Market Segmentation, Targeting, and Positioning PDF

CHAPTER 9 Market Segmentation, Targeting, and Positioning ©Glenn van der Knijff/Getty Images  LEARNING OBJECTIVES (LO) 1 After reading Chapter 9, you should be able to: 1. Explain what market segmentation is and when to use...

CHAPTER 9 Market Segmentation, Targeting, and Positioning ©Glenn van der Knijff/Getty Images  LEARNING OBJECTIVES (LO) 1 After reading Chapter 9, you should be able to: 1. Explain what market segmentation is and when to use it. 2. Identify the five steps involved in segmenting and targeting markets. 3. Recognize the bases used to segment consumer and organizational (business) markets. 4. Develop a market-product grid to identify a target market and recommend resulting marketing actions. © McGraw Hill LLC 2  THERE IS ONLY ONE WORD FOR THE ZAPPOS EXPERIENCE: WOW! Segmentation is a key to success: Focus on tech users who will shop and buy online. Obsession with customer service: #1. Deliver WOW customer service. #4. Be Adventurous, Creative, and open-minded. #6. Build open and honest relationships with communication. Zappos Web Site © McGraw Hill LLC 3  WHY SEGMENT MARKETS? WHAT MARKET SEGMENTATION MEANS Market segmentation: Aggregating buyers into groups. Zappo s Product differentiation Segmentation: Linking needs to actions. The Zappos segmentation strategy – people who want a wide selection of shoes, online shopping, quick delivery, and free returns. © McGraw Hill LLC 4 FIGURE 9-1 Market segmentation links market needs to an organization’s marketing program through marketing mix actions. Access the text alternative for slide images. © McGraw Hill LLC 5  FIGURE 9-2 A market-product grid shows the kind of sleeper that is targeted for each of the bed pillows with a different firmness. Using Market-Product Grids Access the text alternative for slide images. © McGraw Hill LLC 6  WHY SEGMENT MARKETS? WHEN AND HOW TO SEGMENT MARKETS 1 Segment markets when there is opportunity for increased returns Three segmentation strategies: 1. One product and multiple market segments (Example: Books) 2. Multiple products and multiple market segments (Example: Cars) 3. Segments of one–“mass customization” (Example: Build-to-order) © McGraw Hill LLC 7  WHY SEGMENT MARKETS? WHEN AND HOW TO SEGMENT MARKETS The segmentation tradeoff: Synergies versus cannibalization Organizational synergy (efficiency). Increased customer value. Cannibalization (taking customers away from older products). “Tiffany/Walmart” strategies © McGraw Hill LLC Top: JHVEPhoto/Shutterstock; Bottom: ©Scott Olson/Getty Images 8 FIGURE 9-3 The five key steps in segmenting and targeting markets that link market needs to a firm's marketing program Access the text alternative for slide images. © McGraw Hill LLC 9  SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS 1 Criteria to use in forming segments: 1. Simplicity and cost-effectiveness. 2. Potential for increased profit. 3. Similarity of needs of buyers in segment. 4. Difference of needs of buyers among segments. 5. Potential of a marketing action to reach a segment. © McGraw Hill LLC Reed Saxon/AP Images 10  SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS 2 Ways to segment consumer markets: 1. Geographic segmentation (location) 2. Demographic segmentation (objective attributes) 3. Psychographic segmentation (personality & lifestyle) 4. Behavioral segmentation (product features & usage rate) Usage Rate The 80/20 Rule © McGraw Hill LLC 11  MARKETING INSGHTS ABOUT ME To Which “Flock” Do You Belong? Birds of a feather flock together. Market segments must know who are target customers and what they like. Nielsen PRIZM segmentation: Classifies 66 distinct neighborhood segments. Identifies lifestyle and purchase behavior. Nielsen Claritas PRIZM Try it. Is it your ”flock”? © McGraw Hill LLC 12 FIGURE 9-4 Patronage of fast-food restaurants by adults 18 and older. The table shows the critical importance of attracting heavy users and medium users. Access the text alternative for slide images. © McGraw Hill LLC 13  FINANCIAL RELEVANCE OF CUSTOMER PATRONAGE 1 Customer patronage has long-term financial consequences Customer lifetime value (CLV) Customer lifetime value = $ Margin x [retention rate % ÷ (1 + discount rate %  retention rate %)] © McGraw Hill LLC 14  FINANCIAL RELEVANCE OF CUSTOMER PATRONAGE 2 Average CLV for Wendy’s restaurants: Average CLV = $ Margin x [Retention Rate % ÷ (1 + Discount Rate % – Retention Rate %)]. Wendy’s average CLV = $132 x [0.78 ÷ (1 + 0.06 –0.78)] = $368 © McGraw Hill LLC 15  APPLYING MARKETING METRICS The Lifetime Value of a Customer? What is the lifetime value of a McDonald’s and Burger King customer? Use publicly-available information. Trade publications, annual reports. Revenue/ CO $Marg Retention Discount CLV year S in Rate % Rate % McDonald $14 $90 $312 $165 88% 4% ’s 7 8 Burger $27 $225 $95 $130 73% 7% King 9 © McGraw Hill LLC 16  SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS 3 Variables to use in forming segments for Wendy’s: Students: 1. Living in dorms, sororities, and fraternities 2. Living in nearby apartments 3. Day commuters living outside the area 4. Night commuters living outside the area Nonstudents: 1. Faculty and staff 2. Residents in area 3. Workers in area © McGraw Hill LLC 17  SEGMENTING AND TARGETING MARKETS USING SEGMENTATION VARIABLES TO CREATE PERSONAS 5 Personas – character descriptions of a typical customer. Brings target market data alive by creating fictional characters. Well-defined