SEGMENTATION, POSITIONING 5/27/2011 SEGMENTATION IDENTIFYING MEANINGFULLY DIFFERENT GROUPS

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1 SEGMENTATION, TARGETING, AND POSITIONING SEGMENTATION IDENTIFYING MEANINGFULLY DIFFERENT GROUPS OF CUSTOMERS TARGETING SELECTING WHICH SEGMENT(S) TO SERVE PRODUCT PRICE PROMOTION POSITIONING IMPLEMENTING CHOSEN IMAGE AND APPEAL TO CHOSEN SEGMENT DISTRIBUTION MKTG902 Summer 10 Harmancioglu 2 1

2 The STP Approach 1. Segment the Market Segmentation 2. Describe Segments 3. Evaluate Segment Attractiveness Targeting 4. Select Target Segments Positioning 5. Identify Position MKTG902 Summer 10 Harmancioglu 3 Definitions Segmentation: Aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a marketing action. The process of dividing a market into meaningful, relatively similar, and identifiable segments or groups. Although not all these consumers are completely alike, they share relatively similar needs and wants. Market segments are groups of customers (actual or potential) who will respond to a market mix in a similar way. MKTG902 Summer 10 Harmancioglu 4 2

3 Why STP? To be more effective. Focus a business s resources on opportunities that match its capabilities. Fine-tune product offerings to provide better value to a group of customers with common needs. Enhance understanding of competitor actions. While still being efficient. Look for ways to leverage economies of scale in production, distribution, and marketing. MKTG902 Summer 10 Harmancioglu 5 Stage 1: Segmenting the Market Key decisions to make: Do we need segmentation? Why? Cut cost? Serve customers better? Higher growth or profits? Choose segmentation method Demographic, psychographic, behavioral, value preference, etc. Decide number of segments How much aggregation is enough? MKTG902 Summer 10 Harmancioglu 6 3

4 Segmentation Identification: Consumer Markets Geographic Demographics Age, Education, Income, Marital Status, Occupation Psychographics (Lifestyles) Attitudes, Values, Activities, Interests, Political View Behavioral Quantity of Use, Time of Use, Personal, Social, Frequency of Use, Benefits Sought MKTG902 Summer 10 Harmancioglu 7 Segmentation Identification: Business Markets Firmographics Industry, company size, location. Operating Variables Technology, user status, customer capabilities. Purchasing Approaches Purchasing-function organization, power structure, nature of existing relationships, purchasing criteria. Situational Factors Urgency, specific application, specific benefit sought, size of order. Personal Characteristics Buyer-seller similarity, attitudes toward risk, loyalty. Source: Thomas V. Bonoma and Benson P. Shapiro, Segmenting the Industrial Market (Lexington, MA: Lexington Books, 1983). MKTG902 Summer 10 Harmancioglu 8 4

5 Segments--Example Air Travel Business/Executive: Inflexible; relatively price insensitive (Small number of people, p but travel often) Leisure Traveler/Student: Relatively flexible; very price sensitive (other methods of travel--e.g., bus, car, train--are feasible; travel may not be essential) (Very large segment) Comfort Travelers: Comfort (e.g., space, food) important; willing to pay (Small segment) MKTG902 Summer 10 Harmancioglu 9 Geographic Regional differences Climate and physical environment Tastes McDonald s KöfteBurger Lifestyle and values Urban vs. rural areas MKTG902 Summer 10 Harmancioglu 10 5

6 Demographics Age Gender Income More useful than income income willingness to spend! Trading Up: Consumers may splurge in certain, personally significant categories while buying more downscale in other categories Ethnicity Family lifecycle stage MKTG902 Summer 10 Harmancioglu 11 Psychographics Personality Very difficult to measure Limited empirical support Motives Lifestyle Usually more practical than personality MKTG902 Summer 10 Harmancioglu 12 6

7 Innovativeness Segments Innovators: venturesome, higher educated, use multiple information sources/ Early adopters: leaders in social setting, slightly above average education. Early majority: deliberate, many informal social contacts. Late majority: skeptical, below average social status. Laggards: fear of debt, neighbors and friends are information sources. MKTG902 Summer 10 Harmancioglu 13 Behavioral: E.g., Benefits Sought Based on Differences in arbitrary tastes (e.g., cola vs. noncola drink) Ideal point Tradeoffs (e.g., taste vs. calories) Usage situation (e.g., coffee for camping (instant) vs. higher quality for home brewing) MKTG902 Summer 10 Harmancioglu 14 7

8 Other Behavioral Bases for Segmentation Involvement Usage rate Interest Knowledge Willingness to spend time on making product category decisions Dealproneness Coupon usage Brand switching in response to price incentives Outlet (store) choice Specialty Convenience store Discount Warehouse MKTG902 Summer 10 Harmancioglu 15 Stage 2: Describe the Segment (Criteria for a segment describer) Measurable Size, purchasing power, profiles of segments can be measured. Accessible Segments must be effectively reached and served. Substantial Segments must be large or profitable enough to serve. Differentiable Segments must respond differently to different marketing mix and actions. Actionable Firm must be able to attract and serve segments. MKTG902 Summer 10 Harmancioglu 16 8

