeting customers.

4-27 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 eg business and consumer travel markets

4-28 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 The Segmentation Process Source: Kotler et al, 2003.

4-29 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 B2B Segmentation Bases Macro Size Location Usage rate Micro Product Applications Technology Purchasing and decision- making processes Buyer-seller relationships

4-30 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Consumer Segmentation Similar to B2B segmentation, except –Consumer segments tend to be larger –More difficult to get close to buyer –More emphasis on lifestyle and context

4-33 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Segmenting Consumer Markets Bases for Segmentation Geographic Demographic Psychographic Behavioral Age, race, gender Income, education Family size Family life cycle Occupation Religion, nationality Generation Social class

DEMOGRAPHIC SEGMENTATION Age Family life cycle Gender Ethnicity Household composition

4-35 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Segmenting Consumer Markets Bases for Segmentation Geographic Demographic Psychographic Behavioral Occasions Benefits User status Usage rate Loyalty status Buyer-readiness Attitude

4-36 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Behaviour Segmentation End use Benefits sought Usage rate Loyalty Attitude Buyer readiness eg usage segmentation in the soup market Dinner party starter Warming snack Meal replacement Recipe ingredient Easy office lunch

4-37 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Loyalty Segments Current loyal user, continuing purchase Current customer, switching possible Occasional user, could become loyal Occasional user, switching possible Non-user, could become user Non-user, unlikely to become user

Source: Kotler et al, 2003

Benefit Segmentation The Toothpaste Market Source: Kotler et al, 2003.

4-40 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 eg Cadbury’s Market Segments Immediate eat Home stock Kids Seasonal Gift

4-41 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Psychographic Segmentation Lifestyle segmentation Categories –Activities –Interests –Opinions –Demographics Quorn targets vegetarians with meat substitutes Source: © Quorn

4-42 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 BASES FOR SEGMENTATION Main approaches: –Demographic –Socio-economic –Psychographic Approaches overlap Need to trade off measurability and usefulness

COMPREHENSIVE APPROACHES TO SEGMENTATION In reality, multiple bases for segmentation are used simultaneously Combine subjective and objective approaches

EVALUATION OF MARKET SEGMENTS Market segments need to be evaluated and ranked for possible targeting Evaluation is typically based on: –Size of segment –Growth prospects –Profitability –Competitive pressure –Fit with company objectives

4-45 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Segmentation Targeting Strategies UndifferentiatedDifferentiated Concentrated

4-46 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Undifferentiated Strategy Marketing mixThe market

4-48 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Differentiated Strategy Marketing mix 1Segment 1 Marketing mix 2 Marketing mix 3 Segment 2 Segment 3

Utilitarian Customer Trendy- Casual Price shopper Mainstream Tradition- alist LEVI’s Marketing Mix 1 Marketing Mix 2 Marketing Mix 3 Marketing Mix 4 Marketing Mix 5 Example of Differentiated Strategy

4-50 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Concentrated Strategy Marketing mix 2Segment 2

The Concentrated Targeting Strategy The concentrated approach is the most focused and involves specialising on serving one specific segment. Can lead to very detailed knowledge of the target segment’s needs and wants. This strategy can help keep costs down as there is only one marketing mix to manage. Helps to develop a niche market.

The Differentiated Targeting Strategy Involves the development of a number of different marketing mixes for different segments. Allows a business to tailor its offerings to suit different segments. Spreads risk across market segments. Requires a detailed overview of the market and its development potential. Can dilute a company’s efforts.

The Undifferentiated Targeting Strategy Least demanding targeting strategy. Assumes that the market is one homogeneous unit with no significant differences. One single marketing mix serving all needs. Relatively inexpensive.

Segmentation – the Benefits Customers can find products/services that fit more closely to what they want. Customers can feel more responsive and loyal to organisations that speak directly to them and tailor their products accordingly. Enables organisations to target its marketing mix more closely on potential customers thus matching their needs more accurately.

Segmentation – the Benefits Enables organisations to define shopping habits. Places the customer at the core of all decisions. Enables the organisation to achieve a better understanding of itself and its environment.

Segmentation - the Dangers Risk of poor definition and implementation of psychographic segmentation. Knowing where to stop. Fragmentation of the market. Customer confusion.

4-57 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Criteria for Successful Segmentation Distinctiveness Accessibility Defendability Tangibility

Bang & Olufsen Bang & Olufsen targets upmarket consumers.

4-60 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007

4-61 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007

Segmentation and positioning Target marketing –Identifies market segments that are bite sized chunks that organisations can manage. Market segmentation –Identifies markets with common traits. Market targeting –Process of evaluation of the selected segments and then deciding which market segments to operate within. Market positioning –Process whereby marketers position the product to occupy a clear and distinctive position relative to other competing products.

Positioning strategies Product attributes –Nokia’s 6600 ‘Zoom in’. Technical items –BMW breathable fresh air filters. Benefits offered –Crest toothpaste reduces cavities. Usage occasions –Kit Kat, ‘have a break’. Users –Johnson & Johnson changing focus to incorporate adults as frequent users of their gentle Baby Shampoo. Activities –Omega, the ‘first and only watch on the moon’. Personalities –Tiger Woods for Nike

4-64 Brassington & Pettitt, Essentials of Marketing 2e, © Pearson Education 2007 Positioning strategies Origin –Perrier ‘bottled at source’. Positioned against competitors –Dell and Compaq versus IBM Positioned away from competitors –7-Up the number 1 ‘Un-cola’. Product class membership –‘I can’t believe it’s not butter’, the vegetable fat spread, is clearly positioned against butter.