Transcript mmi-viii-segmentation

SEGMENTATION
Segmentation
• It is often the key to developing a sustainable
competitive advantage. In a strategic context,
segmentation means the identification of
customer groups that respond differently from
other groups to competitive offerings.
• A segmentation strategy couples the
identified segments with a programme to
deliver an offering to those segments.
The development of a successful segmentation
strategy requires the conceptualization,
development, and evaluation of a targeted
competitive offering.
Who are the biggest customers? The most
profitable? The most attractive potential
customers?
3 dimensions for Judging a
segmentation strategy
• Can a competitive offering be developed and
implemented that will be appealing to the
target segment ?
• Can the appeal of the offering and the
subsequent relationship with the target
segment be maintained over time despite
competitive responses ?
• Is the resulting business from the target
segment worthwhile given the investment
required to develop and market an offering
tailored to it ?
• The concept of a successful segmentation
strategy is that within a reduced market
space, it is possible to create a dominant
position that competitors will be unwilling or
unable to attack successfully.
Examples of Approaches to Defining Segments
Customer Characteristics
• Geographic
• Type of organization
• Size of firm
• Lifestyle
• Sex
• Age
• Occupation
Chapter 2 - External and
Customer Analysis
PPT 2-6
Figure 2.3
Examples of Approaches to Defining Segments
Product-Related Approaches
• User type
• Usage
• Benefits sought
• Price sensitivity
• Competitor
• Application
• Brand loyalty
Chapter 2 - External and
Customer Analysis
PPT 2-7
Figure 2.3
The first set of variables describes segments in terms of
general characteristics unrelated to the product
involved.
Eg
a consulting company may specialize in the
hospitality industry.
A fast food firm may focus on a particular fast
growing ethnic group.
A bakery may confine itself to geographically
defined segments eg . to a particular community or
neighbourhood.
• Demographics are particularly powerful for defining
segments largely because a person’s life stage affects his
or her activities, interests and brand loyalty. Another
reason is that demographic trends are predictable.
• Eg the US population over 65 is expected to grow to 50
million in 2020 when more than 5 million people will be
85 or older. Gold Violin recognizing this trend, has
established itself as a source of products designed for the
active elderly.
• Thus they have a talking watch, a bed- vibrating alarm
clock, a doorknob turner, a lighted hands- free magnifier (
all with attractive designs ) are just some of the Gold
Violin products that appeal to this long – ignored
demographic segment.
• The second category of variables includes those that are
related to the product. One of the most frequently used is
usage.
• A manufacturer of lawn equipment may design a special
line for a large consumer like Walmart, but sell through
distributors using another brand name for other outlets. A
bakery may follow a very different strategy in serving
restaurants that rely very heavily on bakery products than
in serving those with fewer such products.
Segmentation
How should segments be defined?
– Benefit Segmentation
– Price Sensitivity
– Loyalty
– Applications
– Multiple Segments versus Focus Strategy
Chapter 2 - External and
Customer Analysis
PPT 2-11
Benefits
• Benefits sought from products is a very useful
segmentation variable, as selection of benefits
can determine a total business strategy.
Eg. for gourmet frozen dinners/entrees we can
segment the market into those who are
calorie- conscious, those who focus on
nutrition and health and those interested in
taste. Each segment would require a very
different marketing strategy.
Price sensitivity
• In many product classes , there is a well - defined
breakdown between customers concerned first
about price and others who are willing to pay
extra for higher quality and features.
• Eg general merchandise stores form a well
defined hierarchy from the discounters to the
prestige department stores.
• Automobiles span the spectrum from Honda Civic
to the Lexus to the Rolls Royce.
• Airlines have first class, business class and
economy.
• In each case the segment dictates the strategy
Loyalty
• Brand loyalty can be structured using a loyalty
matrix. Each cell represents a very different
strategic priority and can justify a very different
programme.
• Generally. Loyal customers are taken for granted.
