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Segmentation and Targeting Marketing 5341 Chip Besio
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What Is Market Segmentation? Market segmentation is the subdividing of a market into distinct subsets, where any subset may conceivably be selected as a marketing target to be reached with a distinct marketing mix
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Segmentation Dilemma MASS MARKETING Economies of Scale CUSTOMIZATION Everyone Wants Something Different
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Segmentation Criteria I. Customer Characteristics II. Benefits Sought III. Customer Behaviors
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Customer Characteristics DEMOGRAPHICS Consumer Markets: –Gender –Age –Income –Dual income family Industrial Markets: –SIC code –Size of company
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Customer Characteristics PSYCHOGRAPHICS Consumer Markets: –Environmentally-conscious –Value and lifestyles VALS (1978); VALS 2 (1989) Distinct patterns based on attitudes and values Industrial Markets: –Corporate culture –Purchasing orientation
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Customer Characteristics GEOGRAPHY Regional Segmentation Zip Clustering –Distinct marketing strategies created for similar types of neighborhoods stretched across the nation –Examples include PRIZM, Market Metrics
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Benefit Segmentation WHAT BENEFIT DO YOU WANT? Rationale - The benefits people are seeking in consuming a given product are the true reasons for the existence of segments Example - Toothpaste –Cavity prevention (e.g., Crest) –Fresh breath (e.g., Aquafresh) –White teeth (e.g., Rembrandt)
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Behavior Segmentation USAGE BEHAVIORS Volume of usage –Heavy users, moderate users, light users and nonusers –80/20 rule Brand usage –Increase usage among users –Get users of competing brand to switch –Get nonusers to start Usage occasion
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What Is “Targeting” a Market Segment? “You can’t be all things to all people” Therefore, companies typically focus on one or more segments and orient their marketing activities to those (potential) customers
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Which Are the “Good” Segments to Target? The most attractive market segments are: Large Growing and have: High purchase volume High margins High customer value
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Which Are the “Good” Segments to Target? * However, the most attractive segments are frequently already well-served and so are highly competitive … so you must also consider: Number and strength of competitors Ease of entry into the segment Company’s current positioning
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Targeting Dilemma - Segment Attractiveness SEGMENT VALUE More Opportunity COMPETITION More Companies Compete for Valuable Segments
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Which Are the “Good” Segments to Target? Additional considerations for targeting: Customers are addressable - you can reach them The company is capable of building a marketing program to target them
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Targeting Examples of successful targeting: –Wal-Mart - Value-conscious shoppers that do not want to worry about short-term sales –Lexus - People with high disposable income who value reliability and service, as well as prestige and luxury –Cray - Price insensitive computer users that require maximum computing power –Dupont - Less price-sensitive innovators in the use of plastics (skim pricing)
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Porter’s Market Forces Model
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An important tool to help us understand the character of competition in a market is Michael Porter’s market forces model It assists in evaluating the attractiveness of a market for potential entry
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Porter’s Market Forces Model The character of competition in markets varies widely: “Cooperative” Competition Intense Rivalry Character of Competition in a Market
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Porter’s Market Forces Model What determines the attractiveness, or potential long-term profitability, of a market? Buyers (Buyer Power) Substitutes (Threat of Substitutes) Suppliers (Supplier Power) Potential Entrants (Threat of Mobility) Industry Competition (Segment Rivalry) Michael E. Porter
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Porter’s Market Forces Model How does the model predict the intensity of competitive rivalry?
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