1. Professor S.J. Grant Spring 2007 Segmentation and Targeting: Usage BUYER BEHAVIOR, MARKETING 3250

2. Outline What is segmentation? Why segment? How to segment? Traditional Usage based Non-users, current users, competitor’s users Benefits

3. Goal of Segmentation Why segment?  Segments seek different benefits and will, therefore, respond to different positionings  Segmenting allows a firm to identify which consumers can be most effectively reached instead of employing a broad reach  Appealing to a diverse set of users with a common product is difficult, prone to failure

4. Market Segmentation Market segmentation allows firms to: Take into account consumers’ diverse needs and differing behaviors (heterogeneity) Design marketing mix to be more closely matched with consumer needs and deliver value by precisely meeting consumer needs (i.e., consumer propositions not diluted by intra-target variance) Improve the efficiency and effectiveness of resource allocation, boosting profitability

5. How to Segment Segmentation divides diverse set of consumers into homogeneous groups that can be addressed With common positioning With common benefits With common media vehicle

6. How to Segment Criteria for selecting segments as your target? Measurable (have to be able to find them) Addressable (once you find them, must identify media to reach them) Substantial enough to support a business

7. Traditional segmentation Define segments on key descriptors (sex, age) Measure response differences across segments Usage-based segmentation Identify segments that differ on key usage dimensions Profile resulting segments on key demographic and psychographic descriptors Traditional vs. Usage Segmentation

8. Why Segment by Descriptors? No other information is available Most useful way of addressing specific segments

9. Why Segment by Usage? Communicating with consumers about a category is facilitated when a pre- existing knowledge structure in place Allows storage of information that is consistent with prior notions Persuasion is difficult when you are contradicting beliefs

10. Benefit Segmentation Segmentation acknowledges consumer heterogeneity Heterogeneity is represented by different ideal points Market segments are formed by clustering individual ideal points together Gentle Effective Ideal Point Segment 1 Ideal Point Segment 2 Bayer Excedrin Tylenol Bufferin Private Label Anacin

11. Road Warriors: Generally higher-Income, middle -aged men who drive 25,000 to 50,000 miles a year... buy premium with a credit card... purchase sandwiches and drinks from the convenience store... will sometimes wash their cars at the carwash. 18% of buyers True Blues: Usually men and women with moderate to high incomes who are loyal to a brand and sometimes to a particular station... frequently buy premium gasoline and pay cash. 16% of buyers Generation F3 (for fuel, food and fast): Upwardly mobile men and women-half under 25 years of age-who are constantly on the go... drive a lot and snack heavily from the convenience store. 27% of buyers Homebodies: Usually housewives who shuttle their children around during the day and use whatever gasoline station is based in town or along their route of travel. 21% of buyers Price Shoppers: Generally aren't loyal to either a brand or a particular station, and rarely buy the premium line... frequently on tight budgets... efforts to woo them have been the basis of marketing strategies for years. 20% of buyers ® Mobil Oil Company Market Segmentation Example

12. Segmentation Schemes Once the benefits underlying segments are understood, organizing segments according to usage is necessary for targeting Current users Heavy users Moderate users Light users Competitors’ users Non-users

13. Current Users Current users are the most important segment to target Current users have already favorable associations to the product Customer retention pays off, much more cost effective than pursuing new users Due to high cost of customer acquisition, relationship may be profitable only after 1 year

14. Current Users Current users are most likely to sustain, increase consumption Heavy users account for disproportionate share of brand’s volume 80/20 rule applies to beer drinkers Men, age 18-34, eat several meals a week at McDonald’s Heavy users of Campbell’s Soup purchase 300 cans per year A brand’s first obligation is to address current users

15. Competitors’ Users Success of a strategy that targets a competitors’ users depends on the brand’s ability to convince consumers of its superiority Difficult to change beliefs Making a challenging claim often encourages consumers to rehearse their own thoughts

16. Non-Users Targeting non-users may be warranted if targeting other segments do not enhance opportunities for growth Point-of-entry strategy Consumers who may be considering using the category, e.g. new parents, diamond ring Category build strategy Consumers who buy category for uses other than conventional ones, e.g. baking soda

17. Segmentation: Example 1 What is the most useful way to segment diaper market? Traditional variables Baby’s sex Baby’s age Baby’s weight Usage variables Benefits?

18. Segmentation: Diapers Pampers aims at parents who are expecting their first child Premium diaper Outstanding softness Rash-care Sesame Street First-time parents have unique mindset Nothing but the best Cautious Baby is precious

19. Segmentation: Diapers Luvs targets parents of 2 nd or 3 rd child “No leaks” point of difference Cheaper diaper “Live, learn and then get Luvs” Barney Rewards loyalty program

20. Segmentation: Example 2 Makers of shower gels have complex segmentation schemes Category Crazies – buy all the latest products Thrifty Concerned – want gels, but price sensitive Shower Freaks – men seeking ‘squeaky clean’ Sensible Selectors – older women seeking pH balance, buying for families Promiscuous Practicals – brand switchers Unsophisticated Bathers – prefer baths to showers Cynical Pragmatists – soap is soap

21. Segmentation: Example 2