Market Segmentation and Target Marketing

Market Segmentation and Target Marketing

Outline • The concept of market segmentation • Segmentation bases • general vs. product-specific • observable vs. latent • Data sources for segmentation • Segmentation criteria • Target marketing

Market segmentation Partitioning a market that is characterized by heterogeneity in consumers’ response to the marketing mix into more homo-geneous submarkets.

Differences in consumer response Response B B2 A2 A A1 B1 marketing variable x2 x1

Segmentation bases General Product-specific Observable features of the physical and social environment (esp. demographics) Behavioral characteristics (user status, loyalty status, usage rate) Usage situations Observable Awareness Attitude (beliefs, evaluations) Intentions Values, lifestyles and psychographics, personality variables Latent

In-class exercise:Segmentation in the toothpaste market Go to the web sites for Crest and Colgate and study what types of toothpastes they offer to appeal to different market segments. Use the information provided on the web sites, or any other information that you can find, to come up with a list of variables that companies use to segment the toothpaste market.

Category users • Other brand loyals • Other brand switchers Our consumers Heavy users Light users Loyals Switchers Nonusers (potential users) Nonusers (Potential users) Segmentation by behavioral characteristics

Examples of behavioral segmentation

Attitudinal segmentation +++ - Expensive Whitens teeth Crest Colgate Gentle on gums Tooth- paste Fights cavities -/+ Mentadent ++

Segmentation bases General Product-specific Behavioral characteristics (user status, loyalty status, usage rate) Usage situations Observable features of the physical and social environment (esp. demographics) Observable Awareness Attitude (beliefs, evaluations) Intentions Values, lifestyles and psychographics, personality variables Latent

The VALS 2 typology

VALS 2 • VALS classifies consumers on the basis of two dimensions: • self-orientation (primary motivation): • Ideals (principle-oriented consumers): those who are guided in their choices by abstract, idealized criteria (quality, integrity, tradition); • Achievement (status-oriented consumers): those who are guided in their choices by the expected reactions, concerns, and desires of groups to which they belong or aspire to belong; • Self-expression (action-oriented people): those who are guided in their choices by a desire for social or physical activity, variety, and risk taking; • resources: refers to the full range of psychological, physical, demographic, and material means and capacities people have to draw upon (age, education, income, self-confidence, energy, intellectualism, novelty seeking, innovativeness, impulsiveness, etc);

A segmentation scheme for toothpastes

Data sources for segmentation • Simmons Market Research Bureau • Product usage (by category and brand) • Demographics • Media behavior • Psychographics • Mediamark Research • Similar to Simmons

1998 Mediamark data for toothpaste(user status by gender)

1998 Mediamark data for toothpaste (usage rates overall and for Glamour readers) Note: Heavy users use toothpaste more than 14 times per week.

1998 Mediamark data for toothpaste (usage rates overall and for Glamour readers) Note: Light users use toothpaste fewer than 11 times per week.

A segment of consumers interested in sporty cars would like to purchase a car like the Porsche 911 at the price of a Mazda Miata. • A researcher investigating response to sales promotion offers distinguishes coupon-prone from rebate-prone shoppers, but finds that consumers in the coupon-prone segment are as responsive to rebates as to coupons. • There are two kinds of consumers who see higher prices in a positive light, those who associate higher prices with higher quality and those who feel good about being able to buy products that not everybody can afford. However, a producer of luxury goods has no way of knowing whether a given consumer belongs to the first or second group.

A company discovers that dieters are extremely fickle in their food preferences over time. • The break-even point for selling a piece of software at a profit is 100,000 units and the company feels that there is a segment of consumers who are interested in this product. However, it proves difficult to determine how big the potential market is. • It is known that some consumers are more responsive to factual appeals and others are more responsive to emotional appeals. An advertiser has developed factual and emotional ads to target the two kinds of consumers, but cannot find print media to reach the two segments.

Segmentation criteria differentiable: market response is homogeneous within segments and heterogeneous between segments; identifiable: individuals can be assigned to a segment based on a meaningful profile of segment characteristics; stable: segments and segment membership do not change in the short run; measurable: the size and purchasing power of relevant segments can be determined; actionable: the company is able to develop a marketing mix that will appeal to the members of a given segment; accessible: members of a segment can be reached with the appropriate marketing mix;

Target marketing • evaluation of the attractiveness of each market segment and selection of target segments; • evaluation of market segments based on • market segment characteristics • industry competition • company objectives and resources • selection of target segments can result in • undifferentiated (mass) marketing • differentiated marketing • concentrated marketing

Market Segmentation and Target Marketing