Marketing Strategy

Lec 6 Targeting Attractive Mkt Segments

3 Key Concepts of Mktg

Market Segmentation
Is the process by which market is divided into distinct subsets of customers
With similar needs With similar characteristics

That lead them to respond in similar ways to a

Particular pdt offering and Marketing program.

 Target Marketing
Requires evaluating the relative attractiveness of various segments
In terms of mkt potential, growth rate, competitive intensity And the firms mission And capabilities to deliver what each segment wants

In order to choose which segments it will serve

 Product positioning
Entails designing product offerings and marketing programs that collectively establish
An enduring competitive advantage in the target market By creating a unique image or position in the customers mind.

 All 3 decision processes are

closely linked and have strong interdependence

However large a firm, it has limited resources

Compared with the no of alternative mkt segments available for investment Thus a firm must make choices

Even if the firm has unlimited resources

It still must choose so as to make the most appropriate allocation of its marketing effort across segments

Is Mkt Segmentation necessary?

Markets are not homogeneous

It needs different benefits Purchase rates are different Price and promotion elasticities vary Response rates to pdts and mktg programmes differ
Pdt preferences, Size and growth in demand Media habits Competiitve structures

Variation among mkt segments in terms of

Further affect the differences and response rates

 Mkts are complex entities that can be defined in a variety of ways The critical issue is
To find an appropriate segmentation scheme that will facilitate
Target mktg, Pdt positioning And will facilitate successful mktg strategies

Mkt realities make segmentation imperative

Why mkt segmentation?
Population growth has slowed
More and more pdt mkts are maturing Makes competition more intense
Firms seek growth via mkt share gain Increase in brand extensions

Social and economic forces like

Increasing disposable incomes Higher education levels Global awareness
Have made customers with more varied and sophisticated needs, tastes and lifestyles Has led to an outpouring of goods and services that compete with one another

For satisfying the same group of customers

 Increasingly important trend toward micro-segmentation

Extremely small market segments are targeted New tech has driven this trend
Firms are able to mass-customize many pdts
Toyota Pdn Systems One can make even a single car to meet the customers specs

Capability of mktg organisations to implement sharply focussed mktg programs

Capability by much more sharp targeting
One can reach out to customers vide
Pincode Functional orientation Geography

E.g., Intenet Banner Ads

How to define Mkt Segments

3 step process Identify a homogeneous segment that differs from other segments
Homogeneous: very much similar with regard to their
Needs, wants, Likely response to different elements of mktg mix
4Ps

Differences within the segment should be very small compared to differences across various segments
E.g., Athletic Shoes quite different from Tennis Shoes

 Specify criteria that define the segment

Should describe the segment clearly enough so that members can be easily identified and accessed
Mktr can know if a given customer is in the target segment or not

Determine segment size and potential

Segmentation process should determine the size and mkt potential of each segment
For prioritizing which segment to pursue

How to do such segmenting?

Demographic descriptors
Who the target customers are

Geographic descriptors
Where they are

Behavioural descriptors
How they behave with regard to their use or purchase of a given category

Demographic Descriptors
Demographics
Not necessarily individual specific Firm demographics too are possible
Size of firm Age of firm Type of industry

Key demographic descriptors

Age: Across various age classes Sex: Male, Females Income: Hi, Mid, Low, Occupation
Some pdt sales like work shoes, uniforms, trade mags are tied to the type of occupation. Inc rease in working women has increaseddemand for different types of goods like Convenience foods, automobiles, business wardrobes

 Age:
Age is perhaps the most frequently used variable in segmentation. Targets are usually described in terms of age categories that are used for the census current understanding of how age affects consumers responses is also of value in deciding whether or not segmentation is warranted. . Children under the age of six have limited processing abilities. The absence of prior knowledge makes it diff icult for them to elaborate on incoming information or to retrieve the information that they have previously processed. At the same time, the absence of existing knowledge makes memory fertile ground for rote learning and verbatim recall. Young children thus show an ability to play back product information word for word. In addition, young children acquire information that has a story grammar. Such information takes the form of problem or goal, a series of episodes and an outcome

 Elderly adults represent another age segment. Older people comprise a substantial proportion of the population, including the most aff luent people. With the attrition in their life space because of retirement, death of their spouses, and cohort members, older adults rely on mass media for information to a greater extent than do their younger counterparts. Yet, with the exception of products that are specif ically of interest to the elderly, little marketing attention is devoted to attracting them. Indeed, most marketing plans only include people who are 49 years of age or younger.

