Chapter 9- Market Segmentation – Flashcards

- aggregating prospective buyers into groups that have common needs and will respond similarly to a marketing action - The search for relatively homogenous clusters in a heterogeneous market, tries to make sense out of vast sea of consumers - Try to figure out relative segments of a market and treat groups differently, but people in same group treat the same - Trying to be EFFICIENT - Key to Success- find the ideal balance between satisfying the consumers needs and achieving organizational synergy (consumer value) - Avoid Cannibalization- new products stealing sales from existing ones

relatively homogenous groups of prospected buyers that result from market segmentation process - A group of customers, existing and potential, with common needs, values, and responses to marketing variable - Markets evolve over time and become more heterogeneous o EX) tennis shoes- overtime developed- people wanted different types (basketball shoes, running shoes, more ankle support) - Unlimited number of ways to form segments

1. Measurability- need some way to measure differences on people (need variable) 2. Reachability: 3.Profitability 4.Distinctive across 5.Similarity within- 6.Differential Response

1)Demographic 2)Activities, interests, opinions 3)Past purchases 4)Benefits Sought

i. Demographic (social economic status)- general, objective- does not change from one brand to another, easier to get data but not as predictive as past purchases 1. Gender, often combined with age, most common way to segment but not best way a. EX) diet coke and coke zero- women are more receptive to "diet", coke zero is structured towards men because they don't like buying products that say diet 2. Sex 3. Age 4. Income- levels of consumers a. EX) Selling yachts, not interested in low income consumers, ad for CNBC comparing their ads with households of high affluence 5. Occupation- EX) white collar vs. blue collar customers, subfields of doctors 6. Ethnicity- minority segments are increasing and becoming very important (burger king is coming up with Spanish ads) 7. Region a. EX) ESPN website NY- focus on all sports but more on NY sports, more efficient ways to advertise because all people are mostly from NY region, can charge more for ad because more specific In class example: Regions- "A tale of 3 Cities" - Compared 3 cities in Florida, (Tampa, Miami, Orlando) based on different demographics (Race, Household, Marital Status, Age, and Income) - Used: A.C Nielsen Designated Market Areas (DMA) Lifestyle Market Analyst 1198 o Indexing- Comparing our percentage in region with the rest of country = % Designated Market Region (DMA) / % in USA X 100 EX) Tampa Households with Infants / % in USA = 13%/ 17.8% = .73 X 100 = 73- less than rest of country Helps marketers see where there is more percent of segment they are looking for so can target market better

subjective, general- can segment based on peoples lifestyles 1. Typical "AIO" study- typically done as a survey a. AIO- what everyone else is interested in b. Demographics- helps with what needs to be said to consumers c. Media Use- what media they are attracted too d. Product use

objective, specific- specific to certain brand, harder data to get, helps a lot with future sales, 80/20 Rule (see below), product class (heavy half) - half of people usually buy most of product, some customers are a lot more important than others 1. EX) Wegmans club card can see purchases 2. Helps show brand loyalty- are they buying our product over and over or are they switching around? 3. In class ex) purchase sequence was brand loyal for brand A- might be hard for brand B, may not want to spend a lot of money, yet big opportunity for brand A 4. In class ex) purchase sequence was not brand loyal for anyone- opportunities for everyone, promotions will have big effect

subjective, specific- works best, know benefits consumer is seeking when they buy products 1. Benefit Segmentation- segment on the basis of what benefits are important, to date, is the best available surrogate for true differential response measurement, if we know what benefits are being looked for then they can be better predicted (specific and closer to decision making process) a. Consumers rate attributes differently, segment market based on what people are looking for i. EX) toothpaste- whitening, cavity prevention, eliminate bad breath b. Usage Situation (Occasion Based Benefit Segmentation)- based on occasion in which people are going to use product i. EX) Excedrin PM- want pain reliever that wont keep them awake, athletic shoes- used for different activities (running, walking), computers, phones

a. Self-selection- advertise Sports Illustrated- common interests in sports but many different groups, huge variability- does not allow to target lots of different ads, depending on self-selection consumers will look at ads they want too (not as efficient) b. Selective Targeting- magazine- Popular Photography"- much smaller distribution but people who read magazine are more homogeneous, more details for selective market, different camera adds then sports illustrated- more detailed

design segments to make more profitable an efficient

want to be distinguished from each other- no similarities (overlapping)

within segment people should be similar

idea that different people will respond differently to different marketing values (4 p's) a. EX) Price and quantity- one group more responsive to price change than other- % change in Q / % change in P- if less than 1 = price inelastic (not too responsive to change in price, steeper line), if greater than 1 = price elastic (respond more to change in price) b. Test Question- firm increase price from 1 to 1.5. They sold 1 million units but after price change only sold 900,000. The market is?

1. One product and Multiple Market Segments 2. Multiple Products and Multiple Market Segments 3. Segments of One (Mass customization)

a. 1 product trying to be sold to 2 or more market segments b. Avoids extra cost of developing and producing additional versions of the product c. Movies, magazines, books d. Separate promotional campaigns and new channels of distribution (incremental costs) i. EX) Magazine- same issue but each region has a different cover to appeal to different segments

a. Fords different line of cars, SUV's, and pick-up trucks b. Effective if... i. It meets consumers needs better ii. Doesn't decrease quality or increase price iii. Adds to revenues and profits c. 2-tier marketing strategy- different variations of same basic offering to high end and low end segments i. Ex) banana republic/old navy

a. Tailoring goods or services to tastes of individual customers on a high-volume scale b. Customer relationship management c. Next step beyond build-to-order d. Creates a variety of options but not unlimited

