marketing

IN BLACK AND WHITE Brian Monger

Session 5 Segmentation and Targeting

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Segmentation and Targeting

Marketing and business development are based on gaining and retaining the best customers. It is important to understand fully: who these best customers could be/are what are their specific needs and preferences. It is not enough to have only a general idea of what customers want

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A market can be defined as a group of customers who exhibit broadly similar needs and have the ability to satisfy those needs.

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Benefits of Segmentation
a more precise definition of market needs more effective tailoring of programs closer investigation of all competitors better allocation of marketing resources (economies of scale) niche marketing opportunities 4

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Identifying Markets
Because few, if any, products can satisfy the needs of all consumers, companies often develop different marketing strategies to satisfy different consumer needs. The process by which marketers do this is referred to as target marketing and involves four basic steps

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Segmentation and Targeting

The market can also be defined in terms of the benefits sought by the customer, not in terms of particular products or technical specifications.

Defining the market may be approached from a number of ways, each yielding a different description - some narrow in focus, others broad.

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The defining of the market will determine who are the organisations best potential competitors and customers and their key buying criteria (KBC). A market segment comprises a relatively homogenous group of potential customers who share some similar characteristic of value to the organisation.

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Segmentation Analysis

Buyer Characteristics

Product Characteristics

Situation Characteristics

The Bases of Segmentation

Four Basic Steps

Identifying markets with unfulfilled needs Segmenting the market, Targeting specific segments, and

Positioning one's product through marketing strategies.

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The Process of Segmentation

1. Identify Market Needs and Profile

3. Target Segments
Which segments can the firm best service and which best meet their needs. More than one segmen can be targeted

2. Divide Market into Segments

4. Create Marketing Mixes for each target

Bases for Segmentation

There are many ways to segment markets.

Buying category Distribution channel Demand and growth-related attractiveness Size segments Competition-related attractiveness Resource-related attractiveness Accessibility
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Market Segmentation
Market segmentation is dividing up a market into distinct groups that: (1) have common needs, and (2) will respond similarly to a marketing action. The more clearly you define the target segments, the better you can reach them and encourage them to support your organisation.

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Segmentation Alternatives
There are three basic market coverage alternatives. 1. Undifferentiated marketing 2. Differentiated marketing 3. Concentrated marketing. The move away from mass marketing Marketing theory today accepts that undifferentiated marketing (also called commodity marketing) will be less successful than targeted marketing.
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How far can we continue to segment a market?

The more marketers segment the market, the more precise is their understanding of it. But the more the market becomes divided, the fewer consumers there are in each segment. Thus, a key decision is: How far should one go in the segmentation process? Where does the process stop?

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Targeting Segments
Target market identification isolates buyers with similar segmentation profiles (lifestyles, benefits sought, and the like) and increases the quality of our knowledge of their requirements.

The more marketers can establish this common ground with buyers, the more effective they will be in addressing these requirements

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Targeting Strategies - Key Issues

1. How similar are marketing actions to each segment likely to be? 2. How different are the needs of each segment 3. Size of each segment and growth prospects? 4. Purchasing power of each segment? 5. Price sensitivity of each segment?

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Targeting Strategies - Key Issues

6. Potential for increased profit? 7. Potential for sales volume or market share? 8. Complexity of satisfying each segment? 9. The degree of certainty of success? 10. The ease of entry into each segment?

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How Targeting Works

Once targets are identified and profiled, the next step is to prioritise the segments based on a combination of business and marketing objectives, and profit potential. Marketers often use 20 or 30 variables to establish segments.

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The Segmentation and Targeting Process Involves Six Steps

1. Identifying the general category (such as the soft-drink market). 2. Segmenting the general category (identifying different types of preferences in soft drinks). 3. Finding ways to group the marketing actions available to the organisation. 4. Targeting specific segments (the markets where you can create a better value offering than your competitors)
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The Segmentation and Targeting Process Involves Six Steps

5. Strategically positioning your offer (creating an image or concept for the consumer of your product bundle that best matches their idea of best value). 6. Taking optimal marketing actions to reach the target segments. Developing a value-offer market grid to relate the needs of the target segment(s) to the firms offer (products and actions).

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Developing Target Segment Profiles

Segmentation and targeting require the development of segment profiles.

A segment profile is the description of who your targeted customers (current and future) are and what they want.

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Bases For Creating Segmentation Profiles

The bases: 1. Situation or context segmentation 2. Benefit (value sought) segmentation 3. Behavioural segmentation 4. Lifestyle (psychographic) segmentation 5. Descriptive (demographic) segmentation
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1. Situation or Context Segmentation

All behaviour and decisions occur within a specific set of circumstances or a particular context. A buyers behaviour and the value(s) they seek will change according to the specific purchase situation.

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Differing buying responses

You can segment your market based on the differing (buyer) responses to your marketing communication offers.

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To find these responses, you should ask about the amount of demand and growth-related factors: Amount of demand and growth related factors. Is the segment exhibiting increasing demand for the offer type ? Is the segment easy to reach geographically ? Are overall market sales trending upwards ? What is your specific sales forecast in each market segment? What is the expected cost of sales to each segment?

