Segmenting & Targeting Customers (Topic 7)

Transcription

1 Segmenting & Targeting Customers (Topic 7)

2 Topic 7: Segmenting & Targeting Core issue: what types of customers are there in the market, which type will we concentrate on, and how can we do so distinctively? Objectives Describe the steps involved in target marketing Explain market segmentation Discuss alternative ways of segmenting markets Discuss how to select target market segments 2

3 Case Study Procter & Gamble Sells multiple brands within the same product category for a variety of products Brands feature a different mix of benefits and appeal to different segments Has also identified different niches within certain segments Product modifications are useful: Tide offers seven different product formulations to serve different niches needs 3

4 Ford s Model T Followed a Mass Market Approach 4

5 Segmentation vs Mass Marketing Market Segmentation: the act of dividing a market into distinct groups of customers who might require separate products and/or marketing mixes. Mass Marketing refers to a marketing approach whereby the same marketing mix is used for all segments. 5

6 Marketing Debate Marketing Debate Is mass marketing dead? Take a position: Affirmative = Mass marketing is dead. Negative = Mass marketing is still a viable way to build a profitable brand. 6

7 Pros and Cons of Mass Marketing Pros (Affirmatives) Cons (Negatives) 7

8 Steps in STP marketing Market Segmentation 1. Identify segmentation variables and segment the market 2. Develop profiles of resulting segments Market Targeting 3. Evaluate attractiveness of each segment 4. Select the target segment(s) Market Positioning 5. Identify possible positioning concepts for each target segment 6. Select, develop, and communicate the chosen positioning concept 8

9 The purpose of market segmentation Different Buyers have different Needs To identify groups of customers who have like needs (which are distinct from the needs of other groups) to ascertain whether they will require different products and different marketing mixes. 9

10 Basic Market Preference Patterns for Ice Cream Buyers 10 Exercise on cars eg.. Mercedes, BMW, Toyota, SUVs, MPVs,, Sports,

11 Market Segmentation: Definition Dividing a market into distinct groups with distinct needs, characteristics, or behavior who might require separate products or marketing mixes. 11

12 MARKET SEGMENT A market segment is a particular group or sub-group of consumers within a market who have similar characteristics A market segment is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs A portion of the entire market that your company is targeting 12 Week 5: Chapter 10 Market Segments

13 MARKET SEGMENTATION Process of dividing the market according to similarities among various subgroups within the market Segment based on common characteristics Age, Sex, Income, Region, etc Segment based on common needs and desires Low calorie food/drinks Mobile location information 13 Week 5: Chapter 10 Market Segments

14 MARKET SEGMENTATION Marketing does not create segments Marketing just identifies the segments Decide which segments to target with marketing mix (4P s) 14 Week 5: Chapter 10 Market Segments

15 MARKET SEGMENTATION LEVELS Mass Marketing large, general population segment Seller uses mass production, mass distribution, mass promotion Creates largest potential market 15 Week 5: Chapter 10 Market Segments

16 MARKET SEGMENTATION LEVELS Levels of Market Segmentation Mass Marketing Micro-Marketing Segment Niches Local area Individuals 16 Week 5: Chapter 10 Market Segments

17 MICRO MARKETING Micro-Marketing Segment Marketing Group of customers with similar needs and wants Car buyers looking for fuel-efficient car College students Low income familes Environmentally friendly people Car buyers looking for luxury car Older men Young professional 17 Week 5: Chapter 10 Market Segments

18 MICRO MARKETING Micro-Marketing Niche Marketing Narrowly defined group seeking distinctive mix of benefits Estee Lauder (8 of 10 best selling skin care products) Estee Lauder has several different brands to fill niche Estee Lauder: special needs of old women Clinique: special needs of middle-age women 18 MAC: special needs of young women Week 5: Chapter 10 Market Segments