However, a study by Bain shows that a 5 %
increase in customer loyalty can nearly double
the lifetime profits generated by customers in
several industries including banking, insurance,
automobile service, publishing and credit cards.
• The key is often to reward the loyal customers by
living up to expectations consistently, providing
an ongoing relationship, and offering extras that
surprise and delight.
• The loyalty matrix suggests that the brand fence
sitters , including those of competitors, should
also have high priority. Using the matrix involves
estimating the size of each of the six cells,
identifying the customers in each group and
designing programmes that will influence their
brand choice and loyalty level
The Brand Loyalty Matrix: Priorities
Low
Loyalty
Moderate
Loyalty
Customer
Medium
High
Highest
Non-customer
Low
to
Medium
High
Zero
Chapter 2 - External and
Customer Analysis
PPT 2-16
Figure 3.4
Loyal
Applications
• Some products and services, particularly
industrial products can best be segmented by use
or application. A portable computer may be
needed by some for use while travelling, whereas
others may need a computer at the office that
can be conveniently stored when not in use. One
segment may use a computer for word
processing .
• Some might use a 4 wheel drive for light
industrial hauling and others may be buying it
primarily for recreation.
• The athletic shoe industry segments into :
• A) Serious athletes ( small in number, but
influential)
• B) The Weekend warriors ( weekend users)
• C) The casual wearers ( using them for street
wear)
• 80% of the market being composed of the
casual wearer segment and not really needing
performance, several shoe firms have adopted
a style focus strategy as an alternative to the
performance strategy adopted by firms such
as NIKe.
Multiple Segments vs Focus Strategy
Walmart, the largest US retailer started by
concentrating on cities with populations under 25,000
in eleven south central states, a hitherto totally
neglected segment by its competitors the large
discount chains.
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This rural geographic focus gave it several significant
SCAs viz.
an efficient and responsive warehouse supply system,
a low-cost motivated workforce
relatively inexpensive retail space
a lean and mean hands on management style.
Union Bank, California’s 8 eighth largest bank
makes no effort to serve individual customers.
Instead it provides a service operation tailored
to business accounts that is more committed
and comprehensive than those of its
competitors.
On the other hand….
Aggressive industries in many firms are moving towards multiple segment
strategies. Campbell Soup makes its nacho cheese soup spicier for
customers in Texas and California.
It offers a Creole Soup for Southern markets and a red- bean soup for
Hispanic markets.
In New York it links promotions with the New York Giants football
team and in S. Nevada mountains skiers are given hot soup samples.
Developing multiple strategies is costly and needs to be justified by an
enhanced aggregate impact.
Market segmentation
• Companies recognize they cannot appeal to all
buyers in the marketplace, at least not to all
buyers in the same way. Buyers are too
numerous, too widely scattered and too varied in
their needs and buying practices.
• Also, companies themselves vary greatly in their
ability to serve different segments. Thus a
company must identify the parts of the market it
can serve best and most profitably. It must design
customer- driven marketing strategies that build
the right relationships with the right customers.
Shotgun vs Rifle
• Hence , most companies have moved away
from mass marketing and towards target
marketing.- identifying market segments,
selecting one or more of them and developing
products and marketing programmes tailored
to each.
• Instead of scattering their marketing efforts
( the shotgun approach) , firms are focusing
on the buyers who have greater interest in the
values they create best (the rifle approach)
Customer-Driven Marketing Strategy:
Creating Value for Target Customers
• Market Segmentation
• Market Targeting
• Differentiation and Positioning
The Process and Concepts defined
• Market segmentation involves dividing the
market into smaller groups of buyers with distinct
needs, characteristics, or behaviours that might
require separate marketing strategies or mixes.
• The company identifies different ways to
segment the market and develops profiles of the
resulting market segments.
Market Targeting
Consists of evaluating each ,market segment’s
attractiveness and selecting one or more
market segments to enter.
