Segmentation and Targeting

1. Segmentation and Targeting Marketing 5341 Chip Besio

2. What Is Market Segmentation? Market segmentation is the subdividing of a market into distinct subsets, where any subset may conceivably be selected as a marketing target to be reached with a distinct marketing mix

3. Segmentation Dilemma MASS MARKETING Economies ofScale CUSTOMIZATION Everyone Wants Something Different

4. Segmentation Criteria I. Customer Characteristics II. Benefits Sought III. Customer Behaviors

5. Customer CharacteristicsDEMOGRAPHICS • Consumer Markets: • Gender • Age • Income • Dual income family • Industrial Markets: • SIC code • Size of company

6. Customer Characteristics PSYCHOGRAPHICS • Consumer Markets: • Environmentally-conscious • Value and lifestyles • VALS (1978); VALS 2 (1989) • Distinct patterns based on attitudes and values • Industrial Markets: • Corporate culture • Purchasing orientation

7. Customer Characteristics GEOGRAPHY • Regional Segmentation • Zip Clustering • Distinct marketing strategies created for similar types of neighborhoods stretched across the nation • Examples include PRIZM, Market Metrics

8. Benefit SegmentationWHAT BENEFIT DO YOU WANT? • Rationale - The benefits people are seeking in consuming a given product are the true reasons for the existence of segments • Example - Toothpaste • Cavity prevention (e.g., Crest) • Fresh breath (e.g., Aquafresh) • White teeth (e.g., Rembrandt)

9. Behavior Segmentation USAGE BEHAVIORS • Volume of usage • Heavy users, moderate users, light users and nonusers • 80/20 rule • Brand usage • Increase usage among users • Get users of competing brand to switch • Get nonusers to start • Usage occasion

10. What Is “Targeting” a Market Segment? “You can’t be all things to all people” • Therefore, companies typically focus on one or more segments and orient their marketing activities to those (potential) customers

11. Which Are the “Good” Segments to Target? The most attractive market segments are: • Large • Growing and have: • High purchase volume • High margins • High customer value

12. Which Are the “Good” Segments to Target? • However, the most attractive segments are frequently already well-served and so are highly competitive … so you must also consider: • Number and strength of competitors • Ease of entry into the segment • Company’s current positioning

13. Targeting Dilemma - Segment Attractiveness SEGMENT VALUE More Opportunity COMPETITION More Companies Compete for Valuable Segments

14. Which Are the “Good” Segments to Target? Additional considerations for targeting: • Customers are addressable - you can reach them • The company is capable of building a marketing program to target them

15. Targeting • Examples of successful targeting: • Wal-Mart - Value-conscious shoppers that do not want to worry about short-term sales • Lexus - People with high disposable income who value reliability and service, as well as prestige and luxury • Cray - Price insensitive computer users that require maximum computing power • Dupont - Less price-sensitive innovators in the use of plastics (skim pricing)

16. Porter’s Market Forces Model

17. Porter’s Market Forces Model An important tool to help us understand the character of competition in a market is Michael Porter’s market forces model • It assists in evaluating the attractiveness of a market for potential entry

18. Porter’s Market Forces Model • The character of competition in markets varies widely: Character of Competition in a Market “Cooperative” Competition Intense Rivalry

19. Porter’s Market Forces Model • What determines the attractiveness, or potential long-term profitability, of a market? Potential Entrants (Threat of Mobility) Suppliers (Supplier Power) Industry Competition (Segment Rivalry) Buyers (Buyer Power) Substitutes (Threat of Substitutes) Michael E. Porter

20. Porter’s Market Forces Model • How does the model predict the intensity of competitive rivalry?