19 MICRO MARKETING Micro-Marketing Local Area Marketing Adjust the 4P s based on region and people in that region Supermarkets in US Large selection of Mexican food products in central CA Large selection of Asian, Indian food products in northern CA Portland, Oregon USA - Real Estate Agents High % of people who ride bicycles to work Green, evironmentally-friendly city Agents take clients on bicycles to show buyers the location and bikefriendliness of area 19 Week 5: Chapter 10 Market Segments

20 MICRO MARKETING Micro-Marketing Individual / One-to-One Marketing - Ultimate Goal Personalization know each customer Customization make different product for each customer Acumins producer of vitamins and supplements personalized to the individual health needs of its customers custom blend-and-pack all vitamins and nutrients into single pills enables people to take fewer, more targeted vitamins by consolidating the daily intake of supplements into fewer capsules 20 Week 5: Chapter 10 Market Segments

21 Segmenting Consumer Markets Geographical segmentation Demographic segmentation Most popular segmentation Psychographic segmentation Lifestyle, social class, and personalitybased segmentation Behavioral segmentation 21

22 Geographic Segmentation Variables World region or country U.S. region State City Neighborhood City or metro size Density Climate Geographic climate for clothing lines 22

23 Demographic Segmentation Variables Age Gender Family size Family life cycle Income Occupation Education Religion Race Generation Nationality Demographics Age group for mobile phones (e.g. Gucci /Gucci Kidswear) (Giorgio, Emporio, AX) 23

24 Psychographic Segmentation Variables Lifestyle Personality Values Social Class & status Psychographics personality for political choices and brands eg Nike 24

25 Behavioral Segmentation Variables Occasions Benefits User Status Attitude Toward the Product User Rates Loyalty Status Readiness Stage Behavioural occasions for drinking eg football events, the races 25

26 Segmenting Business Markets Demographic segmentation Industry, company size, location Operating variables Technology, usage status, customer capabilities Purchasing approaches Situational factors Urgency, specific application, size of order Personal characteristics Buyer-seller similarity, attitudes toward risk, loyalty 26

27 Segmenting International Markets Geographic segmentation Location or region Economic factors Population income or level of economic development Political and legal factors Type / stability of government, monetary regulations, amount of bureaucracy, etc. Cultural factors Language, religion, values, attitudes, customs, behavioral patterns 27

28 SEGMENTING CONSUMERS Demographic for ipod Nano years Income RMB 200,000 Single Female University Graduate Owns PC, mobile phone Has high-speed internet Member of fitness club Active in outdoor sports 28 Week 5: Chapter 10 Market Segments

29 SEGMENTING CONSUMERS China world s biggest market! 29 Week 5: Chapter 10 Market Segments

30 BB&T Bank s B-to-B advertising targeting small business owners 30

31 Break 31

32 The VALS Segments VALS places U.S. adult consumers into one of eight segments based on their responses to the VALS questionnaire. The main dimensions of the segmentation framework are primary motivation (the horizontal dimension) and resources (the vertical dimension). The basic tenet of VALS is that people express their personalities through their behaviors. VALS specifically defines consumer segments on the basis of those personality traits that affect behavior in the marketplace. Rather than looking at what people do and segregating people with like activities, VALS uses psychology to segment people according to their distinct personality traits. The personality traits are the motivation the cause. Buying behavior becomes the effect the observable, external behavior prompted by an internal driver. 32

33 Descriptions of the VALS types: Innovators Thinkers Achievers Experiencers Believers Strivers Makers Survivors 33

34 Primary Motivation Consumers buy products and services and seek experiences that fulfill their characteristic preferences and give shape, substance, and satisfaction to their lives. An individual's primary motivation determines what in particular about the self or the world is the meaningful core that governs his or her activities. Consumers are inspired by one of three primary motivations: ideals, achievement, and self-expression. Consumers who are primarily motivated by ideals are guided by knowledge and principles. Consumers who are primarily motivated by achievement look for products and services that demonstrate success to their peers. Consumers who are primarily motivated by self-expression desire social or physical activity, variety, and risk. Resources A person's tendency to consume goods and services extends beyond age, income, and education. Energy, self-confidence, intellectualism, novelty seeking, innovativeness, impulsiveness, leadership, and vanity play a critical role. These personality traits in conjunction with key demographics determine an individual's resources. Different levels of resources enhance or constrain a person's expression of his or her primary motivation. 34

