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SEGMENTATION

SEGMENTATION. I. Segmentation vs. Aggregation Strategy Should we segment ?. II. In-Class Exercise Part I III. Bases of Segmentation How should we segment? IV. Defining Market Structure V. Translating Segmentation into Strategy VI. In-Class Exercise Part II

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SEGMENTATION

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  1. SEGMENTATION • I. Segmentation vs. Aggregation Strategy • Should we segment ? • II. In-Class Exercise Part I • III. Bases of Segmentation • How should we segment? • IV. Defining Market Structure • V. Translating Segmentation into Strategy • VI. In-Class Exercise Part II • VII. Video – Researching the teen segment

  2. Segmentation vs. Aggregation Strategy When should a firm pursue a segmentation versus aggregation strategy? • Consumer Preference Heterogeneity • Majority Fallacy • Cost-Benefit Analysis

  3. Consumer Preference Heterogeneity How much Variability Exists in Consumer Preferences?

  4. Low Medium High Spiciness/sweetness Consumer Preference Heterogeneity Preferences for food

  5. Low Medium High Spiciness/sweetness Majority FallacySpaghetti Sauce Ex. Preferences Ragu Prego Classico Etc. Hunt’s Prima Salsa

  6. Majority FallacyTea Preferences Cold Luke Warm Hot Temperature

  7. Cost-Benefit Analysis Sales Costs 1 100 1 100 Number of different products Number of different products

  8. Bases Of Segmentation • PERSON • Geographic (Regional/cultural differences) • Demographic (age/income/gender) • Psychographic • Values • Personality • Lifestyle • PRODUCT (brand attributes) • USAGE SITUATION (football game vs. dinner)

  9. Defining Market Structure F (customer characteristics, product attributes, usage situation) • Requires a match between: • Customer (defined by person characteristics) • Usage Situation (benefits sought for specific usage situation) • Product Attributes (benefits provided) Ex. A consumer may use instant coffee brands when in a hurry and ground coffee brands when entertaining.

  10. Analytical Framework for Determining Market Structure • Stage 1 – Generation of Usage-Situational Taxonomy Ask consumers to suggest as many usage situations for a target product as they can. For each usage situation, list as many other products that can be used for the situation. Situations are reduced in number by clustering them – situations are clustered together if they have a similar pattern of products considered suitable.

  11. Analytical Framework for Determining Market Structure • Stage 1 – Generation of Usage-Situational Taxonomy Ex. Coffee Three Major Situational Dimensions • Event (Daily living/Entertaining) • Time of Day (morning/afternoon/evening) • Location (home/work/restaurant)

  12. Analytical Framework for Determining Market Structure • Stage 2 – Generation of Customer x Product xUsage Situation Matrix Develop scenarios to represent taxonomic cells of the usage-situational taxonomy (2x3x3 = 18 possible combinations) Ex. Daily living/afternoon/restaurant It is a typical day and you are at your usual restaurant for lunch. The waiter asks what you would like to drink. Have consumers rate suitability of each product listed in Stage 1 for each of the scenarios including target product

  13. Suitability = F (customer, product, situation) Stage 3 – Assess relative importance of main and interaction effects Customer Product Usage Situation Customer x Product Customer x Usage Situation Product x Usage Situation Customer x Product x Usage Situation Main Effects Interaction Effects

  14. MAIN EFFECTS Customer - Usage rates are highly variable across customers Product - Some products are deemed more useful than others Usage Situation - The product has specific uses

  15. INTERACTION EFFECTS Interaction: The effect of one factor depends on another Customer x Product - Different groups of customers prefer different product types across all usage situations Ex. Young prefer caffeinated and old prefer decaffeinated coffee

  16. INTERACTION EFFECTS Customer x Usage Situation - A large group of customers use the product in one situation and another large group of customers use the product in another situation. Ex. One group of consumers uses coffee in the morning and another group uses it at night.

  17. INTERACTION EFFECTS Product x Usage Situation - Consumers use one type of product in one situation and another type of product in a different situation. Ex. Consumers use caffeinated coffee in the morning and decaffeinated at night.

  18. Product x Usage Situation for Financial Services

  19. INTERACTION EFFECTS Customer x Product x Usage Situation - Different groups prefer different product types for different usage situations Ex. One group of consumers uses instant coffee for daily living and ground coffee for entertaining. Another group uses instant coffee for all occasions and yet a third group uses ground coffee for all occasions.

  20. Translating Segmentation into Strategy • Position product to segments via: • Product • Price • Promotion • Place (distribution) • ALL MUST WORK TOGETHER!!

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