Zappos Company Profile

The Zappos Experience: Delivering WOW

• Zappos is an online retailer founded by Tony Hsieh that sells shoes, clothing, handbags, and accessories.
• The company's purpose is to deliver WOW (Customer service, selection, user experience, and more).
• Zappos' segmentation strategy focuses on people who like to use mobile technology and will shop for and buy shoes online.

Segmentation Strategy

• Market segmentation involves aggregating prospective buyers into groups with common needs and wants.
• Each market segment consists of people who are relatively similar in terms of their consumption behavior.
• Segmentation leads to tangible marketing actions that can increase sales and profitability.

Zappos.com Segmentation Strategy

• Zappos' target customer segment originally consisted of people who wanted:
  • A wide selection of shoes
  • To shop online in the convenience of their own homes
  • Quick delivery and free returns
• Zappos' actions include:
  • Offering a huge inventory of shoes using an online selling strategy
  • Providing overnight delivery
• Zappos has expanded its product lines to include clothing, handbags, accessories, and housewares to reach new segments of buyers.

Market-Product Grids

• A market-product grid is a framework to relate market segments to products or potential marketing actions.
• The grid helps manufacturers and marketers understand the size of each market segment and adjust production accordingly.

When and How to Segment Markets

• A business should segment its markets when it expects increased sales, profit, and return on investment.
• Three specific segmentation strategies include:
  1. One product and multiple market segments
  2. Multiple products and multiple market segments
  3. Segments of one, or mass customization

One Product and Multiple Market Segments

• This strategy involves selling a single product to different market segments.
• Examples include magazines, books, and movies.

Multiple Products and Multiple Market Segments

• This strategy involves selling multiple products to different market segments.
• Example: Ford Motor Company produces different lines of cars, SUVs, trucks, crossovers, and hybrids for different customer segments.

Segments of One: Mass Customization

• Mass customization involves tailoring products or services to individual customers' tastes.
• Examples include Apple's build-to-order system and Nike's Nike By You service.

The Segmentation Trade-Off: Synergies versus Cannibalization

• The goal of segmentation is to find the ideal balance between satisfying individual customers and achieving organizational synergy.
• Cannibalization occurs when new products or services take sales away from existing ones.

Steps in Segmenting and Targeting Markets

• Identify the five steps involved in segmenting and targeting markets:
  1. Group potential buyers into segments
  2. Develop segments that meet specific criteria
  3. Assess the attractiveness of each segment
  4. Select the target segments
  5. Develop the marketing mix for each target segment### Market Segmentation
• Market segmentation is a way to divide a larger market into smaller groups of consumers with similar needs, wants, or characteristics.
• There are four main types of market segmentation:
  • Demographic segmentation: dividing the market based on demographic characteristics such as age, gender, income, etc.
  • Psychographic segmentation: dividing the market based on personality, values, and lifestyle.
  • Behavioral segmentation: dividing the market based on behavior, such as usage rate, loyalty, and benefits sought.
  • Geographic segmentation: dividing the market based on geographic location.

Demographic Segmentation

• Campbell Soup Company packaged meals in smaller sizes to cater to households with one or two people.
• Demographic segmentation helps marketers to tailor their products and services to specific groups of people.

Psychographic Segmentation

• Psychographic segmentation is based on the idea that "birds of a feather flock together" and that people with similar lifestyles tend to live near each other and have similar interests.
• Claritas PRIZM classifies every household in the United States into one of 66 unique market segments.

Behavioral Segmentation

• Behavioral segmentation can be based on product features, usage rate, and loyalty.
• MicroFridge markets a combination microwave, refrigerator, freezer, smoke sensor, and charging station appliance to college dorm residents.
• Airlines have developed frequent-flyer programs to encourage passengers to use the same airline repeatedly.

Usage Rate

• Usage rate is the quantity consumed or patronage-store visits-during a specific period.
• Heavy users, medium users, and light users of fast-food restaurants have different usage rates.
• The 80/20 rule suggests that 80% of a firm's sales come from 20% of its customers.

Customer Lifetime Value

• Customer lifetime value (CLV) represents the financial worth of a customer to a company over the course of their relationship.
• CLV considers a customer's product or service usage rate, loyalty, and the company's cost to serve that customer.
• The average customer lifetime value of Wendy's customers is $368.

