Instructor: Armand Gervais

Email: agervais@ryerson.ca preferred

 Today’s Agenda
Schedule: ~90 Minutes lecture
Breakout to work on Quiz or simulation.
Reminders:
• Simulation Team list due this Friday before 4:00 pm.
– Team Captains please follow directions carefully on D2L.
• Quiz 1 due this Sunday 6:00 pm no extensions no makeups
• STP Segmentation, Targeting and Positioning Review
– Focusing on Segmenting the Market
• Segmenting the Coffee market
– Estimating Size and Value of Segments
• Q&A after lecture
• Post any other questions on discussion board.
• After lecture student's breakout to watch Metrics tutorials, work on
Simulation or complete quiz.
 Segmentation

Consider these questions:

1. Why do marketers segment the market?
2. What are the benefits for marketers of this process?
3. What key insights did Malcolm explain that Howard learned?
 Video Discussion
• Feel free to post using the chat function during
the video. Please keep your microphone muted
during the video.
• What new and surprising things did you learn
about food products that relate to Market
Research and Segmentation?
 Malcolm Gladwell Video: Choice,
Happiness and Spaghetti Sauce

"Tipping Point" author Malcolm Gladwell gets inside the food

industry's pursuit of the perfect spaghetti sauce -- and makes a
larger argument about the nature of choice and happiness.

https://www.ted.com/talks/malcolm_gladwell_choice_happiness_and_spa
ghetti_sauce
 Key insights from the Video

No perfect Pepsi!
Data was a mess!

3 Key assumptions in the food industry that were challenged?

1. Just Ask
2. Horizontal segmentation Vs. Vertical segmentation
3. Plutonic dish?

By segmenting the market and developing product or services tailored to

the needs of the segment customer satisfaction increases substantially.
 Cluster = Segment

• Howard identified a segment of the market that wanted extra

chunky pasta sauce! 30%
• Their key needs were NOT being satisfied!
• Segmenting the market allows marketers to identify specific
needs/benefits and to develop a tailored product or service to
satisfy those needs.
• When you accomplish this Customer, satisfaction increases.
These words are not interchangeable
Market Segment
• is a group of customers who share a SIMILAR SET OF
NEEDS AND WANTS within an overall market.

Market Segmentation
•is the process of identifying and categorizing the
overall market into groups of customers with similar
needs and wants (Market Segments). GooDPUB

Target Market
•is the qualified available market segment which the
company decides to pursue.

9
Segmentation Targeting Positioning
Process
 LO1

Step 1: Establish Overall Strategy or Objectives

Consistent with Derived from mission

mission statement and current state

• Generic Strategies
– Niche
– Low Cost
– Differentiated
 Bases for segmentation (GooDPUB)
Start with Benefits

Geographic Demographic Psychographic Usage Benefits

•Region •Age •Activities •Rate Sought
•Urban/rural •Sex •Interests •Awareness •Attributes
•City size •Marital status •Opinions status •Hedonic
•Climate •Income •Brand loyalty •Utilitarian
•Culture •Education •Life-styles •Situation
•Occupation •Time
•Family life cycle •Objective
•Culture •Location
•Religion •Person
•Race / ethnicity
•Social class
 Why Segment Differently?
Often marketers segment markets based on demographics or geographic variables.
It is easier and obvious! However this provides few insights for positioning.
Why segment differently? The reason is simple: These types of variables are
descriptive, but not predictive.

• Motivations drive behavior, and by understanding the motivations of different

segments of the market, one can reasonably predict how those segments will
behave and what they need.
• Products which save time will likely appeal to a high convenience segment, products
using the latest technology will likely appeal to early adopters.
• There may be demographic similarities among people within the same segment, but
demographics don’t define a segment only some context.
• For example: Those valuing convenience may skew higher income, but not all
higher income people value convenience some may value image or status.

http://www.sawtooth.com/index.php/blog/archives/segmenting-for-success-part-i/
 Segmentation-Benefits Sought
• The best place to start when segmenting the market.
• Remember consumers are trying to satisfy a need or want, some
benefit –perceived or created
• Once you identify distinct benefits you can then layer in other relevant
bases for segmenting the market. GooDPUB
• These other bases for segmentation allow for estimating the size and
the value of the segment. You are narrowing down the segment and
fine tuning your segment definition.
• Defining the segment uses all relevant bases facilitates the next
marketing process: Deciding which segments to target and positioning
your product or service. Developing the Marketing Mix
• Think about Auto buyers?
 Head And Shoulders 7 Benefits
• http://www.headandshoulders.ca/en-CA/sevenBenefits.jspx
• http://www.headandshoulders.ca/en-CA/find-a-collection.jspx
 Segmenting Auto Buyers?