9 Stage 3: Segment Attractiveness Market Growth Size Growth rate Profits Market Competitiveness Number of Competitors Entry barriers Substitutes Market Access Ease of developing or accessing distribution channels Brand familiarity MKTG902 Summer 10 Harmancioglu 17 Stage 4: Targeting Selecting Segment(s) and Specializing choosing the segment(s) on which to focus. Profitable. Fit with firm objectives and resources. You can t be all things to all people ---> choose one or more groups. Focus narrows scope of competition, but demands are greater. Net Marketing Contribution Segment Demand Segment Share Gross Margin = [ X X ] Marketing Expense Choose segments where the organization s marketing efforts will have the greatest impact. MKTG902 Summer 10 Harmancioglu 18 9

10 Five Patterns of Target Market Selection M1 M2 M3 M1 M2 M3 M1 M2 M3 P1 P2 P3 Mass Marketing (Full Market Coverage) P1 P2 P3 M1 M2 M3 P1 P2 P3 Selective Specialization (Multi-segment targeting) P1 P2 P3 M1 M2 M3 P1 P2 P3 Niche Marketing (Single-segment Concentration) 1to1 (Micro) Marketing Market Specialization Product Specialization (combined-segment targeting) MKTG902 Summer 10 Harmancioglu 19 Stage 4: Targeting Target Profitable Segments Current Profitability Future Profit Potential Current customers / Potential customers High Low Poor Marginal High Steer to more profitability/ Future Target Divest/ Avoid Steer to more profitability/ Future Target Steer to more profitability/ Avoid Nurture/ Primary Target Retain/ Secondary Target Source: Rakesh Niraj, Jahendra Gupta, & Chakravarthi Narasimhan (2001), Customer Profitability in a Supply Chain, Journal of Marketing, 65 (July), MKTG902 Summer 10 Harmancioglu 20 10

11 Stage 5: Positioning Strategies Strategies undertaken to ensure that differences between our product and competitors has: Distinct position in customers mind Important position in customers mind End result: customer-focused value proposition, or reason why the target market/segment should buy the product/service. Process: Differentiate the product offering: Design meaningful differences into the total offering to distinguish the company s offering from competitors offerings. Develop value proposition. Create awareness among target market. Reflect the culture and strategy of the business. MKTG902 Summer 10 Harmancioglu 21 PRODUCT PRICE PREMIUM BASIC DURABLE PROMOTION POSITIONING IMPLEMENTING CHOSEN IMAGE AND APPEAL TO CHOSEN SEGMENT PREMIUM LOW PRICE VALUE DISTRIBUTION PRESTIGE FUN POWERFUL INTENSIVE SELECTIVE EXCLUSIVE MKTG902 Summer 10 Harmancioglu 22 11

12 Positioning Strategies Differentiation: A differentiation strategy is one in which a product offering is different from that of one or more competitors in a way valued by the customers. Burger King: Grilled instead of McDonald s fried burgers IKEA: Commitment-free furniture ; Low price with meaning Swatch: Plastic watches with variety and low price MKTG902 Summer 10 Harmancioglu 23 Stuck in the Middle Problem Brands that offer a clear benefit tend to do better Clear orientation ti C&A Beymen Stuck in the middle Gap, THY Competition both from above and below. Nevertheless, e e ess, there e are successful u middlelers: Migros MKTG902 Summer 10 Harmancioglu 24 12

13 Value Proposition The whole cluster of benefits the company promises to deliver MKTG902 Summer 10 Harmancioglu 25 Value Propositions Simple statements of positioning. Follow form of: To (target t group and need) our (Brand) d)i is (concept) t)that t( (point-of-difference). t Examples: To busy professionals who need to stay organized, Palm Pilot is an electronic organizer that allows you to back up files on your PC more easily and reliably than competitive products. To young, active soft-drink consumers who have little time for sleep, Red Bull is the soft drink that gives you more energy than any you can stay alert and keep going even when you haven t been able to get a good night s sleep. MKTG902 Summer 10 Harmancioglu 26 13

14 Repositioning Repositioning: Changing established position may be difficult -- e.g., McDonald s Lunch; not dinner Good for children NOTE: Repositioning is difficult. It will take a great deal of advertising support. There is no guarantee that consumers will cooperate! MKTG902 Summer 10 Harmancioglu 27 Summary Markets are segmented to better meet customer needs, to combat competition, and to use marketing resources more effectively and efficiently. Three steps in market segmentation: Segment,Target, Position. Basis for segmentation: needs/wants/preferences, then identifying characteristics. Choose segments that will be profitable and fit your resources and strategy. Position your product/service based on customer s perceptions, not on attributes. MKTG902 Summer 10 Harmancioglu 28 14