 They are treated as if there is one elderly segment. This practice is not consistent with the data suggesting that the knowledge and lifestyles of those under 75 years of age are quite different from their older counterparts. The elderly people under 75 typically view themselves as being healthier and younger than younger people view them. The typical elderlys self-perception is that they are 10 to 15 years younger than their chronological age. One implication of this observation is that in developing advertising targeted to say a 70-year-old, it is more effective to show a 55-year-old rather than a 70-year-old person

 Social Class.
The availability of demographic information, and particularly the educational attainment of the target, can be used to infer social class. This factor may be important to consider in segmenting because
There is evidence that social classes differ in the types of marketing strategies to which they are likely to be responsive.

 Aff luent or upscale people value uniqueness and individuality.

Information that emphasizes how a brand may reinforce ones feeling of individuality is particularly appealing to the aff luent. Thus, they are more willing than other social class groups to try unknown brands.

Middle-class people value neatness and organization.

Showing convincingly that a product can help achieve these goals is typically well-received.

Less aff luent people value functionality and believe that luck is critical to success.
They exhibit greater reliance on major brands than do other social classes, perhaps because they lack confidence in their ability to make appropriate brand choices.

 Notions of social class can be applied not only to consumers, but also to products. Products that are plentiful or used in large quantities and lack potency are considered more downscale than ones that are consumed in small quantities and are potent.
In the context of beverages, for example, liqueurs and champagne are perceived to be more upscale, whereas beer is perceived to be downscale.

Advertising needs to consider the social class of the user as well as the social class of the product category in developing persuasive messages.

Gender.
There is substantial evidence that men and women differ in how they respond to persuasive messages. Women tend to be slower to make decisions, but are found to be firm once decision is made. These findings are thought to ref lect differences in how men and women process information and make decisions.

Women are encouraged to be communal, which involves a consideration of self and others in decision making. In contrast, men tend to be agentic, which entails a self-expressiveness and goaldirectedness The observation of gender differences in information processing implies that the information to which men are likely to respond favorably differs from the type that will have a positive impact on women. For men, messages that focus on a single benef it are suggested. If multiple benef its are to be communicated, using separate communications is recommended. For women, the presentation of disparate types of benef its is appropriate

 As is the case for social class, brands often are perceived as either masculine or feminine. For example, Burger King is perceived to be more masculine than McDonalds and Nike is seen as more masculine than Reebok. These perceptions ref lect the heritage of the brand.
Burger King was initially positioned to appeal to the big appetites of men, whereas McDonalds was positioned as the all-family restaurant. Reebok was introduced as a womans fitness shoe, whereas Nike was marketed as a mans running shoe

 Education
A positive cor relation between the level of education and purchase of travel, books, mags, insurance etc

Race & ethnic origin:

Segmentation in Industrial Markets

Macro segmentation
Divides the mkt according to the characteristics of the buying organisation such as
Age of firm, firm size, industry affiliation

Microsegmentation
Groups firms by the characteristics of the individuals who influence the purchasing decision
E.g., age, sex, position within the org.

International markets are segmented in a hierarchical fashion

Countries Buying orgs Groups of individuals

Geographic Descriptors
Diff locations vary in their
Sales potential Growth rates Customer needs Cultures Climates etc

Advertisers want to target specific geographies for various reasons

Disc

Geo segmentation used both in consumer and organisational markets

Very imp for retailing and service businesses
Customers are unwilling to travel to obtain goods or services

One way to segment retail markets is

By distance or driving time from a particular location

The area included within such a geographically defined region is called a trading area

Geodemographic Descriptors
What is Geodemographics?
Segmentation scheme which involve both demographic and geographic factors Diff retailers might target different demographics within the same geographical area.

These descriptors are useful in assessing the size and market potential of a market segment defined by a particular trade area Geodemographics also attempts to predict consumer behaviour by making
Demographic, psychographic and consumer info available at the Zip Code level.

How they behave: Behavioural Descriptors

Only imagination can stop insightful segmentation using this descriptor Segmentation done not on
Who the tgt consumers are Where they live But on what they do.

Behavioural descriptors are based on

Consumer needs Lifestyle Social class In organizational markets
Structure of firms Type of buying situations they encounter

 Consumer needs
Expressed in benefits sought from a particular product or service Diff customers have diff needs
Seek different degrees of benefits from the same product Hence attach different degrees of importance

In the end, the product that provides the best bundle of benefits
Given the customers particular needs Is most likely to be purchased

 Purchasing is a problem solving process ( Disc: Disruptive Innovation) Consumers evaluate pdt or brand alternatives based on
Desired characteristics How valuable each characteristic is to the consumer (choice criteria)

Marketers can define segments according to these different choice criteria in terms of
Presence or absence of certain characteristics and Importance attached to each