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2. Benefit (value sought) egmentation

In purchasing products, buyers are generally trying to satisfy specific desires (needs and/or wants). They are looking for offers that will provide specific benefits to satisfy these needs. The grouping of buyers and users on the basis of attributes sought in a value offering is known as benefit or value-sought segmentation and is widely used. There is always more than one benefit sought, although they will have different levels of importance.

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3. Behavioural Segmentation
Behavioural segmentation is the method of dividing buyers into groups according to their usage, loyalties or buying responses to a product. For example, product or brand usage, degree of use (heavy versus light) and/or brand loyalty are combined with other criteria (eg, benefits sought and psychographic factors) to develop profiles of market segments.

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4. Lifestyle (psychographic) Segmentation

Dividing the market on the basis of personality and/or lifestyle preferences. The determination of lifestyles is usually based on an analysis of the activities, interests and opinions (AIOs) of buyers and consumers. These lifestyles are then correlated with the buyers product, brand and/or media usage.

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Rationalist

(Stages Between)

Idealist

Figure 13.1 A continuum of variants in a profile

Figure 13.1 A continuum of variants in a profile

The VALS Program

The VALS program - Lifestyle segmentation has been increasingly accepted with the advent of the values and lifestyles program (VALS) Developed by the Stanford Research Institute (SRI), VALS (and VALS 2). SRI believes that when combined with an estimate of the resources the consumer can draw on (education, income, health, energy level, selfconfidence and degree of consumerism), the VALS system is an excellent predictor of consumer behaviours.

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There are a number of other methods of developing lifestyle profiles - for example, Neilsen Marketing Researchs PALS profile (www.acneilsen.com) and the Roy Morgan Research Centres Roy Morgan Values Segments (http://Roymorgan.com.au).

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5. Descriptive Segmentation
Descriptive segmentation gives us illustrative information about people in the market. The most common form of this is demographic descriptions. Although market segmentation on the basis of demographics is very popular and may seem obvious, organisations sometimes discover that they need to focus more attention on specific insightful information.

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How Useful Are Demographics?

In most instances demographics do little more than label or define basic boundaries. Age 28 Male Gives little insights for a marketer to work with

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Other Segmentation Methods

Segmentation by self-selection Customers identify themselves as being interested in what your brand has to offer and self-selecting themselves into a segment. Showing interest is often the result of responding to a marketing communication message or offer.

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Other Segmentation Methods

Geo-demographic segments (geo-demographic cluster) Information that combines geographic, demo-graphic and some lifestyle data to identify residents of a particular area with certain demographic traits is called geo-demographical information and considers such factors as nation, region, state, city, climate and urban/suburban/rural descriptions.

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Other Segmentation Methods

The socio-demographic segment combines social factors (societal trends, fashions) with demographics. Temporal (time) segmentation is done on the basis of time usage: time of the day/week/month/year night/day seasonality. Ethnic/national - cultural segmentation - Some brands are designed specifically for an ethnic group, or marketing communication campaigns for mainstream brands are tailored towards specific ethnic cultures or brands. Physiological segmentation - you may segment based on a physical factor, such as left-handedness, hair colour, bearded, short, large/tall etc.

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Segmenting Existing Customers

Who are your best or most profitable clients ? Which group of customers makes up the bulk of your business ?

What do all these customers have in common?

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Profitability-based Segmentation and Targeting

The extent that current customers versus new customers are targeted will differ for every brand. A primary deciding factor is how much it costs to generate a sale from current customers versus the cost per sale for new customers.

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Selecting a Market
The outcome of the segmentation analysis will reveal the market opportunities available. The next phase in the target marketing process involves two steps: 1. Determining how many segments to enter. 2. Determining which segments offer the most potential.

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Determining How Many Segments To Enter

The organisation needs to select as many segments as are necessary to achieve its own objectives (say, profitability). If it selects too many markets, the available limited resources will be spread more thinly and may become ineffective overall. Optimisation is the key. Just right - not too many.

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Targeting Options
1. Full Coverage

2. Concentration
3. Market Specialisation 4. Selective Targeting

5. Product Specialisation

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Determining Which Segments Offer Potential

The second step in selecting a market involves determining the most attractive segment. The firm must examine the sales potential of the segment, the opportunities for growth, the competition, and its own ability to compete. Then it must decide whether it can market to this group. Segment selection often includes how similar the segment is to existing target segments (segment inter-relationship).

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Segment Selection
Recency, frequency, value (RFV) segmentation/targeting Information about past purchase behaviour can be used in segmenting. Recency is how recently a customer has purchased from the organisation. Frequency is how often, within a given period of time, a customer has purchased the brand.

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1. Natural Target

Target 2.

