SEGMENTATION, POSITIONING AND THE MARKETING MIX

Hilda Burton 2012

Hilda Burton 2012

Segmentation, positioning and planning

Hilda Burton 2012

While marketing is a philosophy-putting customer first, it is also about customers being a source of profit– this requires planning and decision making.

Through segmentation marketers study characteristics, buyer behaviour and decision making of customers.

Customer segmentation is the sub division of a market into discrete customer groups with similar characteristics, which are significant for a marketing strategy.

By understanding customers in this way firms are than in a position to develop uniquely appealing products and services,

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Importance of Market Segmentation in the Development of Marketing Strategies

Slowing population growth in many developed countries, and maturing product-markets.

Social and economic forces have produced customers with more varied and sophisticated needs, tastes, and lifestyles than ever before.

Trend toward micro segmentation. Ease of implementing sharply focused

marketing programs

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Why segment markets?

Hilda Burton 2012

Better matching of customer needs: i.e airlines clear groups of travellers with different needs. If you provide the same to all then few are satisfied.

Enhance profit—get some to pay more. Customers differ in price sensitivity. It is difficult to raise price to all customers but can raise to some.

Enhance growth opportunities—get customers to trade up to a higher margin product i.e. Tesco online & delivery/ Mobile phones.

Retention of customers—lifecycle—cater for all stages i.e. banking.

Targeted communications—easier to develop clearer message if group homogeneous

Stimulation of innovation—if market undifferentiated less scope for new ideas on how to meet customer needs.

Market segment share—may need to focus—cannot compete with bigger brands straight off

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Segmentation can be used to:

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Prioritize NPD efforts. Develop customised marketing program Choose specific product features. Establish appropriate service options Design optimal distribution strategies Determine appropriate product pricing

Hilda Burton 2012

To be used properly as a strategic tool segmentation should meet five criteria: Effective---homogeneous needs within segments Identifiable—some profilers harder to identify—i.e.

aiming at extroverts. Profitable—Narrower segmentation costs more but

may pay off in long run. Accessible—Customers in segments can be

reached. Actionable—i.e. larger petrol station has more

facilities to differentiate and meet needs of several segments and add value

Hilda Burton 2012

Common profilers: Geographic—location, urban rural. Demographic—Age, sex, family size, income ,

occupation education, race. Psychographic—social class, lifestyle,

personality. Behavioural, Product usage: light medium

heavy. Brand loyalty: none medium high, Type of user: Special occasions, with meals etc.

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Methodology of Segmentation

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1. Divide market into meaningful and measurable segments according to key profilers.

2. Determine profit potential of each segments.

3. Invest resources to tailor products and services, marketing and distribution needs of each segment.

4. Measure performance of each segment and adjust to the market conditions

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Steps in Constructing a Market-Attractiveness/Competitive-Position Matrix for Evaluating Potential Target Markets

Hilda Burton 2012

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Choosing Attractive Market Segments: A Five-Step Process

Step 1: Select market-attractiveness and competitive-position factors

Market-attractiveness factors Competitive-position factors

Step 2: Weight each factor A numerical weight is assigned to each

factor to indicate its relative importance in the overall assessment

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Choosing Attractive Market Segments: A Five-Step Process

Step 3: Rate segments on each factor, plot results on matrices

This step requires that evidence be collected to objectively assess each of the criteria identified in Step 1.

Once assessments have been made, the weighted results can be plotted on a market-attractiveness/competitive-position matrix

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Market-Attractiveness/Competitive-Position Matrix

Hilda Burton 2012

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Choosing Attractive Market Segments: A Five-Step Process

Step 4: Project future position for each segment

Determine how the market’s attractiveness is likely to change over the next three to five years.

For this assessment, start by considering: Possible shifts in customer needs and

behavior. The entry or exit of competitors and

changes in their strategies.

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Choosing Attractive Market Segments: A Five-Step Process

Managers must also address several broader issues:

Possible changes in product or process technology.

Shifts in the economic climate. The impact of social or political trends. Shifts in the bargaining power or vertical

integration of customers.

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Choosing Attractive Market Segments: A Five-Step Process

Step 5: Choose segments to target, Allocate resources

Managers should consider a market segment to be a desirable target only if it is strongly positive on at least one of the two dimensions of market attractiveness and potential competitive position and at least moderately positive on the other.

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Implications of Alternative Positions within the Market-Attractiveness/ Competitive-Position Matrix for Target Market Selection, Strategic Objectives, and Resource Allocation

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Different Targeting Strategies Suit Different Opportunities

Niche-market strategy Involves serving one or more segments

that, while not the largest, consist of a sufficient number of customers seeking somewhat-specialized benefits from a good or service.