35 Survey Sample Sex: Male Female 37. Age: or over 38. What is the highest level of formal education you have completed? Grade 8 or less Grades 9-11 High School 1-3 years of college College (4 years) Attended or completed graduate school 39. What was your total household income before taxes for the past calendar year (January through December)? (Please include income from all sources, including salaries, pensions, interest, dividends, bonuses, capital gains, profits, other.) less than $10,000 $10,000 - $14,999 $15,000 - $19,999 $20,000 - $24,999 $25,000 - $29,999 $30,000 - $39, I am often interested in theories. Mostly disagree Somewhat disagree Somewhat agree Mostly agree 2. I like outrageous people and things. Mostly disagree Somewhat disagree Somewhat agree Mostly agree 3. I like a lot of variety in my life. Mostly disagree Somewhat disagree Somewhat agree Mostly agree 4. I love to make things I can use everyday. Mostly disagree Somewhat disagree Somewhat agree Mostly agree 5. I follow the latest trends and fashions. Mostly disagree Somewhat disagree Somewhat agree Mostly agree 11. I would rather make something than buy it. Mostly disagree Somewhat disagree Somewhat agree Mostly agree 12. I dress more fashionably than most people. Mostly disagree Somewhat disagree Somewhat agree Mostly agree 13. The federal government should encourage prayers in public schools. Mostly disagree Somewhat disagree Somewhat agree Mostly agree 14. I have more ability than most people. Mostly disagree Somewhat disagree Somewhat agree Mostly agree 35

36 Effective segmentation To be useful an identified segment must be: measurable - size, purchasing power and characteristics can be measured substantial profitable accessible - through promotion or word of mouth differentiable - so they have different marketing mixes actionable - can be done Should targeting of markets also be ethical? 36

37 Target Marketing Target Market Consists of a set of buyers who share common needs or characteristics that the company decides to serve 37

38 Target Marketing Evaluating Market Segments Segment size and growth Segment structural attractiveness Level of competition Substitute products Power of buyers Powerful suppliers Company objectives and resources 38

39 Target Marketing Selecting Target Market Segments Undifferentiated (mass) marketing Differentiated (segmented) marketing Concentrated (niche) marketing Micromarketing (local or individual) 39

40 Choosing a Target Marketing Strategy Considerations include: Company resources The degree of product variability Product s life-cycle stage Market variability Competitors marketing strategies 40

41 Target Marketing Socially Responsible Targeting Some segments, especially children, are at special risk Many potential abuses on the Internet, including fraud Internet shoppers Controversy occurs when the methods used are questionable 41

42 Targeting marketing sectors Mass marketing: one product for all buyers (coke) Segmentation: group in market with similar wants, purchasing power, buying attitudes and/or benefits (e.g. colgate toothpaste) Niche: small segment (e.g. Patek Philippe watches) Local: regional (local ads/community paper) One-to-one or mass customization: customers are treated as individuals (tailored suits) 42

43 Selecting target markets One Marketing Mix (1) Undifferentiated (mass) Marketing All Markets (2) Differentiated Marketing Different marketing mixes for different market segments Marketing Mix A Segment A Marketing Mix B Segment B (3) Concentrated Marketing A concentrated marketing mix that may target or serve one single segment One Marketing Mix Segment A Segment B Segment C Selecting target markets 43

44 P1 P2 P3 Patterns of target market selection Single-segment concentration M1 M2 M3 P1 Selective specialization - no synergy M1 M2 M3 P2 Patterns of target P3 market selection Product specialization in several segments e.g. microscopes P1 P2 P3 M1 M2 M3 Vertical = Product Horizontal = Market segments 44

45 Patterns of target market selection Market specialization with several products e.g. hospital supplies M1 M2 M3 P1 P2 P3 P1 P2 P3 Full market coverage M1 M2 M3 45

46 Positioning Positioning: The place the product occupies in consumers minds relative to competing products. Typically defined by consumers on the basis of important attributes. Involves implanting the brand s unique benefits and differentiation in the customer s mind. Positioning maps that plot perceptions of brands are commonly used. 46

47 Choosing a Positioning Strategy Topics Identifying possible competitive advantages Choosing the right competitive advantage Choosing a positioning strategy Differentiation can be based on Products Services Channels People Image 47

48 Market Segmentation Topics Identifying possible competitive advantages Choosing the right competitive advantage Choosing a positioning strategy How many differences to promote? Unique selling proposition Several benefits Which differences to promote? Criteria include: Important Distinctive Superior Communicable Preemptive Affordable Profitable 48

49 Market Segmentation Topics Identifying possible competitive advantages Choosing the right competitive advantage Choosing a positioning strategy Value propositions represent the full positioning of the brand Possible value propositions: More for More More for the Same More for Less The Same for Less Less for Much Less 49

50 Developing a Positioning Statement Positioning statements summarize the company or brand positioning EXAMPLE: To (target segment and need) our (brand) is (concept) that (point-of-difference) Relentless Pursuit Of Perfection 50

51 Communicating the Positioning Companies must be certain to DELIVER their value propositions. Positions must be monitored and adapted over time. 51

52 TECHNOLOGY ADOPTION CURVE Traditional Product Life Curve Same product Growth of market Product is retired / improved Can be 2-20 years Product Cost 52 Week 5: Chapter 10 Market Segments

53 TECHNOLOGY ADOPTION CURVE Model that classifies adopters of innovations into various categories 53 Week 5: Chapter 10 Market Segments

54 TECHNOLOGY ADOPTION CURVE Innovators Brave people, willing to trial new products Want satisfaction of having the most modern technology Innovators are very important communication channel 3% Innovators Time 54 Week 5: Chapter 10 Market Segments

55 TECHNOLOGY ADOPTION CURVE Early Adopters 13% Early Adopters Younger, more educated Respected opinion leaders within social networks Experiment with new ways to use technology Time 55 Week 5: Chapter 10 Market Segments

56 TECHNOLOGY ADOPTION CURVE Early Majority 34% Early Majority Practical people Technology helps solve problems Accept change more quickly than average people Time 56 Week 5: Chapter 10 Market Segments

57 TECHNOLOGY ADOPTION CURVE Late Majority Skeptical people Will use new ideas or products only when the majority does Late Majority 34% Time 57 Week 5: Chapter 10 Market Segments

58 TECHNOLOGY ADOPTION CURVE Laggards Stick to the "old ways Critical about new ideas Must accept if old technology is not available Laggards 16% Time 58 Week 5: Chapter 10 Market Segments

59 TECHNOLOGY ADOPTION CURVE Look more at needs and behavior of consumer Unless you get majority to use your technology, your product will fail! Product Cost 59 Week 5: Chapter 10 Market Segments

60 TECHNOLOGY ADOPTION CURVE Businesses adoption curve for Internet in USA Travel Industry Traditional Retailers Banking News & Publishing Real Estate Time 60 Week 5: Chapter 10 Market Segments

61 TECHNOLOGY ADOPTION CURVE Digital Camera News Media Advertising Agencies, Companies w/ websites Young Adults / Amateur Photographers Families Professional Photographers / Artists Time 61 Week 5: Chapter 10 Market Segments

62 TECHNOLOGY ADOPTION CURVE ipod / itunes 62 Week 5: Chapter 10 Market Segments

63 Topic 10 Pricing Decisions

64 Topic 8: Price decisions Core issue: how can we set an appropriate price for our product? Agenda: The 3 Cs of pricing Pricing objectives Pricing strategies (methods) Pricing tactics 64

65 The three Cs of pricing Price is the only P that generates income! The critical considerations are: Customer demand (ideal top price) Competition (affects whether the top is possible) Cost (lowest, profitable price in short term) + corporate/marketing/pricing objectives 65

66 But what else affects how prices are set? What would you pay for this product? Why? What does the seller consider when setting the price they will charge customers for it? 66

67 Determining Price So: cost affects profit but not should not be used alone to set price price is determined by (1) customers value and by (2) competition price is set to achieve objectives we may need to consider impact on other products price is a clear measure of the health of the 4Ps mix 67

68 How do businesses avoid increasing prices? Decrease the size/quantity of product instead Include less expensive materials/inputs in the product Reduce the number of features Charge customers for add-on services previously for free Reduce packaging expense Create home-brand or no name versions of a product Source: Kotler & Keller (2006): p

69 Pricing Objectives Financial: ROI, profits, sales volume, cost recovery - short/long term Competitive: market share, image, price leader, discourage entry Customer orientated: image (prestige, fair) build loyalty 69

70 PRICING OBJECTIVE Determine Pricing Objective Survival If over-capacity, intense competition Short-term objective, must re-adjust to survive long-term Maximize Profit Maximize current performance Must anticipate long-term reaction by competitors, customers 70 Week 7: Chapters 14 & 16 Products, Branding, Pricing

71 PRICE SENSITIVITY Demand - Price Sensitivity Products purchased more often are sensitive Products with high prices are more sensitive 71 Week 7: Chapters 14 & 16 Products, Branding, Pricing

72 Pricing Strategy Two general approaches: 1. Cost-based pricing mark-up pricing marginal pricing break-even analysis target ROI 72

73 Case Study Priceline.com Buyer-driven commerce concept offers lower prices to consumers and the ability to sell excess inventory to sellers 13.5 million user customer base Tremendous growth Most deals relate to travel or time sensitive / perishable services Not all ventures have been profitable Some customers find it difficult to commit to purchase prior to learning details 73

74 Definition Price The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service. 74

75 What is Price? Price Has Many Names Rent Fee Rate Commission Assessment Tuition Fare Toll Premium Retainer Bribe Salary Wage Interest Tax Goal 1: Identify and define internal factors affecting pricing decisions 75

76 What is Price? Dynamic Pricing on the Web allows SELLERS to: Monitor customer behavior and tailor offers. Change prices on the fly to adjust for changes in demand or costs. Aid consumers with price comparisons. Negotiate prices in online auctions and exchanges. 76

77 What is Price? Price and the Marketing Mix: Only element to produce revenues Most flexible element Can be changed quickly Common Pricing Mistakes Reducing prices too quickly to get sales Pricing based on costs, not customer value 77

78 Break 78

79 Factors to Consider When Setting Price Marketing objectives Marketing mix strategies Costs Internal Factors Organizational considerations Market positioning influences pricing strategy Other pricing objectives: Survival Current profit maximization Market share leadership Product quality leadership 79

80 Factors to Consider When Setting Price Marketing objectives Marketing mix strategies Costs Internal Factors Organizational considerations Pricing must be carefully coordinated with the other marketing mix elements Target costing is often used to support product positioning strategies based on price Nonprice positioning can also be used 80

81 Factors to Consider When Setting Price Marketing objectives Marketing mix strategies Costs Internal Factors Organizational considerations Types of costs: Variable Fixed Total costs How costs vary at different production levels will influence price setting Experience (learning) curve affects price 81

82 Factors to Consider When Setting Price Internal Factors Marketing objectives Marketing mix strategies Costs Organizational considerations Who sets the price? Small companies: CEO or top management Large companies: Divisional or product line managers Price negotiation is common in industrial settings where pricing departments may be created 82

83 Factors to Consider When Setting Price External Factors Nature of market and demand Competitors costs, prices, and offers Other environmental elements Types of markets Pure competition Monopolistic competition Oligopolistic competition Pure monopoly Consumer perceptions of price and value Price-demand relationship Demand curve Price elasticity of demand 83