Auto buyer's key benefits sought?

• Families
– Safety, Reliability, value/Fuel Economy
• Middle aged men –Mid life crisis
– Status/ image
• Single first time young drivers
– Convenience, value, safety features
• Environmentally conscience consumers
– Low or no emissions, fuel efficient
 Bases for segmentation (GooDPUB)
Start with Benefits

Geographic Demographic Psychographic Usage Benefits

•Region •Age •Activities •Rate Sought
•Urban/rural •Sex •Interests •Awareness •Attributes
•City size •Marital status •Opinions status •Hedonic
•Climate •Income •Brand loyalty •Utilitarian
•Culture •Education •Life-styles •Situation
•Occupation •Time
•Family life cycle •Objective
•Culture •Location
•Religion •Person
•Race / ethnicity
•Social class
Maslow’s Hierarchy of Needs
 LO2

Geographic Segmentation
⚫ Divide market into separate
geographic units
⚫ Countries, regions provinces,
cities, neighborhoods,
climate, etc.
⚫ Auto Buyers. Urban vs.
Rural. Florida vs. Alberta.
⚫ Snow vs. Sun. AWD / AC
 LO2

Demographic Segmentation
⚫ Most common method
⚫ Divide market into groups
based on:
– gender
– age
– ethnic group
– family lifecycle stage
– household type
– income
– Other, e.g. occupation,
education, religion
⚫ Census excellent source of
segmentation data
⚫ Statistics Canada Census data
 LO2

Psychographic Segmentation
⚫ How consumers describe
themselves
⚫ Self-values
⚫ Self-concept
⚫ Lifestyles
Auto Buyers:
Mid life Crisis vs. First time
buyer
Young buyers do not view
automobile ownership the same
as my generation

http://www.strategicbusinessinsights.com/vals/presurvey.shtml
 LO2

VALS Framework

http://www.strategicbusinessinsights.com/vals/presurvey.shtml VALS Website

Innovators
 Usage Variables

• Very useful to calculate value of the segment

• Buyers use drive product features
• Soccer Mom vs. off road adventurer
• Casual vs. daily
 Behavioural Segmentation
•Based on
occasions when
• Based on • Nonusers • Heavy
develop a need benefits • Ex-users • Medium
sought • Potential • Light
Occasions Benefits users
User Usage
Status Rate

• Different • Hard-core • Enthusiastic

stages of • Positive
• Split
readiness • Indifferent
• Shifting • Negative
Buyer- Loyalty
• Switchers • Hostile
Attitude
Readiness Status

25
Electric Vehicles ~3% of total Sales in 2020

26
 LO2

Using Multiple Segmentation

Methods
 Coffee Beverage Segments
• In your simulation groups work on the following:
• Review the articles posted on D2L.
• Identify distinct segments for the coffee market
– Use Benefits sought as the anchor for your segment.
– Based on these broad segments of the coffee market identify a lucrative or promising
distinct sub segment
• Using GooDPUB provide as much relevant details to describe your broad
and distinct segments.
• Pay special attention to needs or benefits sought.
• Estimate Segment Size?
• For each of your segments estimate the number of Canadian customers.
• Estimate the Segment $ value?
(Feel free to research using the internet) and the GMID
 Segment Benefits
• Budget Coffee drinkers.
• Brew coffee at home and take with them on the drive. Work from home.
• Basic need energy. Coffee for caffeine. Notice there are many other alternatives to coffee for energy.
• This could include students, employees, etc.
• Coffee Connoisseurs. What a high quality cup of coffee, drink coffee for taste, experience not primarily for energy or caffeine.
• Premium, variety of bean and origins, like to customize. They may entertain at home, have guests, dinner parties.
• Coffee on the go. Coffee before work, as a work break after work.
• Full service, drive through
• Convenience coffee drinkers looking for a quick caffeine fix.
• Fast, quality coffee may also seek value.
• Health/environmentally conscious coffee consumers
• Organic, fair trade coffee. Taste and quality important value not so much
• Notice single serve machine may not fit with this segment. Waste and chemicals from plastic
• Coffee addicts
• Consumer high volumes of coffee. Want convenience and quality.
• Coffee consumption Experience The wrap arounds of the coffee are just as important as taste and quality.
• Premium coffee, customized offering, People excellent service, physical environment.
• Small businesses and companies.
Coffee Machines
End Part 1
 Targeting
Selecting Target Segments
Lecture 2 Part 2 Review STP
Segmentation Targeting and Positioning
 Segment Selection Criteria?