Designed to avoid direct competition with larger firms that pursue bigger segments.

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Different Targeting Strategies Suit Different Opportunities

Mass-market strategy A business can pursue a mass-market

strategy in two ways: Ignore any segment differences and design

a single product-and-marketing program that will appeal to the largest number of consumers.

Design separate products and marketing programs for the differing segments (differentiated marketing).

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Different Targeting Strategies Suit Different Opportunities

Growth-market strategy Businesses often target one or more fast-

growth segments, even though these segments may not currently be very large.

Usually requires strong R&D and marketing capabilities, plus the resources to finance rapid growth.

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Segmentation Process

Mc Donald and Dunbar (1995) suggest a 10 point process:

1. Market mapping – what does market look like?

2. Who buys?3. What is bought, where, when and how?4. Micro-segments?5. Reasons for purchase

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Hilda Burton 2012

6. Bring together similar micro-segments7. Test segments agains’t company

capability8. Segment Attractiveness criteria9. Criteria parameters10. Company competitiveness

Mc Donald, M. and Dunbar, I. (1995) Market Segmentation, Macmillan, London.

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Market Attractiveness - Ansoff’s Matrix

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Evaluating Segments

measurability accessibility substantial defensible durable competitive capability

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Nutri Science Segmentation decisions:

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Nutri-science operate in the Nutraceutical industry: Providing food supplements for animal and human markets.

Nutri-Science operates in three distinct market segments; Veterinary ( Small animals)—pet food, supplements,

supplies, veterinary services, boarding and grooming.

Equine –Size is based on the number of competition horses in each market.--joint supplements is a niche market within this—Arthri Aid Equine.

Human: Food Supplements

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Now see trend towards one to one marketing—but actually within this have groupings– i.e. Eircom Bundles.

Dell have five segments according to potential profitability—higher importance gets greater support and customization—80/20 rule.

Now we see Dell segmenting on the basis of customer emotions rather that usage of computers.

Hilda Burton 2012

Hilda Burton 2012

Table 3.3 Needs and profiles in the toothpaste market

Source: Adapted from Russell I. Haley, ‘Benefit segmentation: a decision-oriented research tool’, Journal of Marketing, July 1963, pp. 30–5

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Alternative marketing strategies

Hilda Burton 2012

Hilda Burton 2012

Marketers must continually analyse segments to identify any ways they can be innovative.

i.e. Airlines typically have Economy, Business class and First class. Virgin Atlantic noticed that within economy there was in fact differences—last minute standby paying $150 while full fare economy paid $750 but all got the same service and seats. Decided to sub-segment in to Premium economy class with separate cabin, better food, separate check in.

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Segmentation over time

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Opportunities for segmentation increase as a market evolves i.e. Consider mobile phone market.

Computers growth by addition of segments: scientific customers-larger businesses- small businesses—households- students

Companies must shift resources out of maturing market segments and into emerging ones—learn about new customers, develop new products and develop new channels,

But also get existing customers to trade up—find new ways to add value for them.—Total Fitness gym

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Sources of market growth

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POSITIONINGHilda Burton

2012

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Positioning Decisions

Success tends to depend on positioning

The perceived fit between the product offering and the market needs

How can a business position its offering so that customers in the target market perceive it as providing the desired benefits, thereby giving it an advantage over current and potential competitors?

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Steps involved in developing a Positioning Strategy There are a number of important steps

to be followed according to Trout and Rivkin (2000)

1. Make sense in the context of your competitors e.g ‘The low fares airline’

2. Find a Differentiating Ideae.g. ‘Passionate about food’

3. Have the credentials e.g. ‘The world’s favourite airline’4. Communicate the difference

e.g. ‘Vorsprung durch technik’Hilda Burton 2012

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Steps in Positioning Process

1. Identify relevant set of competitive products

2. Identify the product attributes that define the ‘product space’ in which positions of current offerings are located

3. Research consumers’ perception of each product on each attribute

4. Analyse the intensity of the product’s position in the mind of the consumer

Hilda Burton 2012

Hilda Burton 2012

5. Determine product’s current location in the product space (product positioning) using perceptual mapping

6. Determine consumers’ most preferred combination of determinant attributes

7. Examine fit between preferences of market segments and current position of product (market positioning)

8. Select positioning or repositioning strategy

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Hilda Burton 2012

Real repositioning strategies: Introduce a new brand. Change existing brand

Psychological repositioning strategies: Alter beliefs about the brand. Alter beliefs about competitive brands Alter attribute importance weights