Chapter 08 Identifying Market Segments and Targets

1. Chapter 08 Identifying Market Segments and Targets

2. Kotler on Marketing “Don’t buy market share. Figure out how to earn it.”

3. Chapter Objectives The following topics will be covered in this chapter: • Levels of Market Segmentation - Segment Marketing - Niche Marketing - Local Marketing - Individual Marketing • Bases for Segmenting Consumer Markets - Geographic Segmentation - Demographic Segmentation - Psychographic Segmentation - Behavioral Segmentation • Bases for Segmenting Business Markets • Market Targeting

4. Market Segmentation • Target marketing requires marketers to take three major steps: • Identify and profile distinct groups of buyers who differ in their needs and preferences (market segmentation). • Select one or more market segments to enter (market targeting). • For each target segment, establish and communicate the key distinctive benefit(s) of the company’s market offering (market positioning). • The starting point for discussing segmentation is mass marketing. • Mass Marketing: the seller engages in the mass production, mass distribution and mass promotion of one product for all buyers.

5. Levels of Market Segmentation • Segment Marketing: • Market Segment • Flexible Market Offering (2 Parts) • Naked Solution: the product and service elements that all segment members value • Discretionary Options: some segment members value • One way to identify Preference Segments • Homogeneous Preferences • Diffused Preferences • Clustered Preferences

6. Figure : Basic Market-Preference Patterns 10-6

7. Levels and Patterns of Market Segmentation • Niche Marketing Ex: Crack, Itchguard, Meswak, Star Cricket • Local Marketing Ex: Matrimonial Service Providers • Individual Customer Marketing Customerization: combines operationally driven mass customization with customized marketing in a way that empowers consumers to design the product and service offering of their choice. Ex: Berger Color Bank

8. Levels of Market Segmentation • Market Segmentation Procedure • Needs-Based Market Segmentation Approach

9. Table : Steps in Segmentation Process 10-9

10. Bases for Segmenting Consumer Markets • Bases for Segmenting Consumer Markets • Geographic Segmentation • Demographic Segmentation • Psychographic Segmentation • Behavioral Segmentation

11. Table: Major Segmentation Variables for Consumer Markets 10-11

12. Table: Major Segmentation Variables for Consumer Markets

14. Segmenting Consumer Markets • Geographic Segmentation: • Nations • States • Regions • Countries • Cities or • Neighborhoods 2. Demographic Segmentation • Age and Life –Cycle Stages: Johnson & Johnson, Disney, MTV, Aastha Channel • Life Stage • Gender • Income • Generation

15. Segmenting Consumer and Business Markets • Social Class 3. Psychographic Segmentation: - Personality - Values • One of the most popular commercially available classification systems based on psychographic measurements is-the SRI Consulting Business Intelligence’s (SRIC-BI) VALS Framework. • The main dimensions are- Consumer Motivation (Horizontal Dimension) and Consumer Resources (Vertical Dimension)

16. Innovators Primary Motivation High Resources High Innovation Ideals Achievement Self-Expression Thinkers Achievers Experiencer Believers Strivers Makers Survivors Low Resources Low Innovation VALS Network

17. VALS Network • Consumers are inspired by one of the three primary motivations- • Ideals: those primarily motivated by ideals are guided by knowledge and principles. • Achievement: those primarily motivated by achievements are guided by products and services that demonstrate success to their peers.. • Self-expression: those primarily motivated by self-expression are guided social or physical activity, variety and risk. The four groups with higher resources are: • Innovators-Successful, sophisticated, active, ‘take-charge’ people with high self-esteem. Purchases often reflect cultivated tastes for relatively upscale, niche-oriented products and services. • Thinkers- Mature, satisfied, and reflective people who are motivated by ideals and who value order, knowledge and responsibility. They seek durability, functionality and value in products.

18. VALS Network • Achievers- Successful, goal-oriented people who focus on career and family. They favor premium products that demonstrate success to their peers. • Experiencers- Young, enthusiastic, impulsive people who seek variety and excitement. They spend a comparatively high proportion of income on fashion, entertainment and socializing. The other four groups with lower resources are: • Believers- Conservative, conventional and traditional people with concrete beliefs. They prefer familiar products and are loyal to established brands. • Strivers- Trendy and fun-loving people who are resource-constrained. They favor stylish products that emulate the purchases of those with greater material wealth. • Makers- Practical, down-to-earth, self-sufficient people who like to work with their hands. They seek products with a practical or functional purpose. • Survivors- Elderly, passive people whoa re concerned about change. They are loyal to their favorite brands.