• What important aspects should marketers consider when

selecting segments to serve or target?
 Evaluation of Segments
Measurable/distinguishable

Accessible/reachable

Substantial/sizeable

Actionable/meaningful

Profitable
 LO3

Measurable/distinguishable

⚫ Who is in this segment?

⚫ Are the segments unique?
⚫ Does each segment require a unique marketing mix?
Homogeneous within
Benefits Sought
Heterogenous between
Distinct Benefits
 LO3

Accessible Reachable
Know the
product exists

Understand
what it can do

Recognize
how to buy
Substantial or sizeable
Segmentation Strategy
 The Long Tail
Micro Segments

http://www.ted.com/talks/chris_anderson_of_wired_on_tech_s_long_tail.html
 Dog Food Segment by Breeds?
• There are over 150 breeds registered with the American Kennel Club, and that doesn't include every breed in the world (of which there are
hundreds more, not including those that are not yet classified)!

• The 25 m ost popular breeds, in order of popularity, as shown by registration w ith the AKC are:
Retrievers (Labrador)
• Yorkshire Terriers
• Germ an Shepherd Dogs
• Retrievers (Golden)
• Beagles
• Boxers
• Dachshunds
• Poodles
• ShihTzu
• Bulldogs
• Miniature Schnauzers
• Chihuahuas
• Pom eranians
• Pugs
• Rottw eilers
• Boston Terriers
• Spaniels (Cocker)
• Pointers (Germ anShorthaired)
• Maltese
• Shetland Sheepdogs
• Doberm an Pinschers
• Pem broke Welsh Corgis
• Great Danes
• Siberian Huskies
• Cavalier King Charles Spaniels
 Actionable or Meaningful
Can we provide a product or service to
satisfy the customers need or derived
benefit?
 Responsive

Customers must:
⚫ React positively to firm’s
offering
⚫ Move toward the firm’s
products/services
⚫ Accept the firm’s value
proposition

⚫ Brand Extensions?
Substantial and Profitable

⚫ Size matters
⚫ Too small and
segment is
insignificant, not
profitable
⚫ Growth potential
equally important
⚫ Think into the
future
And above all....profitable
 To Do’s

 Review all materials Weeks 1 and 2.

 Complete Quiz 1
 Form groups and work on Simulation Q1
Decisions
 Read materials for Week 3 posted on D2L before
our next class.
 Prepare for Metrics Breakeven, Target Volume,
Fixed and Variable Costs by completing Excel
Workbook posted under week 3

48
 Positioning

Lecture 2 Part 3 Review STP

Segmentation Targeting and Positioning
 LO5

Positioning Steps

1. Determine consumers’ perceptions and

evaluations in relation to competitors.

2. Identify competitors’ positions.

3. Determine consumer preferences.

4. Select the position.

5. Monitor the positioning strategy.

 LO5

Competition

Position
against a
specific
competitor

Position
against an
entire product
classification
 LO5

Identify and Develop Positioning Strategy

Positioning
Methods

• Value
• Product Attributes
• Benefits &
Symbolism
• Competition
• Market Leadership
 Coke Zero

⚫ “Real Men” didn’t want diet drinks

⚫ Segment of men who wanted a
lower calorie beverage
⚫ Very successful new product launch
LO5
 The Marketing Mix Apple
Support their position in the marketplace
• Price
– above average premium
• Product
– Premium, innovative, design esthetics, easy to use
• Place
– Broad Retail distribution and controlled
• Promotion
– Mass marketing, Targeted, Word of Mouth, Loyal customers
• Physical Evidence
– Apple stores are modern, open and exciting.
• People
– Apple Geniuses- young, passionate and engaging
• Process
– Cloud, ecosystem, ease to upgrade
• Productivity
– Efficient supply chains
 LO5

Repositioning

⚫ Whirlpool: New design

⚫ Surf detergent: New message
⚫ Elizabeth Arden: New faces
⚫ YM: New audience
⚫ Gallo: New image
⚫ Aqua Velva: New packaging
⚫ Arm & Hammer: New uses
58
 Basic Algebra Review

