Target Marketing & Market Segmentation

• Seeking and Developing Target Marketing Differentiation Strategies, as well as Creating Customer Value, Satisfaction, and Loyalty are key to marketing management.

Levels of Market Segmentation

• Market segmentation happens at different levels.
• Mass marketing involves the mass production, distribution, and communication of one offering for all.
• Mass marketing creates the largest potential market and reduces costs.
• Micromarketing is an alternative to mass marketing and is more common in today's competitive landscape.
• Micromarketing has four levels: segments, niches, local areas, and individuals.

Segment Group Marketing

• Market segments are groups of customers who share a similar set of needs and wants.
• The marketer’s task is to Identify segments and decide which one(s) to target.
• Segment marketing enhances chance to positively differentiate offerings from those provided by competitors.
• Segment marketing is used to classify customers into groups based on needs and factors that drive purchase decisions.

Niche Marketing

• Niche markets consist of more narrowly defined customer groups seeking a distinctive mix of benefits or values.
• Niche markets are generally small in volume but have a sufficiently attractive profit and growth potential.
• Marketers in niche markets seek to be "the large fish in the small pool”.
• Niche market customers are willing to pay a premium to firms that provide the best customer-perceived value.
• Niche markets are less likely to attract many powerful competitors and can benefit from focusing their resources through specialization.

Local Marketing

• Local marketing consists of marketing programs tailored to target specific local groups, even within countries.
• Local marketing is used as a way of getting as close and personally relevant to consumers as possible.
• The risks of local marketing include increased manufacturing costs and reduced profitability.
• Logistical problems and a bad impact on the overall brand image are also risks to local marketing.
• The main advantage of local marketing is that firms can respond to local requirements more effectively.

Individual Marketing

• “Segments of One” or Customized Marketing means customers become integral to the market offering and design processes.
• These offerings are developed to offer unique customer-perceived value at the individual level to meet individual needs.
• Mass customization is when a customer interacts with a company such that the company adapts its offerings to meet the customer's needs.
• Customerization leaves it to individual consumers to design the market offering.

Bases for Segmenting Consumer Markets

• The two broad groups of variables for segmenting consumer markets are descriptive characteristics and behavioral considerations.
• Segmentation variables includes geographic, demographic, psychographic and behavioral.

Geographic Segmentation

• Geographic segmentation divides the market into different geographic units.
• With geographic segmentation companies either focus on one of a few units, or pay more attention to local variations.
• Differences in regional, rural, and urban characteristics can be very influential for both global and local markets.
• People exposed to high population density cues form more positive attitudes toward brands deemed more luxurious and the negative.

Demographic Segmentation

• Age and Life Cycle Stage segmentation is used by brands that offer product lines to target children, adults, and older consumers.
• Brands offer products for consumers and sometimes even within specific age groups.
• Life Stage segmentation defines people's major concerns and can create new market segments and requirements in existing markets.
• Gender segmentation is based on biology and socialization and can influence marketers' strategic decisions.
• Marketers consider the shape, surface, texture, and color of product packaging to appeal to different genders.
• Generation segmentation may have similar purchase preferences based on shared experiences and values.
• Marketers often advertise to a cohort by using certain well-known icons and images.
• These icons and images help the cohort relate to, identify with, and feel nostalgic about the product.
• Income is an established segmentation practice in several product and service categories.
• Many markets are becoming "hourglass shaped,” with middle-market consumers increasingly purchasing both discount and premium products.
• Social status can be classified using criteria such as profession, property, education, and income.
• Each social class tends to share common values, which influences purchase preferences.

Psychographic Segmentation

• Psychographic segmentation divides buyers into groups based on their personality traits, lifestyle, or values.
• Psychographic profiles are usually developed based on the AIO factors, describing individual lifestyles, including activities, interests, and opinions.

Behavioral Segmentation

• Occasions distinguish buyers according to when they develop a need, make a purchase, or use a market offering.
• Occasions include examples like mornings, Mondays, weekends, summertime, Christmas, etc..
• Benefits distinguish buyers according to which primary benefits they seek.
• User status classifies customers according to whether they are regular users, first-time users, potential users, past users, and non-users.
• Usage rate classifies buyers according to whether they are light, medium, or heavy users.
• Buyer-readiness stage classifies customers according to their buying readiness with the goal of moving them further in the funnel.
• Loyalty status divides customers into four primary groups: hard-core loyals, split loyals, shifting loyals, and switchers.
• Attitude includes an overall evaluation of an object and is a rather good predictor of actual behavior.