Firms typically single out a limited no of benefit segments to target

E.g, Volvo: Safety Jaguar: Styling, quickness, Ferrari: _________, ________

 In organizational markets customers consider relevant benefits that include

Pdt performance in diff use situations On time delivery Total cost of ownership Credit terms Spare parts availability training

Product related behavioral descriptors

Some of these are
Pdt usage:
In most markets a small proportion of potential customers make a high percentage of all purchases 80: 20 rule: Disc In org markets such customers are called key accounts

Loyalty
Retaining 1 customer is equal to getting 10 new customers

Purchase Influence
Who influences the purchase
And target them

Many mens pdts are purchased based on womens decision Children power to influence decision In org markets, user groups decide and not the purchasing teams

Lifestyle
Segmentation by lifestyle or psychographics
Segments mkts on the basis of
Consumers activities Interest Opinions

i.e., in terms of what they do or believe rather than

Who they are in a demographic sense.

From such info it is possible to infer what type of pdts and services appeal to a particular group

 Classification of global lifestyle segments

Prestige buyer Comfortable conservative Value shopper The pretender The trusting person Bargain hunter

 VALS 2 segmentation approach

Based on the concept of self orientation and Resources for the individual

Self orientation is based on how

How consumers pursue and acquire pdts and services that provide satisfaction and shape their identities In doing so, they are motivated by the orientations of
Principle, Status Action

 Principle orientation
Motivated by abstract and idealized criteria

Status orientation
Shop for pdts that demonstrate the customers success

Action orientation
Guided by the need for social or physical activity, variety and risk taking

 Resources
Include all of the psychological, physical, demographic and material means that consumers have to draw on Include education, income, self confidence, health, eagerness to buy, intelligence and energy level Classified as Minimum to Abundance range

Based on these two segments VALS 2 defines eight segments that exhibit
Distinctive behaviour Decision making

Actualizers Fulfillers Achievers Experiences Believers Strivers Makers strugglers

Social Class
Every society has its own status groupings
Based on similarities in
Income, Education Occupation

Based on this, it is possible to infer certain behaviour concering a given product

For e.g., middle classes place more value on
Education Family activities Being upto date

Organizational behavioral descriptors

2 methods
Purchasing structure
Is the degree to which the purchasing activity is centralised Buyer is likely to consider all transactions with a given supplier on a global basis
Emphasize cost savings Minimise risk

Decentralised situation buyer is apt to be more

Sensitive to the users need Emphasize pdt quality Fast delivery Less cost consicious

 Buying situation
3 distinct types of situations
Straight rebuy
A recurring situation handled on a routine basis

Modified rebuy
Occurs when some element such as Price Delivery schedule has changed

New buy
Requires information gethering Evaluation of alternative suppliers

 3 objectives of mkt segmentation

Identify a homogeneous segment that differs from others Specify criteria that define the segment Determine the segment size and potential

Meeting these objectives sharply lead to mkt success Combinations of different descriptors are needed to precisely target an attractive segment
May be a behavioral dimension together with a carefully defined demographic profile within a geographic region

Choosing attractive mkt segments

Most firms have
Multiple products Multiple mktg programs Address various segments

Not all segments represent equally attractive opps for the firm Firms must evaluate the attractiveness of the target segments by
Potential & match the firms strengths and capabilities relative to the segments needs and competitive situations

 In an established firm,
Instead of allowing each SBU to evaluate the potential of alternative mkt segments
It is better to apply a common analytical framework across segments With this approach managers can compare the future potential of different segments
Using the same criteria and Then prioritize And then decide on resource allocaiton.

Mkt Attractiveness / Comp Position Matrix

5 step process Decision to target a particular segment is a strategic choice
That the firm has to live with for some time ( Disc)

Step 1
Select Mkt Attractiveness and Comp Position factors Mkt attractiveness factors
Determining the mkts size and growth rate Assessing various trends
Demographic, sociocultural, economic, political,natural Which influence demand

An even more crucial factor in determining whether to enter a new mkt or mkt segment is
The degree to which unmet customer needs are present. In the absence of unmet customer needs, it is difficult to win customer loyalty Metoo pdts face such difficulty

Competitive position factors

Entering a segment that would place the firm in an unattractive industry is not wise Disc: Warren Buffetts saying How will the firms proposed entry will be sufficiently differentiated from competitors Will the firm be able to acquire the resources needed
Human, financial, technological etc to effectively compete in the new segment. Must either be better than the existing ones Or cheaper

If one needs to enter a new segment, then the goods and services

Entering a new segment without a source of competitive adv is a trap

 Step 2
Weight each factor
A numerical weight is assigned to each factor to indicate its relative importance in the overall assessment.