• Next, the company decides on a Value
Proposition – on how it will create value for
target customers
• Differentiation involves actually differentiating
the firm’s market offering to create superior
value
• Positioning consists of arranging for a market
offering to occupy a clear distinctive, desirable
place relative to competing products in the
minds of target consumers.
Market Segmentation
Market Segmentation
Segmenting Consumer Markets
Geographic
segmentation
Demographic
segmentation
Psychographic
segmentation
Behavioral
segmentation
Market Segmentation
Segmenting Consumer Markets
• Geographic segmentation divides the market
into different geographical units such as nations,
regions, states, counties, or cities.
• Many companies today are localising their
products.eg Citibank offers different mixes of
branch banking services depending on
neighbourhood demographics. Baskin Robbins
does “3 mile marketing” emphasizing local events
and promotions close to its local store locations.
• Many large companies are seeking to cultivate as
yet untapped geographic territory. Many large
companies are fleeing the competition
of major cities and suburbs to set up shop in rural
and semi - urban India eg smaller size retail
formats which offer a more intimate
neighbourhood store setting.
Walmart has complemented its supercenters
by opening small super market style Market-side
grocery stores in markets where full size stores
are impractical.
Market Segmentation
Demographic segmentation
Demographic segmentation divides the
market into groups based on variables such as
age, gender, family size, family life cycle,
income, occupation, education, religion, race,
generation, and nationality
• Demographic factors are the most popular bases for
segmenting customer groups.
•
The reasons for this :
• Consumer needs, wants and usage rates often vary closely with
demographic variables.
•
Demographic variables are easier to measure than other
variables.
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Even when other segmentation bases are used marketers need
to know characteristics in order to assess the size of the target
market and to reach it efficiently
Demographic segmentation : Age
and Life Cycle segmentation
Age and life-cycle stage segmentation is the process of
offering different products or using different marketing
approaches for different age and life-cycle groups.
eg Leo Toys offers different toys for kids in different age
groups.
HP targets adult buyers with The Computer Is Personal Again
campaign with ads featuring Price and Value.
But for teens it uses mostly online and viral media in its
Society for Parental Mind Control campaign “ fun ways to get
a sweet computer out of your parents.” HP believes kids are
the arbiters of “cool”.
HDFC Standard Life Insurance has launched
pension plans for retired people so that they do
not have to depend on anyone for their financial
needs.
Companies marketing to mature customers
usually employ positive images and appeals.
Carnival Cruise Lines targets people of all age
groups through it sad for its Fun Ships featuring
an older person and child riding waterslides
stating, “ Fun has no age limit”.
Demographic segmentation : Gender
segmentation
• Gender segmentation divides the market based on sex
(male or female).
• This has been used in clothing, cosmetics, toiletries and
magazines. Eg retail stores in India offers clothing only
for girls.
• More recently most women’s cosmetic makers have
started marketing men’s lines. Nivea markets Nivea for
men “an advanced line of enriching skincare and
soothing aftershave products designed for the active
men’s lifestyle” and offers a 4 step guide to perfect
men’s care.
• L’Oreal markets Hydra Energetic – moisturizer
for men to soften the signs of fatigue and
stress.
• Neglected gender segments can offer new
opportunities in markets ranging from
motorcycles to guitars. 10 years ago 2
wheelers were mainly targeted at men and
looked as a means of transportation.
• Today marketers like Bajaj and Hero Honda
are targeting brands like Kristal DTS-I
and Pleasure at young women. These two
wheelers are not bulky and powerful but light
and fun to ride for young and fashionable
women.
Pleasure
Why Should Boys Have All The Fun ?
Brand : Pleasure
Company: Hero Honda
Agency: FCB Ulka
November 2005 saw the launch of the scooter from
Hero Honda branded " Pleasure". The launch was a
bold one because of two reasons :
1. The scooter was going to compete with its
technology partner Honda.
