5 Segmentation and Targeting

7/30/2019 5 Segmentation and Targeting

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Marketing In Black and White 1

marketing

IN BLACK AND WHITEBrian 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 customerswant


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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


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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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1. Identify Market

Needs and Profil e

2. Divide Market intoSegments

3. Target SegmentsWhich segments can the

firm best service and which

best meet their needs.

More than one segmen canbe targeted

4. Create MarketingMixes for each target

The Process of Segmentation



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



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 yourorganisation.


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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 consumersthere 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 TargetingProcess Involves Six Steps

1. Identifying the general category (such as the soft-drink

market).

2. Segmenting the general category (identifying different types ofpreferences 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 TargetingProcess 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 SegmentationProfiles

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 marketingcommunication offers.


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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?

To find these responses, you should ask aboutthe amount of demand and growth-relatedfactors:


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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 Idealist(Stages Between)

Figure 13.1 A

continuum of variants

in a profile

Figure 13.1 A continuum of variants in a profile


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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 theconsumer can draw on (education, income, health, energy level, self-

confidence 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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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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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/dayseasonality.

Ethnic/national - cultural segmentation - Some brands are designedspecifically 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 andTargeting

The extent that current customers versus new customers aretargeted 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 newcustomers.


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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 ToEnter

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 OfferPotential

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


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S1 S2 S3

P1

P2

P3

S1 S2 S3

P1

P2

P3

S1 S2 S3

P1

P2

P3

S1 S2 S3

P1

P2

P3

S1 S2 S3

P1

P2

P3

Single-segment

concentration

Selective

specialisationProduct

specialisation

Market

specialisation

Full market

coverage

S = SegmentP = Product

Figure 13.3 Patterns of Target Segment Selection


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Segmenting and TargetingOrganisational 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 similarto 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 personalfactors 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 ofpeople.


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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 acustomer.


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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 thetarget segment in such a way as to set it meaningfully apart

from the competition.

2. The position of the value offering (marketing mix) thatcomes to mind and the attributes buyers perceive as

related to it.

3. The Marketing style devoted to owning a part of theconsumers 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.

FamilyHigh

P ti


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1

3

5

7

9

1 3 5 7 9

Family

Individuals/Couples

Lots of

Family

facilities Individual

Tailored

Facilities

1

3

5

7

9

1 3 5 7 9

Family

Couple

Short

Holiday

Longer

Holiday

1

3

5

7

9

1 3 5 7 9

Prestige

Requirement

Prestige not

a high requirement

No Spa Facili ty

1

3

5

7

9

1 3 5 7 9

Want to be

Left alone

Limited

Room

Luxuries

Extensive

Room

Luxuries

Spa

Facility

Pampered

VB

R/W

F1

F2

F3

C1

VB

VB

R/W

F1

F2

F3

C1

R/W

C1

F1

F2

F3

F1

F2

F3

C1

VB

R/W

R/W Romantic Weekend VB Very Busy

Segment

F1

F2

F3

Family - Short Holiday

Family -Medium Term Holiday

Family - Long Holiday

C1

Conference Market

Figure 13.5 Perceptual or Positioning Mapping


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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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5 Segmentation and Targeting