Step 3
Rate segments on each factor, plot results on matrices
Step requires that evidence qualitative and quantitative Objectively assess ech of the criteria identified

Data are obtained by

PEST 5 forces model 7 Domains structure Portfolio analyses

 Step 4
Project future position for each segment
Forecasting is a very crucial but difficult task Consider possible shifts in customer needs and behavior Entry and exit of competitors Changes in competitors strategies Changes in pdt technology Changes in production technology

Based on the above, how will the business competitive position change

 Step 5
Choose segments to target, allocate resources
Mkt entry should be finalised only if it is strongly positive on atleast
One of the two dimensions of mkt attractiveness and competitive position Atleast moderately positive on the other

If it is not so, then entry should be decided based on

Mkts attractiveness or competitive strength likely to improve in the immediate future Such steps are stepping stones to larger and more attractive markets Shared costs or synergies present now benefiting existing markets

 Narrowly defining market segments have two advantages

Puts the firm to achieve early success in a segment that it understands very well Conserves precious resources

For established firms, this cannot continue on a long term basis

3 targeting strategies
Niche Market Mass market Growth market

 Niche Market Strategy

Involves serving one or more segments
Segments might not be the largest But consist of substantial numbers of customers seeking
Somewhat specialised benefits from the products / services.

Such strategy avoids direct competition with larget firms that are pursuing bigger segments

Mass Market Strategy

A firm can pursue this in 2 ways
It can ignore any segment differences and design a single product mktg program that will appeal to
The largest no of customers Primary object of this strategy: capture sufficient volume and gian scale economies Requires substantial resources and mktg capabilities

 Second approach is to design separate pdts and mktg programs for the different segments Called differentiated marketing
Tata Hotels Taj, Ginger Such a strategy can generate more sales than an undifferentiated strategy Incrases cost in pdt design, mfg, mktg and promotion

Growth Market Strategy

Firms target one or more fast growth segments
Even though they may not be very large currently Strategy favoured by smaller competitors to avoid direct confrontation with larger firms
Disc: Why larger firms might not be in this mkt segment?

Strategy requires strong R&D and Mktg capabilities

To identify and develop products appealing to customer segments

Goal is to develop an enduring competitive position via its pdts, service and distribution and costs before competition enters.

 Global Mkt Segmentation

Disc

Segmenting and Targeting to Leverage Competencies in a New Market in which a f irm To this point, our focus has centered on situations

has an established customer base. However, in an effort to grow, a f irm may also seek to leverage its competencies or resources by entering new markets. To address segmentation and targeting in this situation, it is necessary to begin by considering the different types of competencies that f irms might develop. Successful f irms are said to exhibit discipline in how they organize their competencies to create value. Three approaches or disciplines each produce a different kind of customer value:
operational excellence, Product leadership, and customer intimacy

Discipline-Based Segmentation and Targeting

When a f irm has committed to a discipline it is ref lected in its leadership style, structure, processes, and culture. Thus, firms cannot readily shift disciplines or adopt different disciplines for different markets. When entering an existing category in which the firm has not previously competed, the f irst goal is to segment in a way that identif ies a potential target that will prefer the value that can be created by the f irms discipline over current market offerings Disc: BIC

Segmenting and Targeting When Launching a New Company

When a new company is created, there is neither a customer base nor an established discipline to leverage. While this freedom from any constraints may be attractive, it also creates challenges in tackling segmentation and targeting issues. One approach in this situation is to start with an examination of consumer motivations and goals in using a product category as a basis for identifying gaps in marketplace offerings. This consumer insight is the basis for developing a product or service that addresses unmet goals Disc: Starbucks, Body Shop

Targeting Dynamics
What segmentation and targeting strategies that are likely to be most effective as the market evolves? Your customer base is becoming old. What to do? Should the firm focus on its loyal but declining customer base or should it shift its attention to higher growth segments? The answer depends on both the reason for stagnant or declining growth and the relationship between current customers and higher growth segments of the population Disc: Black and Decker, DeWalt Power Tools Mkt

 Brand Users
Increase usage Level of usage
Focus on heavy users

Competitors users
The success of this strategy depends on the f irms ability to convince consumers of the superiority of its brand in relation to the incumbent Be wary of competitors reactions

 Category non users

Point of entry
The idea underlying a point-of-entry strategy is
(1) to identify who will enter the category; (2) to determine when entry is likely; and (3) to direct their consumption to your brand.

Category build.
Another approach to attracting nonusers involves category build. Unlike point-of-entry targets, where consumers are likely to enter the category at some point, category build focuses on individuals who have no intention of using the category in which a brand holds membership