personas include gender, age, interests, hobbies, etc. “Day in the life” of a typical customer. Primary persona is typical main customer. Secondary persona is additional group that is less important. © McGraw Hill LLC 18  SEGMENTING AND TARGETING MARKETS USING SEGMENTATION VARIABLES TO CREATE PERSONAS 5 Personas © McGraw Hill LLC 19  SEGMENTING AND TARGETING MARKETS USING SEGMENTATION VARIABLES TO CREATE PERSONAS 5 Personas © McGraw Hill LLC 20  SEGMENTING AND TARGETING MARKETS STEP 1: GROUP POTENTIAL BUYERS INTO SEGMENTS 4 Segmenting Organizational (Business) Markets: Geographic segmentation: Statistical area. Demographic segmentation: By NAICS code; by number of employees. Behavioral segmentation: Usage rate. © McGraw Hill LLC 21  SEGMENTING AND TARGETING MARKETS STEP 2: GROUP PRODUCTS INTO CATEGORIES Individual Wendy’s products Groupings of Wendy’s products: Meals 1. Breakfast 2. Lunch 3. Between meal snack Dave’s Hot & Juicy Ad 4. Dinner 5. After dinner snack © McGraw Hill LLC 22  SEGMENTING AND TARGETING MARKETS STEP 3: DEVELOP A MARKET-PRODUCT GRID AND ESTIMATE THE SIZE OF MARKETS Forming a market-product grid: Markets (horizontal rows). Products (vertical columns). Estimating market sizes: Sales of each product expected to be sold to market segments. © McGraw Hill LLC 23 FIGURE 9-7 Selecting a target market for your Wendy’s fast-food restaurant next to an urban university (target market is shaded). Access the text alternative for slide images. © McGraw Hill LLC 24  SEGMENTING AND TARGETING MARKETS STEP 4: SELECT TARGET MARKETS 2 Criteria to use in selecting target markets: 1. Market size. 2. Expected growth. 3. Competitive position. 4. Cost of reaching the segment. 5. Organizational compatibility. © McGraw Hill LLC 25  SEGMENTING AND TARGETING MARKETS STEP 4: SELECT TARGET MARKETS 3 Choose the products and segments: No breakfast – too small a market to pursue. Focus on four student segments only. Do not focus nonstudent segments. © McGraw Hill LLC 26  SEGMENTING AND TARGETING MARKETS STEP 5: TAKE MARKETING ACTIONS 1 Wendy’s immediate segmentation strategy: 1. Day commuters 2. Between-meal snacks 3. Dinners to night commuters © McGraw Hill LLC 27 FIGURE 9-8 Advertising actions to market various meals to range of possible market segments of students. Access the text alternative for slide images. © McGraw Hill LLC 28  SEGMENTING AND TARGETING MARKETS STEP 5: TAKE MARKETING ACTIONS 2 Keep an eye on competition! Future strategies for Wendy’s? Must look at: 1. What competitors are doing? 2. What might be changing in the area? 3. What new sources might emerge to compete? © McGraw Hill LLC CiEll/Shutterstock 29  MARKETING MATTERS Apple’s Segmentation Strategy - Cam Runamok No Longer Targeted lines of computers directed at specific market segments. Access the text alternative for slide images. © McGraw Hill LLC 30  POSITIONING THE PRODUCT 1 Product positioning Product repositioning Two approaches to product positioning: 1. Head-to-head positioning 2. Differentiation positioning © McGraw Hill LLC 31  POSITIONING THE PRODUCT 2 Product positioning using perceptual maps: 1. Identify important attributes for a product or brand class. 2. Discover how customers rate competing products or brands on these attributes. 3. Discover where the company’s product or brand is on these attributes in minds of customer. 4. Reposition the company’s products or brands in the minds of consumers. © McGraw Hill LLC 32 FIGURE 9-9 The strategy American dairies are using to reposition chocolate milk to reach adults. Access the text alternative for slide images. © McGraw Hill LLC 33  VIDEO CASE 9 PRINCE SPORTS, INC.: TENNIS RACQUETS FOR EVERY SEGMENT Prince Video Case © McGraw Hill LLC 34  Market Segmentation Market segmentation involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action. © McGraw Hill LLC 35  Product Differentiation Product differentiation is a marketing strategy that involves a firm using different marketing mix actions to help consumers perceive the product as being different and better than competing products. © McGraw Hill LLC 36  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. © McGraw Hill LLC 37  Product Positioning Product positioning is the place a product occupies in consumers’ minds based on important attributes relative to competitive products. © McGraw Hill LLC 38  Product Repositioning Product repositioning involves changing the place a product occupies in a consumer’s mind relative to competitive products. © McGraw Hill LLC 39  Perceptual Map A perceptual map is a means of displaying in two dimensions the location of products or brands in the minds of consumers to enable a manager to see how they perceive competing products or brands, as well as the firm’s own product or brand. © McGraw Hill LLC 40  Usage Rate Usage rate is the quantity consumed or patronage (store visits) during a specific period. Also called frequency marketing. © McGraw Hill LLC 41  80/20 Rule The 80/20 rule is a concept that suggests 80 percent of a firm’s sales are obtained from 20 percent of its customers. © McGraw Hill LLC 42  Customer Lifetime Value Customer lifetime value (CLV) represents the financial worth of a customer to a company over the course of their relationship. © McGraw Hill LLC 43  Personas Personas are character descriptions of a brand’s typical customers. © McGraw Hill LLC 44  End of Main Content ® Because learning changes everything. www.mheducation.com © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.