2. Hero Honda was perceived as a bike manufacturer
Pleasure
• Pleasure is a 102 cc scooter targeting the young
ladies. The launch makes sense because the
scooter segment is now growing and is expected
to touch 1 million units. In the scooter segment ,
the ungeared scooter segment is growing very
fast. Hero Honda wants to have a pie of this
segment. It is a paradox in that in the 1990's Hero
Honda disrupted Scooters with its 4 stroke bikes
and now it is introducing a scooter.
• Pleasure is positioned as a Pleasure scooter.
The company is targeting Ladies and Ladies
only ( that is clearly and obviously cried out in
the baseline and in the ads). A sound strategy.
If you are targeting ladies, why should you
expect men to ride that scooter. So Hero
Honda has decided that the brand will be for
ladies.
• Pleasure is going to be sold through " Just4her"
showrooms where the salesperson will be ladies .
( Men are going to be pissed off by that)
• The product comes with 8 flashy colours and lot
of features for the fairer sex like broader seats,
electric start etc. So as far as the product concept
goes, Hero Honda have a winner at hand.
• The communication executed by FCB Ulka
which is splashed all over the channels have
an international look and aimed at the ladies
of age group 18 - 35. The segmentation is
based on the current techno boom and the
emerging empowered ladies segment.
• Will it work in the real world?
Market situation
• There are some danger points in Pleasure's
paths. The product is pitted against Honda
Activa and Dio. Activa is a formidable player
and its reputation itself is an entry barrier for
Pleasure. Since the pricing of Pleasure is
comparable with that of Dio, Pleasure should
have to make sure that it creates a meaningful
differentiation.
Demographic segmentation : Income
segmentation
Income segmentation divides the market into affluent
or low-income consumers.
Used for long by marketers of products and services
such as automobiles, clothing, cosmetics, financial
services, and travel
Many companies target affluent consumers with luxury
goods and convenience services.
Not all companies use income segmentation targeting
the affluent. Retailers such as Big Bazar successfully
target low and middle income groups. “ Isse sasta
kaun?”
Psychographic Segmentation
• Psychographic segmentation divides buyers
into different groups based on social class,
lifestyle, or personality traits.
There are two frameworks used for the
purpose of lifestyle analysis, viz, the AIO and
the VALS frameworks.
AIO framework
The AIO model frames long sets of questions
using the measures in the next slide to find
out major dimensions of lifestyles of
consumers
AIO framework
VALS 2
Actualizers
Abundant Resources
Principle Oriented
Status Oriented
Action Oriented
Fulfilleds
Achievers
Experiencers
Believers
Strivers
Makers
Strugglers
Minimal Resources
Behavioral segmentation
Segmenting Consumer Markets
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Behavioral segmentation divides buyers
into groups based on their knowledge,
attitudes, uses, or responses to a
product
Occasions
Benefits sought
User status
Usage rate
Loyalty status
Occasions
• Buyers can be grouped according to when they
get the idea to buy, actually make their purchase,
or use the purchased item.
• Eg Most consumers usually drink Orange Juice in
the morning, but orange growers have promoted
orange juice as a cool, healthful refresher , any
time in the day drink.
• Internationally, Coca Cola presents Diet Coke as n
early morning pick me up in its “ Good morning”
campaigns. In the Indian sub – continent ,,Coca
Cola promotes its brands as a family drink on
occasions such as Diwali, Christmas of family
outings.
• Greeting card manufacturers create greeting
cards with appropriate messages for all
occasions such as Valentine’s Day, Christmas
day, Diwali, New Years and birthdays.
• In India you have a greeting card for every
occasion. Mother’s day, Father’s day,,
Wonderful son, great daughter, best niece,
blah,blah….
Benefits sought
• Benefit segmentation requires finding the
major benefits people look for in the product
class, the kinds of people, who look for each
benefit , and the major brands that deliver
each benefit.
Eg a company manufacturing athletic wear segments its
market according to benefits that different consumers seek
from their active wear
“Fit and Polish” customers seek a balance between function
and style.
“Serious Sports Competitors” seek performance and function.
“ Value seeking moms” have low sports interest and low
Active wear involvement , they buy for the family and seek
durability.