Bases for Segmenting Business Markets

• B2B markets can be segmented with the same variables as in B2C markets.
• Segmentation is often tailored to the specific needs of the organization.
• Demographic variables are most important, followed by operating variables, and then the personal characteristics of the buyers.
• Often a sequential process in B2B markets goes from macro- to micro-segmentation.

Market Targeting

• When the firm has identified its market-segment opportunities, it must decide on how many and which ones to target.
• Steps in segmentation include:
• Needs-Based Segmentation: Group customers in segments based on similar needs to solve a particular consumption problem.
• Segment Identification: Determine which demographics, lifestyles, and usage behaviors are distinct and identifiable.
• Segment Attractiveness: Use predetermined segment criteria to determine the overall attractiveness of each segment.
• Segment Profitability: Determine segment profitability through net marketing contribution.
• Segment Positioning: Create a "value proposition" and product-price positioning strategy based on that segment's unique needs and characteristics.
• Segment "Acid Test": Create "segment storyboards" to test the attractiveness of each segment's positioning strategy.
• Marketing Mix Strategy: Expand segment positioning strategy to include all aspects of the marketing mix, product, price, promotion, and place.

Effective Segmentation Criteria

• Market segments must be able to assess five key criteria in order to be meaningful: measurable, substantial, accessible, differentiable, and actionable.
• Measurable: The size, purchase power, and characteristics of the segments should be measurable.
• Substantial: The segments should be sufficiently large and profitable to serve in a tailored way.
• Accessible: The segments should be effectively reached and served.
• Differentiable: The segments should be possible to distinguish and should respond differently to variations in marketing mix elements and programs.
• Actionable: It should be possible to formulate effective programs for attracting and serving the segments.

Evaluating and Selecting Market Segments

• The suitability of a market segment largely depends on its overall attractiveness and the company's objectives and resources.
• Overall attractiveness includes factors like size, growth, profitability, and low risk.
• Company objectives and resources consist of matching long-term goals and company competencies.
• After evaluating different segments, companies can consider five types of target market selection: single-segment concentration, selective specialization, product specialization, market specialization, and full market coverage.

Creating Differentiation and Positioning Strategies

• Positioning is the act of designing the company's market offering and image to occupy a distinctive place.
• Positioning helps the brand maximize company-related benefits in the minds of the target market.
• Positioning clarifies the brand's essence, uniqueness, and which goals it help consumers to achieve.
• This strategy requires that similarities and differences between brands are identified and communicated.

Points-of-Parity and Points-of-Difference

• Points-of-difference are attributes or benefits that consumers associate strongly with a brand and cannot find to the same extent with a competitor.
• Points of difference include attributes linked to price, quality, performance, image, etc.
• Points of difference are crucial to achieve a competitive brand positioning.
• Point-of-parity Associations are not necessarily unique to the brand and may be shared with other brands.
• Category points-of-parity are category-specific associations deemed to be necessary but not sufficient.
• Competitive points-of-parity are associations designed to negate competitors' points-of-difference.

Creating POPs and PODs

• It is a challenge because attributes and benefits that make up the POPs and PODs are often negatively correlated
• Consumers often want to maximize both the negatively correlated attributes and the benefits, therefore positioning always involves trade-offs.

Perceptual or Positioning Mapping

• A tool to plot the position of an offering, often by comparing the company brand with its competitors.
• This involves considering customer value in relation to what the own brand can offer.

Repositioning

• Companies must be prepared to make proactive and reactive tactics concerning market conditions.
• Repositioning may be necessary when:
• A competitor launches an offering that is as good as or better than the own brand.
• Consumers' preferences change.
• New market categories emerge.
• An initial launch error is made.
• The brand needs to change its image.

Developing and Communicating a Differentiation Strategy

• Cost leadership involves developing and sustaining cost or efficiency gains to offer an acceptable substitute to competing offerings.
• Cost leadership enables the company to offer lower prices or add quality attributes at the ruling competitive price.
• Firms need to generate high market shares for this strategy to be successful, but can backfire if market prices are squeezed downwards due to fierce competition.
• Distinctive superior quality creates strong customer-perceived value for offerings through the right quality attributes.
• It allows for higher prices, but often requires that customers' expectations should be more than met.

Differentiation Strategies

• Differentiation strategies includes looking at attributes, benefits, or values.
• Also look at personnel differentiation, channel differentiation and image differentiation.

Creating Customer Value, Satisfaction, and Loyalty

• Creating customer value, building customer satisfaction, and maximizing customer lifetime value are all important factors
• Cultivating customer relationships and building customer loyalty are also important.

Building Customer Value

• Company staff at every level must be personally engaged in knowing, meeting, and serving customers.
• You must listen to them and help them in the best possible way.

Customer-Perceived Value

• Customer-perceived value is the difference between potential customers' evaluations of all the benefits and costs of a company's offering.
• Total customer benefits are the perceived monetary value of the sum of economic, functional, and psychological benefits expected from a given offering.
• Total customer costs is the perceived sum of costs that customers expect to incur in evaluating, obtaining, using, and disposing a market offering.
• Customers buy attributes, receive benefits, and accept costs.

Customer Satisfaction

• Customer satisfaction is a person's feelings of pleasure or disappointment.
• These feelings result from comparing a product or service's perceived performance to expectations.
• Customer satisfaction is important but not always the ultimate goal.
• You shouldn't over-promise, because if marketers create too high expectations, customers will get dissatisfied.
• Don't under-promise, or customers won't be interested.

Monitoring Satisfaction

• Many companies systematically measure how well they treat customers.
• These measurements identify factors that shape satisfaction and change operations and marketing as a result.
• Highly satisfied customers are more likely to be loyal and buy more from the company.
• They are also less price sensitive and costing less to serve.
• Customer satisfaction and loyalty link is not proportional.
• "How likely is it that you would recommend [company X] to a friend or colleague?" (0-10) is an example of a question to measure.
• 0-6 = Detractors
• 7-8 = Passive
• 9-10 = Promoters
• The proportion of promoters relative to detractors predicts future sales growth.

Measuring Customer Satisfaction

• Customer satisfaction is commonly measured through periodic surveys.
• Surveys includes questions about customer satisfaction, repurchase intentions, word-of-mouth, customer loss rate (and contact switching customers to understand why).
• Mystery shoppers highlight weak and strong points.
• Managers can enter sales situations to examine various processes (e.g., complaints) and competitor analyses.
• Customer lifetime analysis is also used.

Customer Complaints

• About 25% of the time, customers are dissatisfied with the purchase, but they complain only 5% of the cases.
• 50-75% continue doing business with a brand if it handles the complaint satisfactorily.
• Almost all continue doing business with a brand if the complaint was resolved quickly.
• When a complaint is resolved quickly, that customer tells about 5 people of their good treatment.
• Customers will tell about 11 people about their bad experience if they are dissatisfied.
• Make it easy to complain, handle complaints quickly, have empathetic staff for complaints, and do not blame the customer.

Market Offering Quality Dimension

• Customer-perceived quality – customer-perceived price = customer-perceived value.
• Quality is the totality of features and characteristics of a product or service.
• It bears on its ability to satisfy stated or implied needs and is linked to customer satisfaction and profitability.

Maximizing Customer Lifetime Value

• The most profitable customers generate the majority of profits.
• The least profitable customers can substantially reduce profits.
• Customer profitability is when revenue exceeds costs for attracting, selling, and servicing customers over time from a single transaction.
• Customer profitability analysis can classify customers as high-profit, mixed-bag, or losing customers.

Ways to Improve the Value of a Company's Customer Base

• Reduce the rate of customer defection through knowledgeable and friendly employees.
• Extend existing and future customer relationships and enhance the growth potential of each customer.
• Make low-profit customers more profitable and pay more attention to high-value customers.

Example on customer satisfaction and loyalty

• One study examined how customers respond to the mere presence of others in the shopping environment, depending on the specific purchase situation.
• Another study measured customer’s levels of pleasure, customer satisfaction, and loyalty intentions.

Model and Findings

• The effect of employee presence on customer satisfaction was mediated by customers’ pleasurable feelings.
• Employee presence also had a positive impact on consumer loyalty, with this effect indirect through pleasure and, in turn, customer satisfaction.
• Reversing the results from the previous studies document a boundary condition for the positive employee presence effects.

Building Customer Loyalty

• Loyalty programs and frequency programs provide rewards to those who buy frequently.
• Club membership programs are open to all who purchase a product or service or to a limited group if a small fee is paid.
• Personalizing marketing is meant to build customer loyalty now necessitates collecting data about the customers being targeted.
• This includes taking this information into account when presenting new, tailor-made offerings.