Target 3

Target 3

Figure 13.2 Ranking Segments for Targeting

S1 S2 P1 P2 P3

S3 P1 P2 P3

S1 S2

S3 P1 P2 P3

S1 S2

S3

Single-segment concentration S1 S2 P1 P2 P3 Market specialisation S3

Selective specialisation S1 S2 P1 P2 P3 Full market coverage S3

Product specialisation

S = Segment P = Product

Figure 13.3 Patterns of Target Segment Selection

Segmenting and Targeting Organisational Customers

Organisational markets (business-to-business (B2B) and business-to-

institutions (B2I)) include organisations that acquire goods and services to

create their own value offers to a market. Segmenting and targeting are very important in organisational marketing (B2B and B2I) because the average organisational customer spends more and costs more to acquire.

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Organisational Customers
Organisational segments may be based on characteristics similar to those used in consumer marketing: purchase behaviour, demographics, psychographics, geography, benefits sought, and loyalty or relationship levels,
Remember that organisations are run by people and not computers, so personal factors or organisational personalities are important.

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Organisational Customers
Organisational markets have several characteristics that differ from consumer markets (see Table 13.1). These include:
Derived demand. Fewer, generally larger quantity, buyers. Closer, longer-term relationships. More professional buying. Better-informed buying. Buying centres. Buying alliances.

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Buying Centres
Six roles are identified: Initiator Buyer User Influencer Decider Gatekeeper
All roles can be handled by one person or a limited number of people.
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Organisational Targeting Factors

profitability long-term benefits degree of compatibility with the organisation degree of competitiveness required to win and maintain a customer.

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Vertical and Horizontal Markets

A vertical market is a particular industry in which similar products are developed and marketed using similar methods (and to whom goods and services can be sold).
A horizontal market crosses all industry boundaries; customers are from all industries in the marketplace that use the same product type.

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Positioning and Imaging

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Market Positioning
Positioning can be defined as: 1. The process of fitting the brand to the perception of the target segment in such a way as to set it meaningfully apart from the competition. 2. The position of the value offering (marketing mix) that comes to mind and the attributes buyers perceive as related to it. 3. The Marketing style devoted to owning a part of the consumers mind, so occupying a position of trust and loyalty for the brand concerned.
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Positioning & Image

Image: Composite mental picture formed by people about an organisation or its product eg. brand image, conception of a product in the marketplace. Positioning is not something we do to the product. It is something we do to the mind (of the prospect) in two steps: (a) communicating what the product category is - what we are similar to, (b) communicating how we are different from existing brands in that category.
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The Positioning Statement

To successfully position a value offer you need: 1 . A differentiated product and 2. A clear target market. A well-developed positioning statement defines a firms direction

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Developing a Positioning Strategy

Six basic questions:
1. What position, if any, do we already have in the prospects mind? 2. What position do we want to own? 3. What organisations must be outgunned if we are to establish that position? 4. Do we have enough marketing money to occupy and hold the position? 5. Do we have the guts to stick with one consistent positioning strategy ? 6. Does our creative approach match our positioning strategy ?

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Developing a Positioning Strategy

Additionally, the following should be considered: positioning relative to key competitors positioning by use or application positioning on value perception (price/quality) positioning by cultural rituals and/or symbols.

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Determining the Positioning Strategy

1. Analysing the buyers preferences 2. Assessing buyers perceptions of your value offering 3. Identifying competitors 4. Assessing buyers perceptions of competitors 5. Determining competitors positions 6. Adopting a positioning strategy

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Perceptual (or positioning) Maps

A position (or perceptual) map is a diagrammatic representation of the consumers perception of the offer relative to other offers in the market. Marketers use positioning maps as part of their strategy development.

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Perceptual Mapping
Perceptual mapping is a quantitative market research tool used by marketers to depict buyer/user perceptions and prioritising of brands and their perceived attributes as compared to other brands.

Also called MAPPing (Mathematical Analysis of Perception and Preference), it uses scaling techniques designed to represent consumers product perceptions and preferences as visual representations or points on a map or graph.

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Family

High Prestige Requirement

9

F1 F3 F2

C1 7 VB

Lots of Family 5 facilities

C1

No Spa Facility
5 VB

Individual Tailored Facilities

3 F1 F3

Spa Facility
R/W

R/W 1 1 F2

Individuals/Couples Family

Prestige not a high requirement Pampered

VB

9 F1 F2 7 F3

7 C1

Short 5 Holiday

Longer Holiday

Limited Room Luxuries

5 F1 3 F2

R/W

Extensive Room Luxuries

VB C1

F3 1 R/W 1 3 5 7 9 F1 1

Couple

Family - Short Holiday

Want to be Left alone

R/W

Romantic Weekend

VB

Very Busy Segment

F2

Family -Medium Term Holiday

C1

Conference Market

F3

Family - Long Holiday

Figure 13.5 Perceptual or Positioning Mapping

Repositioning a Brand
A repositioning strategy involves altering or changing a products or brands current positioning. Repositioning a value offer usually occurs because of declining or stagnant sales or because of anticipated opportunities in other market positions. It is often difficult to accomplish because of entrenched perceptions about and attitudes towards the product or brand.

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