Segmentation Variables

• Variables to use in forming segments for Wendy's include:
  • Behavioral variables: where students live and when they are on campus
  • Demographic variables: gender, age, year in school, college major
  • Psychographic variables: personality, needs, and lifestyle

Personas

• Personas are character descriptions of a brand's typical customers.
• Personas bring target market data alive by creating fictional character narratives.
• Well-defined personas include information on demographics, interests, hobbies, education, goals, jobs, influencers, media usage, technology preferences, fears, concerns, and interactions with a brand.

Segmenting Organizational Markets

• Variables to use in segmenting organizational markets include:
  • Geographic segmentation: statistical area
  • Demographic segmentation: NAICS code
  • Demographic segmentation: number of employees
  • Behavioral segmentation: usage rate

Market-Product Grid

• A market-product grid is a framework to relate the market segments of potential buyers to products offered or potential marketing actions.
• The grid can be used to estimate the market size of a given product sold to a specific market segment.

Selecting Target Markets

• Criteria to use in selecting target markets include:
  • Market size
  • Expected growth
  • Competitive advantage
  • Cost of serving the market
  • Opportunity for differentiation### Choosing the Right Market Segment
• A market segment is a smaller group of consumers within a larger market, sharing similar characteristics and needs.
• Choosing the right market segment is crucial for a business's success.
• To choose the right market segment, consider the following factors:
  • Size of the market: Is the market large enough to be profitable?
  • Growth potential: Is the market growing or expected to grow in the future?
  • Competitive position: How competitive is the market, and how can the business differentiate itself?
  • Cost of reaching the segment: How easy or difficult is it to reach the target market with marketing efforts?
  • Compatibility with the organization's objectives and resources: Does the market segment align with the business's goals and resources?

Wendy's Segmentation Strategy

• Wendy's focuses on four student segments: day commuters, night commuters, between-meal snacks, and dinners.
• Wendy's segmentation strategy involves targeting specific market segments with tailored marketing efforts.
• Examples of marketing efforts include:
  • Running ads inside commuter buses and purchasing signage near parking lots to target day commuters.
  • Offering a discount on purchases between 2:00 and 4:30 pm to target between-meal snacks.
  • Promoting dinner options to target night commuters.

Competitive Landscape

• The fast-food industry is highly competitive, with major players like McDonald's, Burger King, and Wendy's.
• Competitors are constantly innovating and expanding their offerings, such as McDonald's all-day breakfast menu and Burger King's BK Café Subscription app.
• New entrants, such as Five Guys, are also gaining traction in the market.

Future Strategies for Wendy's Restaurant

• Changing customer tastes and competition require Wendy's to alter its strategies when necessary.
• Factors to consider when rethinking market segmentation decisions include:
  • What Wendy's headquarters is doing.
  • What competitors are doing.
  • What changes are occurring in the area served by the restaurant.

Marketing Synergies and Product Synergies

• Marketing synergies: Running horizontally across the market-product grid, each row represents an opportunity for efficiency in terms of a market segment.
• Product synergies: Running vertically down the market-product grid, each column represents an opportunity for efficiency in research and development (R&D) and production.
• Balancing marketing synergies and product synergies is crucial to increase profits.

Product Positioning

• Product positioning refers to the place a product occupies in consumers' minds based on important attributes relative to competitive products.
• Two approaches to product positioning:
  • Head-to-head positioning: Competing directly with competitors on similar product attributes in the same target market.
  • Differentiation positioning: Seeking a less-competitive, smaller market niche in which to locate a brand.
• Writing a product positioning statement:
  • Identifies the target market and needs satisfied.
  • Specifies the product (service) class or category in which the organization's offering competes.
  • Highlights the offering's unique benefits or attributes provided.

Perceptual Maps

• A key to positioning a product or brand effectively is discovering the perceptions in the minds of potential customers.
• Steps to use perceptual maps:
  1. Identify the important attributes for a product or brand class.
  2. Discover how target customers rate competing products or brands with respect to these attributes.
  3. Discover where the company's product or brand is on these attributes in the minds of potential customers.
  4. Reposition the company's product or brand in the minds of potential customers.
• Example: U.S. dairies repositioned chocolate milk for adults by emphasizing its nutritional benefits and convenient packaging.