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

©2012 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.

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-3 C HAPTER 8 O BJECTIVES, CONT.  Outline the five 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

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8-5 THE FLOWERS STORY, CONT.  In Q4 2009, the firm’s Web site had 767,360 daily visitors, $238.5 million in sales and drew 656,000 new customers.  Why do you think better segmentation and targeting lead to reduced phone time and lower costs?

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-6  Jim McCann started Flowers as a traditional retailer in New York City in  In 1995, he extended the brand to the Internet.  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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8-8 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.

©2012 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.

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-10 T HREE B ASIC M ARKETS

©2012 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)  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.

©2012 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 384 million users.  U.S. has 234 million users.  Japan has 96 million users.  Geographic markets may also be evaluated by infrastructure variables and language spoken.

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-13 T OP I NTERNET L ANGUAGES

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-14  In developed nations, users are much like the mainstream population demographically.  The heaviest Internet penetration in 2010: 18-29, white, suburban, earn $75,000+, and highly educated.  Four market segments are of great interest to e- marketers.  Millennials  Kids  Ethnic Groups  Online opinion leaders (Influentials) D EMOGRAPHIC S EGMENTS

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-15 M ILLENNIALS  Of those born between 1979 and 1994, over 90% use the Internet.  “Confident, connected, and open to change.”  75% have a social networking profile, 83% sleep with their cell phones, and 80% sent a text message in the past 24 hours.  This group is a marketing proving ground for the future.

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-16 K IDS  The number of kids under 16 online is increasing.  Kids 8-12 do a number of activities online:  Play online games (78.1%)  Homework (34.2%)  Music (28.6%)  Videos (26.2%)  Surf Web (22.7%)  (20.4%)

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-17 E THNIC G ROUPS  Hispanics, African Americans, and Asians are important online markets.  English-speaking Hispanics have a 64% Internet adoption rate.  They access the Internet with a handheld device more than non-Hispanic Caucasians.  African Americans are one of the largest and most quickly growing ethnic groups online.  They have a 70% rate of adoption and tend to be younger, more highly educated, and more affluent than African Americans not using the Internet.

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-18 I NFLUENTIALS  Influentials are individuals who influence others, driving change in America.  Represent 10% of the population, 15% of Internet users.  82% of influentials have Internet access, compared with 76% of the general U.S. population.

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-19 P SYCHOGRAPHIC S EGMENTS  User psychographics include:  Personality (e. g other-oriented vs self- oriented)  Values deeply held principles (e.g. religious, beliefs)  Lifestyles & Activities refer to non-product related behavior (e.g. playing sports or eating out)  Interests & Opinions are attitudes and beliefs people hold (e.g. internet is waste of time, others they could not exist without )

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-20 I NTEREST C OMMUNITIES  Exhibit 8.8 lists 10 important types of online communities, including social networking,  Six degrees of separation  Social bonding.  Ways to target online communities.  Provide online chats, bulletin boards, and events.  Advertise on another firm’s community site.  The firm can join the community and post as a member.  Advantages & disadvantages

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-21  Attitudes – internal evaluations about people, products, and other objects  Behaviors – what a person physically does.  Psychographic information helps e-marketers define and describe market segments.  Some 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.  Forrester identified 10 consumer Technographics segments in the U.S. A TTITUDES AND B EHAVIORS

T ECHNOGRAPHICS  Technographics – measures consumer and business attitudes toward technology  Are you optimistic or pessimistic toward technology?  Income level  Primary motivation for going online  Results revealed that  Technology optimism declines with age  Men are more optimistic  40% of high income citizens are optimistic ©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-22

T ECHNOGRAPHICS, C ONT.  How to use these information  high income optimists shop online  Low-income pessimistic not a good market  Early adopters: high-income technology optimists - first consumers to shop online  Leggards: low- income technology pessimists - last consumers to shop online  Companies can use Technographics segments to profile consumers who shop online & where to allocate resources  Assist businesses with product development and launches, lead generations, cross-selling opportunities, customer service, and brand building. ©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-23

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-24  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: 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

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-25 B ENEFIT S EGMENTS  The Internet offers something for everyone: information, entertainment, news, social meeting places, etc. Thus, design products and services to meet those needs.  More practical approach than demographic one  To determine benefits sought, marketers can look at what people actually do online.  Online activities: connect, create, learn, enjoy, trade.  Popular Web sites  Most popular, according to comScore.com:  Google  Yahoo!  Microsoft  AOL  Facebook

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-26 U SAGE S EGMENTS  Marketers can segment according to how consumers use the Internet.  Home and work access Important because of different needs of how to use the internet Households have more than one computer connected wirelessly to the internet. 60% of all U.S. users have broadband connectivity at home. Nielsen/NetRatings estimated 69.7 million accessed the Internet from work; million from home.  Mobile access Using smartphones to access Internet apps Biggest use in 2010 was for text and Web browsing. Outline the five types of Internet usage segments and their characteristics

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-27 S OCIAL M EDIA E NGAGEMENT S EGMENTS

O NLINE E NGAGEMENT L EVEL  Users are actively participating by adding content for others to view. Social media engagement segments:  Creators  Critics  Collectors  Joiners  Spectators  Inactives  Industry-Specific Usage Segments  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 ©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-28

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-29 T ARGETING O NLINE C USTOMERS  E-marketers select a targeting strategy.  Which targets to serve online  Which in the brick-and-mortar location  Other factors (catalog) Describe two important coverage strategies e- marketers can use to target online customers.

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-30 T ARGETING O NLINE C USTOMERS, C ONT.  Two targeting strategies are well-suited for the Internet.  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.

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-31  Kotler & Keller define differentiation as the process of adding meaningful and valued differences to distinguish the company’s offering from the competition.  There are a number of differentiation dimensions and strategies for their accomplishment. D IFFERENTIATION O NLINE Define differentiation and positioning and give examples of companies using them.

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-32 DIFFERENTIATION DIMENSIONS  A firm can differentiate along five dimensions:  Product  Service  Personnel  Channel  Image

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-33  There are six differentiation strategies unique to online businesses. Site Environment/Atmospherics  Atmospherics – in-store environment created by retailers.  Websites with easy downloads, accurate and clear information, easy navigation. Build Trust  Paying online requires trust  Strong brand recognition.  Privacy policy.  Safe and encrypted payment process for transactions INTERNET-SPECIFIC DIFFERENTIATION STRATEGIES

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-34 Efficient and Timely Order Processing  Ease of ordering very important  Automated updates important Pricing  Easy to imitate  Majority of firms today differentiate themselves in other ways besides pricing.  Pricing is transparent Customer Relationship Management (CRM)  Managing long-term relationships with customers.  Tracking customer habits  Creates a more efficient shopping environment Invite User-generated Content  The key is to trust customers, listen, respond, and learn (e.g. YouTube, Flickr…) INTERNET-SPECIFIC DIFFERENTIATION STRATEGIES, CONT.

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-35  Positioning is the process of creating a desired image for a company and its products in the minds of a chosen user segment.  The e-marketer’s goal is to build a position on one or more bases that are relevant and important to the consumer.  Firms can position brands, the company, the CEO, or individual products. P OSITIONING

©2012 PEARSON EDUCATION, INC. PUBLISHING AS PRENTICE HALL 8-36  Product or service attributes  Technology position  Benefits position  User category position  Competitor position  Integrator position BASES AND STRATEGIES FOR POSITIONING

8-37 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 © 2012 Pearson Education, Inc. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall