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• Customers differ in what they care about, how they decide, where
they buy, and how they use products. So a company cannot be
“everything to everybody” with the same offering. Market
segmentation is a “divide and conquer” strategy that recognizes
the differences across customers, and creates focused strategies
for each segment.
• Firms that recognize that recognize differences across groups of
customers and create segment-specific strategies can deploy
marketing resources more effectively and productively.
• Customers are willing to pay more for offerings that exactly meet
their needs, and are more loyal to firms that understand and speak
to their needs better
• Market segmentation produces increased costs to the firm in the
short run. But these increased costs are generally offset by
increasing sales in the long run.
Traditional Approach
Who customers are What customers want/do
(Identifier variables) (Response Variables)
Response-Based Approach
Process
– Conduct research on identifying key customer buying characteristics.
– Cluster on those characteristics to find customers who have “similar”
needs, care-abouts, and buying behavior.
– Determine the profile of customers belonging to a cluster/segment in
terms of their demographics/firmographics such that they can be
offered an appropriate marketing-mix plan.
Rationale
• Customer buying behavior = f (needs, behavior, care-abouts)
• Cluster/segment profile = f (demographics/firmographics)
– Outcomes from “post hoc” approach may become a useful basis for
future “a-priori” segmentation
Segment Identities
Response Random Cellular Pager Teens/
Variable Sample Users Users 20-25
Monthly Bill 80 71 69 76
Coverage Area 63 69 68 65
Handset Price 70 69 68 65
Ability to Walk/Ride 54 68 63 58
Phone Size/Weight 37 36 32 29
Replaces Work Phone 23 18 27 27
Response Segments
Response Segment 1 Segment 2 Segment 3 Segment 4
Variable "Cost" "Price" "Coverage""Mobility"
Monthly Bill 99 68 68 65
Coverage Area 51 57 96 72
Handset Price 60 98 51 58
Ability to Walk/Ride 48 48 56 97
Phone Size/Weight 36 40 41 46
Replaces Work Phone 17 21 25 18
Own Cellular Phone? 30% 29% 45% 60%
Will Definitely Use PCS 58% 54% 70% 70%
Use These to Define First Identify
Benefit Segments Response Differences
©2002 Mohan Sawhney Page 9
Response-based approach (Step 2)
Response Segments
Identifier Cost Price Coverage Mobility
Variable Segment Segment Segment Segment
Income > 35 K 77 80 92 86
Married 45 46 57 52
Children 37 33 50 37
Work in suburbs 29 31 60 49
Live in suburbs 45 44 70 54
Same Office Everyday 66 67 55 51
Drive to Work 45 49 76 67
Take Train to Work 18 23 10 15
Work Backward Define Response
to Identify Segments Segments
©2002 Mohan Sawhney Page 10
Lenses versus objects:
Segmentation variables versus segments
Degree of Devices
Tips for segmentation
Mobility used • Look for good identifier “proxies”
• Search for patterns across variables
• Limit number of segments to 4-6
Contextual • Form multi-dimensional description
factors
• Validate with observational research
©2002 Mohan Sawhney Page 11
Steps in strategic target marketing
various benefits
● Make important benefits “table stakes”
reviews
Active ● Comprehensive research ● Dedicated $14.00
traders ● Advanced decision tools team
● Special trading software ● Deep
brokerage
experience
Core ● Annual portfolio review ●Access to $29.95
customers ● Self-guided tools pooled reps
Benefit
Customer Segments
Analysis
Segment Attractiveness Segment
Attractivenes
High Low s
Profitability
Industry
Analysis Value
Chain
Strong
Competitor
Analysis
Company
Capabilities
Weak
Company
Analysis
Aim: Select segment where company position is strong and market is attractive
Mass Niche
S1 S2 S3 S1 S2 S3
O1 O1
O2 O2
O3 O3
Horizontal Vertical
S1 S2 S3 S1 S2 S3
O1 O1
O2 O2
O3 O3
©2002 Mohan Sawhney Page 19
Steps in strategic target marketing
“For __________________________”
(target customers or prospects)
because
(your product/service) (key benefits)
____________________________________________.
(points of differentiation/reasons to believe)
(points of difference)
AVIS
“For business people who rent cars, Avis is the company who will provide
the best service because the employees own the company.”
HOME DEPOT
“For do-it-yourselfers, Home Depot offers the best prices because we are
the largest building supply company.”
BODY SHOP
“For people seeking wellness, the Body Shop offers the most natural bath
and cosmetic products because we are the most environmentally friendly
cosmetics company.”
SOUTHWEST AIRLINES
“For short-route travelers, Southwest Airlines offers the best prices with
reasonable and dependable service because we operate point-to-point
service and don’t charge more for last minute bookings.”
©2002 Mohan Sawhney Page 23
Covering your bases in positioning:
The “positioning diamond”
Product Name:
Target Audience:
Specific Audience Needs:
Functional Benefits:
Emotional Benefits:
Economic Benefits:
Positioning Statement (across audiences):
Value Proposition (tailored to this audience):
Key Positioning Pillars: (prioritized)
Pillar 1 Pillar 2 Etc.