Step 1: Group Potential Buyers into Segments Step 2: Group products to be sold in Categories Step 3: Develop a Market-Product Grid and Estimate Sixe of markets Step 4: Select Target Markets Step 5: Take Marketing Actions to Reach Target Markets

- Criteria segments should adhere to o Simplicity and cost effectiveness of assigning potential buyers to segments o Potential for increased Profits o Similarity of needs of potential buyers within a segment o Difference of needs among Segments o Potential of a marketing action to reach a segment - Ways to segment Consumer Markets o Geographic segmentation- based on where prospective customers live or work (region, city size) o Demographic segmentation- based on some objective physical (gender), measurable (age, income), or other classification attribute (birth-era) o Psychographic segmentation- based on some subjective or emotional attributes (personality), aspirations (lifestyle) or needs of prospective customers o Behavioral segmentation- based on some observable actions or attitudes by prospective customers Usage rate- quantity used or patronage (store visits) during a specific period (frequency marketing focuses) • Simmons market research bureau • 80/20 Rule- 80% of a firms sales are obtained from 20% of its customers (20% of consumers are really big buyers and they account for 80% of profit)

Step 2: Group products to be sold in Categories - Non-product innovations increase customer convenience - Each product/innovation is not targeted equally among segments - Customers should be grouped in segments o Product groups (i.e. supermarket isles) - Qualitative- judgment

Step 3: Develop a Market-Product Grid and Estimate Sixe of markets - Market-Product grid- a frameworks to relate market segments of potential buyers to products offered or potential marketing actions by an organization o Markets = horizontal rows o Product groupings= vertical columns o Estimate size of market using 1-3 scale (3 being large market) o Determines which target market to select and which product groupings to offer

Step 4: Select Target Markets - Do not want to be too narrow or too broad - There are 2 different kinds of criteria in the market segmentation process: those used to divide the market into segments and actually pick the target segments o Criteria to use: Market size- is it worth going after? Expected growth- might be small but with potential to grow Competitive position- less competition, more attractive to segments Cost of reaching segment- reachability • EX) NetFlix- their heaviest users were costing them more than the cost they were making from them, tried to slow down their orders, actually downgraded their best customers Compatibility with the organizations objectives and resources- is competing in new segment compatible with what you have been doing? • EX) Black and Decker- producing milk product not compatible with their technology, equipment, etc • EX test question) Mary opens clothing store with basic clothing but customer can add additional features, what marketing strategy? Mass customization o Choose segments o Majority Fallacy*- blindly pursing the largest segment, chose biggest segment based off of size only, competition will be going after biggest segment too- biggest but most profitable/efficient?

Step 5: Take Marketing Actions to Reach Target Markets

o Mass Marketing- no segmentation- Henry Fords concept o Concentration- (market niching strategy) just focus on one segment o Multi-segment- chose multiple segments (canon camera) EX) Levis jeans first started made one style (mass marketing), over time they broadened their product line coming out with new styles, vintage clothing line, Dockers line (looked at demographic patterns, baby boomers were getting older, weren't buying jeans anymore, unexpectedly young people liked them also) o "Mass Customization"- like mass production but different parts as go down line (Nike customized sneakers)

- Product synergies- vertically, each column represents an opportunity for efficiency in research and developments and production - Taking advantage of marketing synergies comes at an expense of product synergies because a single customer segment will likely require a variety of products - Taking advantage of product synergies created ground for marketing synergies

- The place a product occupies in consumers minds on important attributes relative to competitive products (What are we communicating to consumer about product?)

features or benefits deemed "necessary" by consumers for a brand to be a viable entry in the product category, the bare minimum they desire, EX) tablet computer needs to be small enough to pick up in hands

unique (desirable) brand features or benefits that differentiate it from other competitors in the product category 9Why buy us rather then something else?) EX) Tylenol vs. Advil, Advil can be taken with other medications

changing the place of a product o Head-to-head positioning- competing directly with competitors on a similar product attributes in same target market o Differentiation positioning- seeking a less competitive, smaller market niche in which to locate a brand (promotes less cannibalization of brand sales or market shares) o Writing a positioning statement- positioning ideas produced by marketing managers used externally and internally

o Identification of important attributes for a product class o Judgments of existing products or brands o Ratings of an "ideal" products or brands attributes o Perceptual Maps- means of displaying or graphing in 2 dimensions the location of products or brands in the minds of individuals to see how consumers perceive competing products

o Products feature- features are what we build into product (White bread no crust) o Product benefit- what consumer gets from product (Crest white toothpaste- feature is chemical used, benefit is whitens teeth) o User Category- position product for the people we think use it (Wheaties "breakfast of champions") o Against other brand- risky strategy, spending money to advertise competitor (bad advertising of competitor but still putting it out there) (Windows vs. Mac) o Against product category EX) 7up in 70's was poorly performing brand, came up with ad that marketed 7up as "un-cola", alternative fresh clean light to cola, new product category increased sales o Specific Use- (Excedrin PM)

- Market potential/ industry potential - Sales Forecast- the total sales of a product that a firm expects to sell during a specified period under specified environmental conditions - Judgments of the decision maker o 99% of all sales forecasts o Direct Forecast- estimating the value to be forecast without any intervening steps o Lost-Horse Forecast- making a forecast using the last known value and modifying it to positive or negative factors expected in the future - Survey of Knowledge groups o Surveys of Buyers intentions forecast- asking prospective buyers if they are like to buy a product during some future time period o Sales force survey forecast- asking the firms salespeople to estimate sales during a coming period (often unreliable) - Statistical Method o *Trend Extrapolation- extending a pattern observed in past data to the future (Best known method) Linear Trend Extrapolation- assumes trends will continue- relies on simplicity