84 Factors to Consider When Setting Price External Factors Nature of market and demand Competitors costs, prices, and offers Other environmental elements Consider competitors costs, prices, and possible reactions Pricing strategy influences the nature of competition Low-price low-margin strategies inhibit competition High-price high-margin strategies attract competition Benchmarking costs against the competition is recommended 84

85 Factors to Consider When Setting Price External Factors Nature of market and demand Competitors costs, prices, and offers Other environmental elements Economic conditions Affect production costs Affect buyer perceptions of price and value Reseller reactions to prices must be considered Government may restrict or limit pricing options Social considerations may be taken into account 85

86 Pricing concepts Demand curve (assumes other things held constant and so is rarely available in the real world for a firm)» Price sensitivity - not so if distinctive/differentiated, few substitutes, differences hard to compare, price is small, small part of total expenditure cost or of income Price elasticity of demand is similar to price sensitivity but is more precise - it is is % change in units demanded for a 1 % change in price Inelastic or elastic? elasticities of a loaf of ordinary bread and a bottle of wine? Note inverse price elasticity like perfume 86

87 PRICE SENSITIVITY Demand - Price Sensitivity Products purchased more often are sensitive Products with high prices are more sensitive 87 Week 7: Chapters 14 & 16 Products, Branding, Pricing

88 General Pricing Approaches Cost-Based Pricing: Cost-Plus Pricing Adding a standard markup to cost Ignores demand and competition Popular pricing technique because: It simplifies the pricing process Price competition may be minimized It is perceived as more fair to both buyers and sellers 88

89 General Pricing Approaches Cost-Based Pricing Example - Variable costs: $20 - Fixed costs: $ 500,000 - Expected sales: 100,000 units - Desired Sales Markup: 20% Variable Cost + Fixed Costs/Unit Sales = Unit Cost $20 + $500,000/100,000 = $25 per unit Unit Cost/(1 Desired Return on Sales) = Markup Price $25 / (1 -.20) = $

90 General Pricing Approaches Cost-Based Pricing: Break-Even Analysis and Target Profit Pricing Break-even charts show total cost and total revenues at different levels of unit volume. The intersection of the total revenue and total cost curves is the break-even point. Companies wishing to make a profit must exceed the break-even unit volume. 90

91 Other Pricing Tactics To achieve specific short term objectives e.g.: move high stocks attract more customers create product awareness encourage trial 91

92 PRICING OBJECTIVE Determine Pricing Objective Maximize Market Share (Market Penetration) Believe more sales will lower costs, increase long-term profit Assumes price sensitive market Market Skimming New technology allows high pricing to capture known demand Maximize price consumer willing to pay SONY HDTV: 1990 price $43,000 / 2001 price $2,000 Product-Quality Leader Maytag washing machine never need repair New product quality leadership built around features 92 Week 7: Chapters 14 & 16 Products, Branding, Pricing

93 PRICING METHODS Markup Pricing (Cost Plus) Add standard % markup to product cost Does not need minimum volume to set price ROI Pricing Price is determined by ROI % target Assumes minimum volume to reach ROI targets 93 Week 7: Chapters 14 & 16 Products, Branding, Pricing

94 General Pricing Approaches Value-Based Pricing: Uses buyers perceptions of value rather than seller s costs to set price. Measuring perceived value can be difficult. Consumer attitudes toward price and quality have shifted during the last decade. Value pricing at the retail level (EDLP) vs. high-low pricing 94

95 PRICING METHODS Perceived-Value Pricing Pay premium for BRAND Reliability, durability, warranty, service Catepillar tractors, Maytag washing machines Value Pricing Relatively low-price for good quality IKEA Wal-Mart Everyday Low Pricing Little or no promotions 95 Week 7: Chapters 14 & 16 Products, Branding, Pricing

96 PRICING METHODS Going-Rate Pricing Price based upon competitors Smaller firms follow market leader Reflects collective wisdom of market players Auction Pricing Several varieties Online auctions can include millions bidders 96 Week 7: Chapters 14 & 16 Products, Branding, Pricing