A=B*C 10=2*5
▪ C=A/B 5=10/2
▪ B=A/C 2=10/5

D=E/F 25=50/2
▪ E=F*D 50=2*25
▪ F=E/D 2=50/25
Margin and Markup Formulas
Margin Formulas
Margin in Dollars = Selling price-Cost of good sold

Margin % = Margin $ / Selling Price

1-
Selling Price = Cost of Goods Sold / ( Margin%)

Margin%=Markup% / (1+Markup%)

Markup Formulas
Mark-Up in Dollars=Selling price - Cost of Good Sold

Mark-Up % = Mark-Up $ / Cost of Goods Sold

Selling Price = Cost of Goods Sold * (1+Mark-Up%)

-
Markup% = Margin% / ( 1 Margin%)
 Simple Example
Simple Rules
• Retailer Sells a pair of Jeans for $200 and pays
$100 to the Manufacturer (COGS) for the Jeans
• The Markup and Margin in Dollars =$100
• The Markup % = $100/$100 (Markup$/COGS)
» =100%

• The Margin % =$100/$200 (Margin$/Price)

» =50%

Notice that Margin $=Markup $

Notice that the Margin %<Markup %
 Mark up (%) and Margin (%)
A) If a product costs $100 and is sold w ith a 25% m arkup at a retail store, w hat is the retailer’s Margin % on the product?

B) What should be the m arkup % and selling price if the retailer desires a 25% Margin? Why m ight the retailer be seeking
to increase their m argin?

A) To calculate the m argin, w e first have to determine the sales price:

Markup ($) = Markup (%) * Cost
= 25% * $100
= $25
Selling Price = Cost + Markup ($) or Selling Price = Cost *(1+Markup %)
= $100 + $25 = $100*125%
= $125 =$125

Margin (%) = Markup / Price * 100 Markup=Selling Price -Cost

= $25 / $125 * 100 =$125-100
Retail Margin= 20% Markup=Margin=$25
Therefore the retailer’s m argin w ould be 20% w hen the product is sold at a 25% m arkup.

B) To calculate the m arkup and selling price at a 25% m argin:

Selling Price = Cost / (1 – Margin (%))
= $100 / (1 – 25%)
= $100 / (1 – 0.25)
= $133.33
Markup ($) = Selling Price – Cost
= $133.33 - $100
= $33.33
Markup (%) = Markup ($) / Cost * 100 or Markup % if Given Margin
Markup%=Margin%/(1-Margin%)
= $33.33 / $100 * 100 Markup % = 25%/(1-25%)
= 33.33% Markup % =33%

Therefore to obtain a 25% m argin, the product w ould have to be sold at $133.33 w ith a m arkup of 33.33%.
Reasons for increase include:
- Increase in fixed costs (rent, tax, com m ission, w ages, etc.)
- Increase in dem and and/or decrease in supply
- Other com petitors/retailers charge m ore for the product and the higher m argin is a result of increasing sales price to
m atch
 Example 1
Clyde’s Concrete sells 100 cubic yards of concrete
for $300 to a retail landscaper. The landscaper
wants to include this in her bill of materials, to be
charged to the homeowner. Further she wants to
earn a 25% margin. What is the landscaper’s
selling price for the concrete?
Landsca
Clyde’s
Wholesale + Custome
landscaper per
Retailer
Selling
r margin r
Selling
Price
Clyde’s Selling Price ($) = Landscaper Selling Price ($) * [1 –Price
Wholesaler Margin (%)]

Landscaper Selling Price ($) = $300 / (1 – 25%)

= $400

Selling Price = Cost of Goods Sold/(1-Margin%) 63

 Example 2
Aaron owns a small furniture store. He buys BookCo
brand bookcases from a local wholesaler for $200 per
unit. Aaron is considering buying directly from BookCo,
and he wants to calculate what he would pay if he
received the same price that BookCo charges his
wholesaler. Aaron knows that the wholesaler’s
percentage margin is 30%.
Mfg Wholes
Manufact
BookCo + Wholes
aler
wholesale Retailer
urer
Selling margin aler
Selling
Price Price
Mfg Selling Price (Wholesaler COGS) ($) = Wholesaler Selling Price ($) * [1 – Wholesaler Margin (%)]

= $200 * [1 – 30%]

= $140
Selling Price = Cost of Goods Sold/(1-Margin%) 64