C HAPTER 2 SEGMENTAT I ON FOR MARKET I NG CHANNEL DES I GN: SERV I CE OUTPUTS

1. CHAPTER 2SEGMENTATION FOR MARKETING CHANNEL DESIGN: SERVICE OUTPUTS

2. Market Segmentation • The process of dividing a market into meaningful, relatively similar, identifiable segments or groups. • Markets have a variety of product needs and preferences • Marketers can better define customer needs • Decision makers can define objectives and allocate resources more accurately

3. Substantiality Segment must be large enough to warrant a special marketing mix. Identifiabilityand Measurability Segments must be identifiable and their size measurable. Accessibility Members of targeted segments must be reachable with marketing mix. Responsiveness Unless segment responds to a marketing mix differently, no separate treatment is needed. Criteria for Segmentation

4. Geography Demographics Psychographics Benefits Usage Rate • Region • Market size • Marketdensity • Climate • Age • Gender • Income • Race/ethnicity • Family life cycle • Personality • Motives • Lifestyle • Geodemo-graphics • Benefitssought • Former • Potential • 1st time • Light orirregular • Medium • Heavy Bases for Segmenting Consumer Markets

5. Segmentation for Marketing Channel Design • MC system design and management, like the management of any other marketing activity, requires starting with an analysis of the end user. (This is true even for a channel member that does not sell directly to an end-user.)

6. Demand side insights for marketing channel design: • How end users want to buy and use the products and services being purchased? • In all markets, end-users will have differential preferences and demands for service outputs!

7. End User Channel Preferences • End users: B2B buyers and individual customers • It seems more than just the product itself is important to the buyer! • PC purchase directly from a manufacturer vs from a corporate supplier

8. What seems dominant from a supply perspective may not be best from a demand perspective? • Main difference: • Customer service tailored specifically to this segment of buyer...(product-plus-service output bundle that the targeted customer highly values)

9. CDW (computer discount warehouse) • Focuses on a particular subset of all computer buyers: small-medium sized companies, government, education • Provides value adding activities • Expertise/ advice on configuration of products, setting up local area network, etc. • High speed in delivery ( 99% on same day delivery) • Salesperson to every customer account • Broad assortment and variety

10. - There is a need to identify how the end user wants to buy as well as what the end user wants to buy. - Different end users have different demands and that understanding and responding to those demands can create new business opportunities for manufacturers.

11. SEGMENTATION FACTORS • Bucklin’s theory: Channel systems exist and remain variable through time by performing duties that reduce: • end users’ search, • waiting time, • storage cost, • other costs... • These benefits are called as service outputs of the channel

12. Other things being equal (in particular price and physical product attributes) end-users will prefer to deal with a marketing channel that provides a higher level of segmentation factors.

13. Segmenting the Market • Segmenting the market into groups of end-users who differ not in the product(s) they want to buy but also how they want to buy them. • Service sensitive (e.g. home decoration) vs. Price sensitive consumers (e.g. men’s clothing)

14. GENERIC SEGMENTATIONFACTORS IN MC • Bulk breaking • Spatial convenience • Waiting or delivery time • Product variety • Customer service • Information provision

15. 1.BULK BREAKING ...refers to the end users’ ability to buy their desired (possibly small) number of units of a product or service even though they may be originally produced in large, batch production lot sizes. • The more bulk-breaking the channel does, the smaller the lot size end-users can buy and the higher the channel’s service output level to them. • Laundry detergent purchase of a family on vacation vs at home... • Fruits and vegetables in small quantities, • Different pasta packages for singles and large families..

16. 2. SPATIAL CONVENIENCE ...provided by market decentralization of wholesale and/or retail outlets increases consumers’ satisfaction by reducing transportation requirements and search costs, -Place utility • Community shopping centers, neighborhood supermarkets, convenience stores, vending machines, gas stations... • Gym center near to your home • Apple store? • Alsancak-Agora • Consulate to any country in Izmir

17. 3. WAITING TIME ... is the time period that the end-user must wait between ordering and receiving goods or post sale service. • Time utility... We are seldom below Dell’s price, but we get it to you faster. (CEO of CDW said)- shipping in 1 day versus in 10-12 days -Repairman time for your camera…

18. 4. PRODUCT VARIETY • The wider the breadth of varietyor the greater the depth of product assortmentavailable to the end-user, the higher the output of the marketing channel system and the higher the overall distribution costs Variety: describesgenerically different classes ofgoods making up the product offering, that is, the breadth of product lines.(Breadth of product lines) (Discount department store) (Kipa, Wal-Mart, Migros) Assortment: refers to the depth of product brands or models offered within each generic product category. (TeknoSA)

19. 5. CUSTOMER SERVICE ...refers to all aspects of easing the shopping and purchase processes for end users as they interact with commercial suppliers or retailers (for business-to-business purchases) or retailers (for business to consumer purchases) • Call-centers, after sales support • CDW: We are the chief technical officer for many smaller firms

20. 6. INFORMATION PROVISION ...refers to education of end users about product attributes or usage capabilities, or pre-purchase and post-purchase services. • Do it yourself! (IKEA) • Play station game console at the airports or retailing stores such as Target • HP-Microsoft experience centers) • Arçelik/Digiturk gets appointment form the customer for giving extra usage information (customer service &information provision)

21. Methods for identifying segmentation factors • Focus groups • Interviews • Constant-sum scales - force the respondents to allocate 100 points to segmentation factors - determine which segmentation factors are relatively more important

22. Determinants of Segmentation Factors • Cost • Trade off between providing higher service output and cost • Competition • Whether existing competitiors can beat this channel’s current service output provision levels. • Ease of entry to market • Potential competitiors? CD/online downloads of music

23. FIGURE 2-1: IDEAL CHANNEL SYSTEM FOR BUSINESS-TO-BUSINESS SEGMENTS BUYING A NEW HIGH-TECHNOLOGY PRODUCT Manufacturer (New High Technology Product) Associations, Events, Awareness Efforts Third-Party Supply Out-source VARs (Value added resellers) Pre-Sales Dealers TeleSales/ TeleMktg Sales Internal Support - Install, Training & Service Group Post-Sales Full-Service Responsive Support References/ Credentials Lowest Total Cost Segment Source: Reprinted with permission of Rick Wilson, Chicago Strategy Associates, 2000.

24. FIGURE 2-5: ADVERTISING COPY FOR AN AD FOR BN.COM Source: advertisement for bn.com in Wall Street Journal, November 20, 2002, p. A11.

25. References Principles of Marketing, Kotler, P. and Armstrong, G. (2008) Principles of Marketing. 12th ed. Pearson. Coughlan, A. et al. (2006) Marketing Channels. 7th ed. Pearson.