User status
Markets can be segmented into non –users,
ex- users, potential users, first – time users,
and regular users of a product.
Marketers want to reinforce and retain regular
users, attract targeted non – users, and
reinvigorate relationships with ex- users.
Usage rate
• Markets can be segmented into light, medium
and heavy product users. Heavy users are
often a small percentage of the market but
account for a high percentage of total
consumption.
• eg Burger King has Super Fans (Ages 18 -34)
who make up 18 percent of the chain’s
customers but account for almost 50 % of all
consumer’s visits. Burger King’s ads are,
therefore, slanted towards these consumers
Loyalty status
• A market can be segmented by consumer
loyalty eg by :
• Brands
( Colgate)
• Stores
( Big Bazar/ Shoppers’s Stop)
• Companies (Toyota)
Buyers can be divided into groups according
to their degree of loyalty.
• eg Apple , Harley Davidson have an almost
fanatic following of loyal users. They buy only
these brands all the time.
• Other consumers are only somewhat loyal –
they are loyal to two or three brands.
• Still others show no loyalty while buying.
Implications
• By studying its loyalists a company can pinpoint
its target market and develop sharply focused
marketing appeals
• By studying its less loyal buyers the company can
detect which brands are competitive with its own
• By studying consumers who are shifting away
from its brands a company can learn about its
marketing weaknesses.
Market Segmentation
Using Multiple Segmentation Bases
Multiple segmentation is used to identify smaller,
better-defined target groups
Geodemographic segmentation is an example of
multivariable segmentation that divides groups
into consumer lifestyle patterns
Market Segmentation
Using Multiple Segmentation Bases
PRIZM NE classifies every American household
into 66 unique segments organized into 14
different social groups, based on demographic,
behavioural and lifestyle factors
• These groups segment people and locations into
marketable groups of like-minded consumers
that exhibit unique characteristics and buying
behavior based on a host of demographic factors
Market Segmentation : Segmenting
Business Markets
• Consumer and Business Markets use many of
the same variables to segment their markets.
• In addition, some other variables are also
used to segment Business Markets such as :
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Operating characteristics
Purchasing approaches
Situational factors
Personal characteristics
Business Markets Segmentation
• Demographic:
– Industry
– Company size
– Location
• Operating variables:
– Technology
– User/non-user status
– Customer capabilities
• Situational factors:
– Urgency
– Specific application
– Size of order
• Purchasing approaches:
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–
–
–
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Purchasing organization
Power structure
Existing relationships
General policies
Purchasing criteria
• Personal characteristics:
– Buyer-seller similarity
– Attitude towards risk
– Loyalty
9.65
• By going after segments instead of the whole
market, companies can capture just the right
value proposition to each segment served and
capture more value in return.
• Almost all companies serve at least some
business markets. Eg ICICI Bank targets
merchants, corporations, and SMEs with
specific tailor -made services for all.
• Many marketers believe that Buying
behaviour and benefits provide the best basis
for segmenting business markets.
Market Segmentation
Segmenting International markets
Geographic
location
Economic
factors
Politicallegal factors
Cultural
factors
• Geographic locations eg .Regions such as North
America, Western Europe, The Pacific Rim, the
Middle East, Asia or Africa.
• Economic factors eg. Population income levels or
overall level of economic development.
• Political and legal factors eg. Type and stability of
government, receptivity to foreign firms,
monetary regulations, amount of bureaucracy
etc.
• Cultural factors eg. Common languages, religions,
values and attitudes, customs and behavioural
patterns.
Market Segmentation
Segmenting on the basis of geographical,
economic, political, cultural and other factors
assumes segments should consist of clusters of
countries.
But with new communication technologies
connecting consumers around the world,
marketers can define and reach segments
irrespective of location.
Intermarket segmentation or
Cross- market segmentation
Divides consumers into groups with similar needs and buying behaviors even
though they are located in different countries.
eg. Lexus targets the world’s well – to – do. the global elite segment irrespective of
country,
Swedish furniture giant IKEA targets the aspiring global middle class. It sells
good quality furniture that ordinary people worldwide can afford.