19. Segmenting Consumer Markets 4. Behavioral Segmentation: • Decision Roles- - Initiator, ex- doctors - Influencer, ex- pharmaceutical companies - Decider, ex-patients’ relatives - Buyer, ex-patients’ relatives - User, ex-patient • Behavioral Variables- • Occasions, ex- Archies & Hallmarks • Benefits, ex- Clinic, Pantene, Sunsilk, Head & Shoulder

20. Segmenting Consumer and Business Markets • User Status, ex- non-users, ex-users, potential users , first time users etc • Usage Rate, ex- light, medium, heavy • Loyalty Status- • Hard-core loyals- loyal to only one brand all the time • Split loyals- loyal to two or three brands • Shifting loyals- shift loyalty from one brand to another • Switchers- show no loyalty to any brand • Attitude, ex-enthusiastic, positive, indifferent, negative and hostile

21. Target Market Unaware Aware Not Tried Tried Negative Opinion Neutral Favorable Opinion Rejector Not Yet Tried Repeated Loyal to Other Brand Switcher Loyal to Brand Light User Regular User Heavy User Behavioral Segmentation Breakdown

22. The Conversion Model • It measures the strength of consumers’ psychological commitment to brands and their openness to change. • The model segments users of a brand into four groups, based on- Strength of Commitment, from Low to High. • Convertible- most likely to defect • Shallow- uncommitted to the brand and could switch, some are actively considering alternatives • Average- also committed to the brand they are using, but, not as strongly- they are unlikely to switch brands in the short term • Entrenched- highly unlikely to switch brands in the foreseeable future

23. The Conversion Model • The model also classifies non-users of a brand into four groups, based on their – Balance of Disposition ad Openness to Trying the Brand, from Low to High. • Strongly Unavailable- unlikely to switch the brand- their preference lies strongly with their current brands • Weakly Unavailable- not available to the brand because their preference lies with their current brand, although not very strongly • Ambivalent- as attracted to the brand as they are to their current brands • Available- most unlikely to be acquired in the short run

24. Bases for Segmenting Business Markets • Demographics: • Industry: Which industries should we serve? • Company size: What size companies should we serve? • Location: What geographical areas should we serve? Operating Variables • Technology: What customer technologies should we focus on? • User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers? • Customer capabilities: Should we serve customers needing many or few services? Purchasing Approaches • Purchasing-function organization: Should we serve companies with highly centralized or decentralized purchasing organizations? • Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on? • Nature of existing relationship: Should we serve companies with which we have strong relationships or simply go after the most desirable companies?

25. Bases for Segmenting Business Markets • 10. General purchasing policies: Should we serve companies that prefer leasing? Service contract? Systems purchases? Sealed bidding? • Purchasing criteria: Should we serve companies that are seeking quality? Service? Price? • Situational Factors • Urgency: Should we serve companies that need quick and sudden delivery of services? • Specific application: Should we focus on certain application of our product rather than all applications? • Size or order: Should we focus on large or small orders? • Personal Characteristics • Buyer-seller similarity: Should we serve companies whose people and values are similar to ours? • Attitude toward risk: Should we serve risk-taking or risk-avoiding customers? • Loyalty: Should we serve companies that show high loyalty to their suppliers?

26. Market Targeting • Effective Segmentation Criteria: • Measurable: size, purchasing power and characteristics of the segments can be measured. • Substantial: segments are large and profitable enough to serve. • Accessible: segments can be effectively reached and served. • Differentiable: segments are conceptually distinguishable and respond differently • Actionable: effective programs can be formulated for attracting and serving the segments.

27. Market Targeting • Evaluating and Selecting the Market Segments • Single-Segment Concentration A firm selects and serves only one segment. Ex- Maternity Hospitals & Clinics • Selective Specialization A firm selects a number of segments, each objectively attractive and appropriate. Ex- Lux • Market Specialization A firm makes a certain product that it sells to several different market segments. Ex- Microscope producers for university, government and commercial laboratories.

28. Market Targeting • Full Market Coverage: • The firm attempts to serve all customer groups with all the products they might need. • Only large companies can undertake a full market coverage strategy. Ex: Microsoft, Coca-Cola ,General Motors, etc • Undifferentiated Marketing: the firm ignores segment differences and goes after the whole market with one offer. • Differentiated Marketing: the firm operates in several market segments and designs different products for each.

29. Market Targeting • Higher costs using differentiated marketing include: • Product Modification Cost • Manufacturing Cost • Administrative Cost • Inventory Cost • Promotion Cost

30. Market Targeting • Additional Considerations • Segment-By-Segment Invasion Plans Figure: Segment-by-Segment Invasion Plan

31. Market Targeting • Ethical Choice of Market Targets • Marketers must target segments carefully to avoid consumer backlash - Singles and elderly people may not want to be identified as singles or olds.

32. Thank You