Coca Cola creates special programmes to target teens who are its core consumers
of soft drinks the world over.
Market Segmentation
Requirements for Effective Segmentation
• To be useful, market segments must be:
Measurable
Accessible
Substantial
Differentiable
Actionable
Market Targeting
Selecting Target Market Segments
• Target market consists of a set of buyers
who share common needs or
characteristics that the company decides to
serve
Target Marketing Strategies
• Three factors used to evaluate segments:
– Segment size and growth
– Structural attractiveness
• Competition, substitute products, power of buyers/suppliers
– Company objectives and resources
Figure 9.2
Principles of Marketing, Sixth
Canadian Edition
9.74
Market Targeting
Target Marketing Strategies
Undifferentiated marketing targets the
whole market with one offer
– Mass marketing
– Focuses on common needs rather than what’s
different
Market Targeting
Target Marketing Strategies
Differentiated marketing targets several
different market segments and designs
separate offers for each
• Goal is to achieve higher sales and stronger
position
• More expensive than undifferentiated
marketing
Market Targeting
Concentrated ( Niche Marketing )
• Concentrated marketing targets a
small share of a large market
• Limited company resources
• Knowledge of the market
• More effective and efficient
• Eg Nirma started as a nicher, selling
only low priced detergents to rural
and semi rural customers.
Market Targeting
Target Market Strategies
Micromarketing is the practice of tailoring
products and marketing programs to suit
the tastes of specific individuals and
locations
• Local marketing
• Individual marketing
Market Targeting
Target Market Strategies
Local marketing involves tailoring brands
and promotion to the needs and wants of
local customer groups
• Cities
• Neighborhoods
• Stores
Market Targeting
Target Market Strategies
Individual marketing involves tailoring products
and marketing programs to the needs and
preferences of individual customers
• Also known as:
– One-to-one marketing
– Mass customization
– Markets-of-one marketing
Market Targeting
Choosing a Target Market
Depends on:
• Company resources
• Product variability
• Product life-cycle stage
• Market variability
• Competitor’s marketing strategies
Market Targeting
Socially Responsible Target Marketing
• Benefits customers with specific
needs
• Concern for vulnerable segments
• Children
– Alcohol
– Cigarettes
– Internet abuses
Differentiation and Positioning
Product position is the way the
product is defined by consumers on
important attributes—the place the
product occupies in consumers’ minds
relative to competing products
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–
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Perceptions
Impressions
Feelings
Differentiation and Positioning
Positioning maps show
consumer perceptions
of their brands versus
competing products on
important buying
dimensions.
Location of circle=
Where Consumers
position a brand
Size of circle = Brand’s
relative market share .
Thus Land Cruiser is a
niche brand perceived
as relatively affordable
and more performance
oriented.
Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
• Identifying a set of possible competitive
advantages to build a position
• Choosing the right competitive advantages
• Selecting an overall positioning strategy
• Developing a positioning statement
Differentiation and Positioning
Identifying Possible Value Differences and
Competitive Advantages
Competitive advantage is an advantage over
competitors gained by offering consumers
greater value, either through lower prices or
by providing more benefits that justify higher
prices
Differentiation and Positioning
Selecting an Overall Positioning Strategy
Value proposition
is the full mix of
benefits upon
which a brand is
positioned
Differentiation and Positioning
Choosing a Differentiation and Positioning Strategy
Identifying a set of possible competitive
advantages to build a position by
providing superior value from:
Product differentiation
Service differentiation
Channel differentiation
People differentiation
Image differentiation
Differentiation and Positioning
Choosing the Right Competitive Advantage
Difference to promote should be:
Important
Distinctive
Superior
Communicable
Preemptive
Affordable
Profitable
Communication and Delivering the
Chosen Position
Choosing the positioning is often easier than
implementing the position.